Property Management

How to rent
Choosing good tenants, avoiding the bad ones

Rental agents. Do-it-yourself. Credit checks.

Whether you use a rental agent or do it yourself, there are rules to follow to get honest tenants who won't stiff you out of your rent.

If you don't do your own renting, make sure your rental agent follows the rules. If your agent tells you "I did a reference check, it's fine," you should say: "Whoa, wait a minute! I want documentation."

A rental agent, if professional, can give you and should give you a written document in each one of the following areas. If you do your own renting, make sure you cover each area.

1. Rental application

Be sure you have an up-to-date rental application that is completely filled out - no blanks, no missing phone numbers. If there is no phone numbers for present or previous landlords, how can you or your agent check these crucial references?

Many associations of rental property owners sell well-thought-out rental applications. The application includes all the tenant's particulars needed to check credit, income and references. And it specifies the conditions of the tenancy: names of tenants, number of occupants, pets (if any), address of unit, occupancy date, amount of rent, when rent begins. A tenant who violates any of these conditions can be evicted. Be sure the tenant signs the application.

The application form should state: "Subject to Landlord Approval." And that's absolutely right. You can discriminate against any tenant for any reason except prohibited reasons (race, color, ancestry, religion, sex, age, presence of children, national origin, sexual orientation, military status, marital status, source of income, mental or physical handicap).

2. Employment and salary verification

You want to know if the amount of income they say they are earning on their application is really their income. You can call the employer. Make sure you talk to a responsible official. If you are working with a rental agent, the agent should give you a written form signed by the employer. In these days of faxing, that's not really hard.

If the tenant is self-employed, then you need to get copies of their latest tax returns, bank statements showing a comfortable stream of deposits and balances, even copies of their stocks and bonds portfolio, if that's their source of income.

If the tenant is a student, their institution can verify scholarships, loans and grants.

INCOME TEST

Now that you know a prospective tenant's income, what is the right amount? The rule of thumb is that the rent, including utilities, should be not more than 25% to 33% of the tenant's gross income. Or: a month's rent (without utilities) should equal a week's pay.

It's very important not to take a tenant whose rent payment pushes them beyond their limit (unless you get a guarantor - see #5 below). Any little setback in their life can make them a nonpaying tenant using you as their loan source, which usually turns into using you to get free rent - a landlords' worst nightmare. Approving or rejecting a tenant is your one chance to really exert control.

One danger to watch for: high income but also high debt. If their credit card payments, car payments, student loans and alimony eat up all that income, they may not have enough left over for living expenses and rent. You can check the balances they owe on their credit report.

3. Credit report

A credit report tells you how well a prospective tenant has honored their financial obligations in the past - a good test of their future commitment to you. The report will show missed payments, late payments, balances owed. It may also show any past or outstanding litigation, especially against landlords. It may even include criminal and court records.

A perfect credit record is probably not necessary before you accept a tenant. One blemish can be ignored, but not a chronic history of bad debt. The amount of debt is also relevant.

For a small fee (about $20 to $35 per report), you can use a tenant credit checking service yourself. They can fax you a written report in a matter of minutes. The tenant's social security number is all you need. A rental agent should also use one of these services or directly contact one of the big three national credit bureaus that all businesses use. Make sure your rental agent gives you a copy of the credit report.

By the way, landlords can report non-paying tenants to credit bureaus and should do so, to alert other landlords.

4. Landlord reference check

What you really want to know is will they pay you, and the best reference here is a former landlord. That's not the tenant's current landlord, who may give a glowing report just to get rid of a bad tenant. Be sure you or your agent contacts a former landlord. Besides payment history, also check for excessive repairs, noise, how they got along. Your rental agent should give you written notes from phone conversations, not just "it's fine."

TIP: Check the addresses the tenant gave you against addresses on the credit report. If they do not match, the tenant may be giving you the name and address of a friend posing as their landlord, not the landlord they got into trouble with.

5. Notarized guarantor form

If a prospective tenant is "under income," the problem can sometimes be solved if a responsible adult, usually a parent, will "guarantee" the tenancy. You or your agent will need to make up a form that makes the guarantor legally responsible for all rent, expenses and damages they may arise during the tenancy. The form must be notarized - otherwise, the tenant may just sign it themselves.

At the very least, get the guarantor's social security number and do a credit check. They will pay you, if they have to, because they don't want a blemish on their credit record.

6. Foreign student I-20 immigration form

All foreign students will have this form, which shows the amount and sources of funds they are entering the country with. A letter from their institution will verify their scholarships, grants and loans.

7. The lease

Nowadays, it is foolish not to have a written document with standard legal terminology that has been worked out to conform with current laws. All the legalese protects you and also gives you additional rights that purely verbal agreements don't. Even if you don't want a year-long lease, you can have a written month-to-month agreement. Standardized, well-thought-out forms for these agreements are often available from associations of rental property owners.

Be sure the lease or agreement form is filled out very accurately: spelling of names, accuracy of addresses, amount of rent, dates, pets (if any) and any additional conditions you may (or may not) want.

8. Lead notification form

This standardized form, now required by federal law, tells tenants about possible lead paint in their apartment. It may be a separate form or incorporated into a lease agreement, but be sure the tenant has signed it.

9. Rent and security deposit receipt form

This standardized form states what the tenant has paid you at the start of the tenancy: first month's rent, last month's rent, security deposit (if accepted). After a year or two, tenants can forget what they paid you. If there is any question, you whip out this form.

10. Apartment condition statement

This form is really your responsibility, not a rental agent's. It is required only if you accept a security deposit. You must obtain the tenant's signature on it within 15 days after occupancy. Be sure you follow all the rules regarding security deposits (if you take one) or you may be in hot water.

So that's it. Whew! A lot of forms. Remember, you are entitled to all this information, but you must keep it confidential yourself.

Renting is a lot of work at the start, but if the job is done well, you will likely get a good tenant and save a lot of work, expense and aggravation later.

Behind all these tenant checks is one question: Is the tenant honest?