Owning investment property is a great way to maximize your capital and get your money working for you. And if you're looking to create generational wealth, owning rental properties is a great way to get started. With that said, it's not always easy making that first jump into buying another home to maintain and more.
A huge fear that we hear from potential investors is finding good tenants. The last thing anyone wants is to sit on a rental (or several) where tenants aren't paying their rent and you're stuck with multiple mortgages.
So, what is an easy way to avoid this? Be thorough when researching prospective tenants through a well-thought-out application process.
Having a basic rental application is necessary to obtain simple information from prospective tenants. Be sure to not only ask the information of the person who's applying but you will always want to ask for the name and contact information for anyone who will be living in the house, whether it be a friend or spouse/partner.
You will also want to obtain their social security number(s) as part of the application in order to later conduct a background check before signing a rental agreement with anyone.
Begin with bank and/or credit references. Should the applicant have a financial institution, this is a great way to get a closer look at a person's financial and payment history. If someone isn't able to pay their basic bills in a timely fashion, the last thing you want is to be one of the people looking to collect!
There are easy ways to pull a credit history report for a prospective tenant online. They will typically cost; however, that charge could save you a great deal of headaches down the roadf!
It is also perfectly fine to ask for other financial information that may affect their ability to rent such as a past bankruptcy. As we get deeper into references, remember that no one is perfect and it's important to consider all factors as a whole and not as a checklist of necessities.
While we're on the topic of financial needs, some tenants may need Section Eight and this is great information to have up front. While it shouldn't affect your overall decision to rent to that individual, it's good information for you to have up front as there is a secondary process that comes with handling Section Eight policies, etc.
There are some questions that are simply off limits and, again, they should be! This should go without saying, but it is absolutely unacceptable, not to mention illegal to discriminate based on race, social class, gender, and more. If you're concerned about this being an issue, do your homework and be sure you are offering all applicants a chance.
When it comes to rental applications, "There are rules of things you can do and things you can't do."
The Fair Housing Act of 1968 prohibits a property owner from asking questions such as race, color, disability, religion, gender, etc.
Fair Housing even covers discrimination against extended families applying to live together or even blended families. It's not only not a property owner's right to ask but inferences should never be made regarding familial status.
Pets & Services Animals
When it comes pets, many property owners do not want tenants to have pets. However, service animals are protected and it is against the law to deny an applicant based on their needing a service animal.
The HUD website offers a great deal more clarity on this topic. There are different certifications for trained pets and not all classes are protected.
All in all, having a scrupulous screening process before choosing a tenant will no doubt alleviate some of your stress in owning a rental property- or several! The bottom line is really to do your homework on the law and the applicants!
Check out Gerald's video for more information and be sure to reach out to your Twin Power agent to discuss more about owning investment properties, calculating return on investment, screening tenants and more!