Tenant Due Diligence

[cagoodrow]

Hi Everyone,
I know I had read a post a while back regarding tenant verification and credit checks etc, but for the life of me I can`t find it again.

I get possession of my first investment property on June 20, and I am hoping to do some quick aesthetic changes and have a renter in by July 1. I have looked at Tenant Verification vs other services and read about the importance of criminal record checks, but I am wondering if anyone has a checklist that covers all aspects of "tenant due diligence". Also, if anyone has a specific list questions to ask previous landlords and employers when conducting background checks that would be supremely helpful.

Thanks so much!
Chris.

 

[Sherilynn]

I don't have a complete checklist, but you may want to run a judgment search at the courthouse. (I believe you are in the Edmonton area, right?) A judgement search will tell you if the prospective tenant has had any judgements against him in your province, so it could indicate whether he is a "professional tenant."



As for specific questions, the list changes. In some cases I have only asked a handful of questions and have just known that the applicant was good. In other cases I have conducted a complete interview before I had my verdict. And I have sometimes refused an applicant because I felt all of the reference checks were inconclusive.



Never be afraid of a vacancy. It is cheaper than a bad tenant.

 

[invst4profit]

My screening begins with the tenant application form. I make it clear in advance that incomplete applications are rejected.

If a applicant refuses to supply a SI# or any personal info I require they are rejected. At this point in the process it is their responsibility to win me over solely with honesty.

I request not only present landlord, who may be desperate to get rid of a tenant, but also the previous landlord. Some will say they do not have a previous landlord or that they are actually selling a home to become renters. Be very suspicious of this information.

If applicants are overly friendly/cooperative offering to do work for free on the property be very suspicious. Obviously if they are applying to have access within less than a month be suspicious as they are probably being evicted.

Get a copy of drivers license of all those that will occupy the rental. This will confirm they are who they say they are and provide a address. Make sure all info on the license matches info provided on the application. If it does not they will have excuses- be very suspicious.

Check out the car to see if it is cleaned inside and out, drive by or stop in at their present apartment to check the condition. This may also confirm if they have pets they may have lied about.

Confirm employment by looking up the business phone number rather than simply assuming the number on the application is correct.

If it is a very small business it's probably a friend and should be discounted. Have applicants provide two consecutive recent pay stubs as proof of income.

If applicant couple request only one person be on lease and that a credit check will come back less than stellar on one person simply reject the application. The biggest mistake a landlord can make is to try to adapt there screening in order to accept a couple. If one applicant is unacceptable all on the application are unacceptable. Don't waste time trying to be a social worker resolving peoples personal financial problems. Keep in mind you could end up with only one as a tenant in the future.

When contacting employers you are confirming they are in fact still employed and that in the employers opinion they are reliable conscientious employees.

When contacting previous landlords (present landlords are a waste of time) you need to first confirm they are landlords Come across initially as though you yourself are seeking an apartment to rent or some other line rather that identifying yourself as a landlord screening a applicant. This will weed out friends of the applicant posing as a landlord.



Bottom line is do not compromise on your screening as most applicants will lie by fact or omission so it is your responsibility to be thorough.

Also if for any reason a applicant starts into a sob story about there situation reject the application. There are plenty of applicants available and unless you wish to become a social worker for a tenant you do not need the hassle. Any sign by the tenant as being desperate, such as offering a guarantor, and you should reject their application. A guarantor does not guarantee payment.

I also strongly advise accepting applicants based solely on your ability to collect if a tenant defaults. You must be able to collect in Small Claims Court through garnishment of wages. For this reason I personally do not accept any applicant on welfare.



Lastly I do not for any reason accept applicants with credit scores below 650. That is my personal threshold and I cater to lower income tenants. Keep in mind you are reviewing money management skills and commitment to responsible actions when viewing a credit score. As a landlord you will be the last one paid when push comes to shove in a tenants personal financial life.

 

[cagoodrow]

Thanks very much for your replies Sherilynn and Greg!



Sherilynn,

I am in Edmonton so I will definitely head to the courthouse for a judgement search. Do you obtain authorization for a criminal record check as well?



Greg,

Great tips for finding what's behind the tenant application. I am in the process of refining/combining a couple versions but your tips will certainly be helpful. Do you have a preferred service for running credit checks?

 

[Sherilynn]

Greg made some good points.



For example, I also like to confirm the business phone number, especially if the supposed employer answers with "Hello" rather than "Sherilynn speaking" or "Good morning, QD."



However, in Alberta it is a bit trickier to nail down the liars. There are a lot of people who work on site who give their supervisors' cell phone numbers (so the employer answers "hello"). Also, there are a lot of people moving from other provinces, so one can't check the condition of their current residence, and the applicant could have just cause for needing a place immediately. In either case, you may accept the references at face value but then also investigate further. Tell the supervisor that you will need the phone number of the head office so that you can confirm some numbers or dates with the payroll department. Or ask the landlord to confirm the applicant's address, etc.



So while caution is in order, and many of Greg's points are great advice, personally I would not be quite as strict. Sometimes a little digging is required though. And if there is ever any doubt about an applicant, just say "NO."



Also, I highly recommend using leases. I offer all tenants a 3-month trial lease which will be renewed if everyone is happy. In Alberta, a landlord (or tenant) is under no obligation to renew a fixed term lease so you can get rid of a tenant for any reason. And if I'm not 100% sure after 3-months, then I may offer only a 2 or 3 month extension rather than a 9 month renewal. I have had a few tenants who have been A+ on paper that didn't suit my up/down duplexes and I have been very thankful for the easy escape provided by the trial lease.

 

[invst4profit]

Sherilynn I would give a years rent to be able to operate my business under the regulations you have out west. In Ontario once a tenant has the key they own the property. This is why we in Ontario are (or should be) very strict in screening and reject any applicant for the slightest reason. We can not afford to take any chances and frankly our tenant base is becoming extremely well versed in there "rights" and do not hesitate to rub our noses in the fact.



I have had applicants, at the interview stage, openly state "you can't reject my application, I know my rights". They also know they do not have to pay there rent on time in Ontario. Smart landlords know how to make bad tenants lives miserable but rarely are we ever successful at evicting bad tenants. Regrettably our regulations support bad tenants in their efforts to make a landlords life miserable.

Good tenants in Ontario are as good as anywhere but bad tenants are a nightmare as they are encouraged by our landlord tenant board to screw over their landlords at will. One bad tenant can undue 10 years of good tenants.

I may come across as a hard ass but the fact is if we don't get tough, if we do trust our tenants, if we take even the slightest chance we will pay dearly.

No good deed goes unpunished in Ontario.

 

[Sherilynn]

Greg, I knew that was the reason for your answer. I also was pretty certain that Chris is based in Edmonton. (Alberta rocks!) But regardless, I think thorough screening is a good idea, and there is nothing more expensive (both financially and mentally) than a bad tenant.

 

[cagoodrow]

Hi Sherilynn & Greg,



Thank you so much for your responses! We have 2 prospective tenants who have filled out applications for us and we are in the process of determining which one to pick. In regards to a criminal record check, do you both run that on your applicants? From what I saw on the Edmonton Police Service website, they are currently processing applications from May 23rd which means we would not get it back for awhile. Wondering if we go ahead and choose someone and make the lease "subject to criminal record check" or how that would work?

Thank you again for all of your expertise! My wife and I are wanting to make sure our butts are covered but as this is our first place, we have so many questions!



Look forward to hearing from you.



Chris

 

[invst4profit]

I don't do criminal checks, not really possible for landlords although you could request the applicant provide one.

I do all my personal back ground checks first and if they pass that screening I do a credit check. The credit check is the kicker for me. It doesn't matter how good of a applicant they are otherwise if they do not meet my minimum credit requirements I reject them. Regrettable we must be very careful in Ontario as many of the crucial screening points, such as adequate income, is not permitted to be used to deny a applicant. Even the cause of a low credit score can be discounted by the LTB if a tenant wishes to fight a rejection. This is another reason I avoid applicants that "know there rights". It isn't because I wish to take advantage of the uneducated it's because I want control, or at least the perception of control, over my property. Actual control of our properties is an illusion once an applicant becomes a tenant.

 

[TiffanyS]

Hi Sherilynn,



I use a company called Credit Info Canada for all my tenant credit checks. Besides just looking into if they have any debt, they can find out how many times someone has moved in the last year or longer (which can be a huge red flag if they moved multiple times) they also look into what their income is vs. bills they owe and help you determine whether this tenant can actually afford to rent from you.

I can honestly say that Credit Info Canada has been a life saver for me. I have turned away many potential tenants after getting back bad reviews. This has likely saved me thousands over the years since I haven't had to deal with bad tenants or evictions.

The price to join is small in comparison. The one time sign up fee is approx $200 and then every check you run only costs $20 after that.

I believe someone mentioned earlier. Anyone can just give you a reference name and number to call, and those references are likely a family member of friend of theirs and rarely ever a past landlord. This has proved to me to be the safest way to protect myself

Check them out online. http://www.creditinfocanada.ca/

It will be well worth it!

Good luck

Tiffany

 

[Sherilynn]

[quote user=invst4profit]This is another reason I avoid applicants that "know there rights". It isn't because I wish to take advantage of the uneducated it's because I want control, or at least the perception of control, over my property. Actual control of our properties is an illusion once an applicant becomes a tenant.




I agree. When you have tenants that think they know all the rules and loopholes, the relationship can quickly become tedious and bothersome, and will usually end badly.



I don't do criminal checks either.



This may sound weird, but I pay close attention to an applicant's choice of words and the way they phrase things. For instance, someone who often says "I'm not gonna lie to you..." probably will. Otherwise they wouldn't need to qualify the statement with a promise that they won't lie. On the other hand, if he is telling me something embarrassing or that he thinks I won't like, he could say, "To tell you the truth..." and it puts the conversation in a different light.

 

[Sherilynn]

[quote user=TiffanyS] Hi Sherilynn,



I use a company called Credit Info Canada for all my tenant credit checks.

Tiffany




I already use CIC. Chris is great. Thanks.