One of the most common fears that property investors have is that the tenants they place will trash their property or stop paying rent. They worry about damage and eviction. High drama and horror stories can be avoided with a solid and consistent screening process.
Good tenants will have a positive impact on your experience as an investor. A lot of the landlords we talk to aren’t sure about how to find the right tenant for their Phoenix rental property. Today, we’re sharing the top three things to look for when you’re selecting your next tenant.
Phoenix Tenants and Credit Reports
Credit needs to be an important factor when you’re screening tenants. Some people get caught up on the score. You might run into landlords and management companies that have a minimum credit score for acceptance and qualification.
The score isn’t quite as important as the content of the credit report.
Instead of focusing on that one number, take a look at the debt to income ratio. If the tenant has collection activity on their credit report, what kind is it? Student loans aren’t a big deal. Medical debt isn’t either, especially if the prospective tenant is in the process of paying those things off.
What you want to be careful about is renting to a tenant who has collections from utility companies or cable companies. If they still owe a lot of money to their last electric provider or internet company, you might have to worry about whether they’ll pay the bills associated with your property. If you find judgments from prior landlords or they owe money to an apartment community, you might not want to approve that application.
Always Check an Applicant’s Rental History
Rental history is another important factor in choosing a tenant. You need to look at how long the applicant has rented their previous homes. Do they have a pattern of moving every six months or every year, or do they tend to stay put? The longer you can keep a tenant in place, the more return you’ll earn on your investment.
When you’re conducting rental reference checks, find out about security deposit refunds. Ask former landlords if the entire deposit was returned to the tenant or if most of it had to be kept to pay for damage and cleaning. This is important. At Mynd, we have the technology necessary to ensure we are speaking to the real landlord, and not just a friend that the applicant put down as a reference.
Evaluate and Verify Tenant Income
You’ll want to be sure your tenant can pay rent every month. So, check to make sure they earn enough to pay you on time consistently. We like to see tenants who earn at least three times the monthly rent. That tells us they’ll have enough funds to cover the rental payment and any other expenses that may pop up. A good tenant is able to manage their money well enough that they can keep up with unexpected expenses. You don’t want a tenant to call you and say they can’t pay rent this month because they needed to replace the transmission in their car. Verifying the income includes making sure they can pay rent and account for emergencies.
Trust but Verify When Screening Phoenix Tenants
When you’re thinking about selecting a tenant, consider what you want in a renter. Do you want someone with no verifiable income and a spotty rental history or do you want someone who can produce a month of pay stubs and provide solid landlord references? The answer should be obvious.
We believe that when you look at an applicant’s past, you can see their future. The main goal is to mitigate the chances of a tenant not paying rent. When you’re talking to applicants and screening your tenants, trust what they say and what they put on the application. Then, verify it. Get documentation. Talk to landlords and employers.
If you have a tenant with great references and verifiable income but their credit isn’t great, consider whether it’s a big enough risk to approve the tenancy. Not all debt is equal, and the types of debt that is owed can do different things to a credit report. So take you time and dig into the information and the data that you collect.
As landlords, we tend to get into an emotional rush. We have a vacant property and we want to get someone in there as soon as possible. It’s easy to convince yourself that the first tenant who applies is the right person. But, if you put the wrong tenant in place, you’re taking on someone else’s problem. Removing a tenant from your property is much harder than never placing them there in the first place.
Slow down in order to speed up. Don’t rush the screening process just because your home is vacant. That only makes your situation worse.
Written criteria and procedures that you follow consistently are also important. Don’t deviate you’re your process because it puts you at risk for fair housing and discrimination claims. When your process is in writing, you can answer why you selected one person over another.
Remember that you’re running a business. Residents have rights, which you need to respect. If you think this may be too much to handle on your own, contact us at Mynd Property Management. We are experts in Phoenix property management, and we’d be happy to help.
You can also visit our Facebook group of investors, which is called Master Mynd. It’s a real estate investors’ club, where you can exchange ideas with other owners. Check out our weekly podcast as well, called The Myndful Investor. We invite leaders in real estate and property management to talk about their success and, more importantly, their failures. There’s a lot to learn from this relatable content.