Owning Investment Property: A Guide to Finding Great Tenants and Protecting Your Investment
- Heather Nicholson
- Feb 20
- 3 min read
Owning investment property is a powerful way to grow your wealth and put your capital to work. If you're looking to build generational wealth, rental properties are a fantastic way to start. However, making that first leap into owning and managing an additional home can be intimidating.
One of the biggest fears we hear from potential investors is the challenge of finding reliable tenants. The last thing you want is to be stuck with tenants who aren’t paying rent, leaving you on the hook for multiple mortgage payments.
So, how can you protect yourself from this risk? The answer lies in a thorough and well-planned tenant screening process. By being diligent and strategic, you can find responsible renters who will take care of your property and pay rent on time. Here’s how to do it.
Creating a Strong Application Process
A well-designed rental application is the first step in screening potential tenants. It provides you with critical information about prospective renters and helps you make an informed decision.
Here are the key elements you should include in your rental application:
Basic Information
Collect essential details about the applicant, including:
Full name, date of birth, and current address
Contact information (phone number and email address)
Employment details, including employer name, position, and length of employment
Monthly income and proof of income (pay stubs, tax returns, or bank statements)
Additionally, request information for all individuals who will be living in the home, including spouses, roommates, or dependents. This ensures you have a complete picture of who will be occupying your property.
Social Security Number & Background Check
To further protect your investment, request the applicant’s Social Security number to conduct a background and credit check. A thorough screening process should include:
Credit history review
Criminal background check
Eviction history
Many online services can provide this information for a small fee, which is well worth the peace of mind it offers.
Verifying References
Checking references can provide insight into a tenant’s reliability and financial responsibility. Consider asking for the following:
Landlord References
A previous landlord can provide valuable insight into how a tenant behaved in their last rental. Key questions to ask include:
Did the tenant pay rent on time?
Were there any complaints from neighbors?
Did they take care of the property?
Would you rent to them again?
Employer & Income Verification
Confirming employment and steady income is crucial to ensuring tenants can afford the rent. Contact their employer to verify their job status and income. Generally, a good rule of thumb is that tenants should have a monthly income at least three times the rental price.
Credit & Financial History
Running a credit check will help determine if the applicant is financially responsible. A high credit score and on-time payment history are good indicators of reliability. If the tenant has a past bankruptcy or debt collection issues, consider whether it was an isolated event or a pattern of financial mismanagement.
Understanding Fair Housing Laws
When screening tenants, it’s critical to stay compliant with the Fair Housing Act of 1968. This federal law prohibits discrimination based on:
Race
Color
National origin
Religion
Gender
Disability
Familial status
You cannot ask questions regarding these topics, nor can you deny a rental application based on them. Additionally, you should be aware that some states and local governments have additional fair housing laws that provide even broader protections.
It is always best to ensure that your application process is consistent and fair for all applicants.
Handling Pets & Service Animals
Many property owners hesitate to allow pets due to potential damage or noise concerns. However, it’s important to distinguish between regular pets and legally protected service animals.
Under the Americans with Disabilities Act (ADA) and HUD guidelines, service animals and emotional support animals (ESA) are protected, meaning landlords cannot deny a rental application simply because an applicant requires one.
However, you are within your rights to ask for appropriate documentation confirming the need for an ESA if applicable. Be sure to review federal and state regulations regarding assistance animals to ensure compliance.
Final Thoughts: Protect Your Investment with Smart Screening
A thorough tenant screening process is your best defense against rental headaches. By carefully vetting applicants, you can ensure that you find tenants who are responsible, financially stable, and respectful of your property.
Remember to:
Have a detailed rental application
Conduct background, credit, and eviction checks
Verify employment and income
Check past landlord references
Follow all Fair Housing laws
Understand legal protections for service animals
By taking these steps, you’ll set yourself up for success as a landlord and create a positive rental experience for both you and your tenants. Investing in real estate can be incredibly rewarding—but only if you approach it with diligence and care.
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