How To Vet Tenants For Your Burgeoning Real Estate Business

Managing a growing portfolio of properties is no small feat. But with opportunity comes responsibility, and vetting tenants in today’s market can be a daunting challenge.

This guide is here to change that. You’ll uncover proven strategies to ensure you’re welcoming trustworthy, reliable tenants who contribute to your business’s success. After all, the last thing you want is to face unpaid rent or disruptive residents that could jeopardise your hard-earned empire.

Implement An Application Process

The first step is to implement an application process. Getting tenants to fill one of these out is a great way to gather more information about them and their intentions. 

Many landlords now use AI screening software to run through these forms and create a shortlist. These models are often exemplary at highlighting possible issues and identifying high-risk tenants, even before you conduct any background checks. 

You’ll want to look at things like their employment and rental history. You should also ask if they currently own a property, as that can also factor into the equation. 

Perform A Credit Check

Next, you should look at their credit score and perform a credit check. Credit reports assess their financial standing and determine whether it is safe to lend to them. 

Credit checks are something you can run with the major agencies, like Equifax and TransUnion. These pull up all their financial details and attribute a score to them, so you know if they are good with money. 

Ideally, you should look for tenants with an excellent credit rating, typically above 670. However, exceptions can be made for individuals with stable employment who may not have had the opportunity to build their credit score yet, such as younger renters. In these cases, it’s often a better strategy to offer a slightly reduced rental price, as they generally pose less risk compared to someone with a poor credit score who is willing to pay the full rate.

Do A Background Check

You might also want to work with a letting agent to do a background check. These give you even more peace of mind. Checking whether future tenants have criminal records is critical to ensure that they won’t put your property’s safety at risk. 

For example, criminal background checks can tell you if the prospective tenant has ever converted a property into a cannabis farm or meth lab. It can also tell you if they’ve been involved in gangs, which, again, could impact property safety. 

Check Their Income

Another way to vet tenants that should be part of your standard process is to check their income. You want to ensure that they have the money required to pay the rent. 

Usually, tenants should make three times the rent amount to be comfortable. As rentals increase, you can lower this figure slightly, but there should be plenty of wiggle room. 

For example, if you have a rental for £1,500 per month, then the tenant should be taking home £4,500 per month at a minimum. If two people are working, perform the same calculation on both their wages. 

You can check their income on payslips and tax returns. You can also get them to show you money going into their bank accounts (with their permission, of course).

Look At Their Rental History

If you’re running a professional real estate business, you should also make it standard to check their rental history. Getting in touch with previous landlords can provide you with more information on whether they pay on time and take care of properties. Sometimes, this approach can help you avoid the horror stories many landlords face. 

Interview Prospective Tenants

If you wanted to take it a step further, you could interview prospective tenants. Usually, you’ll need to offer some value-added service to get away with this, but getting to know people is helpful. Usually, you can get a sense of what they’re about. 

The best people to rent to are solo professionals in secure jobs and families. Both these groups find ways to make ends meet and ensure they get paid at the end of the month. 

Gather References

Finally, you can gather references about tenants to learn more about them. These let you gauge their character and whether they are reliable. 

Most landlords collect a personal and professional reference. The personal reference is more about the type of person they are, whereas the professional one should focus on their reliability and ability to pay. Then, all you need to do is pick someone who seems suitable.