Advice for landlords on screening and selecting the best tenants

Advice for landlords on screening and selecting the best tenants

Ah, the landlord-tenant relationship. The business world’s version of a marriage: Once you’re in it, you’re in it. And while it may seem like a one-way street in which the landlord has the upper hand, the truth is more complex. In truth, everything the tenant does trickles up to the landlord one way or another; while the landlord has only so much latitude to law down the rules.

In fact, while the obvious upside of being a landlord is the collection of recurring rents; the downsides nearly outweigh the profit motive completely. For instance, landlords are ultimately responsible for maintenance, for damage done by tenants to neighbors, for tenant complaints, property depreciation, etc. It’s no free lunch.

So as a landlord, how do you minimize these inevitable tenant-generated liabilities? The short answer: choose the right tenant. And as in a marriage, the process should not be rushed. It’s important to find the right fit. This means screening applicants on as many factors as possible. Only then can you find “the one” and prepare a comprehensive lease (think of it as a landlord’s prenuptial agreement).
Alright then. Let’s talk Do’s and Don’ts.


Do

Do conduct thorough background checks when screening applicants

Before selecting an applicant, it is crucial that the landlord conduct a thorough background check. Just like a first date, everybody will have their best foot forward during the initial meet-and-greet, and their applications are likely to look stunning on the surface. So take the time to dig in and find out who your potential tenants really are. Always obtain a credit report and be sure to check references in order to get a comprehensive feel for the tenant’s rental history.

Do ask questions before making your selection

Once you’ve narrowed the applicants down to a few final contenders, think carefully and always ask questions. If a tenant seems to be in a rush to move-in, ask yourself why. Is their house being foreclosed? Did they get evicted from their previous apartment? These are the insights you need before entering into a union with a tenant. Also, be sure to ask what they paid at their last rental. This will give you an indication of whether they can afford your rent and how dependable they will be in paying.

Do get at least one month’s rent in advance plus one month’s security deposit

When signing a new tenant, a recognized best practice is to request a least one month’s rent in advance as well as one month’s rent as a security deposit. Note: these are not the same thing. The first sum is to compensate you if the tenant skips payment before leaving; while the second sum involves security for damage to the property. Yet another best practice is to keep these deposits separate. Separate accounting is important because the conditions in which you might have to refund the payments arise from different laws: If you’re not careful you may end up with the responsibility to refund both deposits. Remember that these stipulations differ according to the law in different states.

Do know your local laws

Landlords should get intimately familiar with the State, County, and Municipal laws: especially the local landlord-tenant ordinance. Such regulations differ greatly from region-to-region. The one constant is that understanding the rules and ensuring compliance keeps you on the right side of any conflict. Don’t be the landlord that calls the Police, only to be cited as a violator instead. And as always, when in doubt ask a lawyer! Connecting with local lawyers can make sure you’re in compliance with the law.

Do use a written lease and stick to it

When signing a new tenant, be sure to use a written lease—better yet, create your own written lease. You can generally find affordable and accessible lease documents online for quick and easy creation. Simply go on online, create your lease and then have it reviewed by an attorney. Use your lease as a landlord bible and make no exceptions. If the lease states that late payments receive a five-day notice until more serious action is taken, be sure to send that notice as soon as the payment is late.


Don't

Do not rent on a handshake alone

Some landlords believe the word of their tenant and a good handshake is just as acceptable as a written contract. It’s not. You should always use a written lease, even with tenants that seem to be completely trustworthy and dependable. If there is no written lease, signed by both parties, to confirm the rules and regulations agreed upon…that is a court case waiting to happen! It’s better to be safe than sorry, and it’s better to have paper then problems.

Do not allow occasional slips on payments

You’re typically dependable tenant hasn’t paid their rent in two months—that’s OK, you’re sure they will pay eventually, right? Wrong. If you allow a tenant to slip on a payment or two, you have set yourself up for a landfall of liability. In the situation that this one slip escalates into multiple months and the case is brought in front of a judge, the judge will call a waiver. This means you are solely liable for failing to attempt to collect your late payments and will receive no refund. Rule of thumb: If you expect to collect your payment, follow up with appropriate measures as soon as your tenant’s payment is late.

Do not be left in the dark

Many landlords either have multiple properties to manage or an additional full time job, so tenant requests are easily pushed to low priority. However, it’s crucial that you stay on top of all tenant requests and complaints, and respond in a timely manner. If not, a simple clogged toilet or small leak can lead to significant property damage, holding the landlord liable for untimely maintenance. If you don’t have the time or resources to juggle multiple properties and the associated responsibilities, you may consider hiring a property manager or real estate management company to ensure all tenants are taken care of and maintenance is up-to-date.

Do not assume you don’t qualify

There are certain government programs available, like Section 8, designed to aid property owners by subsidizing rent for low-income tenants. And often, the rent subsidy is equal to what you can expect to receive at market-rates and will ensure at least a portion of payment each month. So, don’t assume you do not qualify for government subsidies—it doesn’t hurt to ask.

Do not forget to include a choice of forum clause in the lease

When creating your written lease, the single most important feature to include is a Choice of Forum clause (also known as a Jurisdiction and Venue provision). Such language outlines how a dispute would be resolved, including the when and where. This is a key advantage for landlords, as they can keep the dispute close to them rather than being caught having to scramble for a lawyer or make travel arrangements to appear themselves.


Summary
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Contrary to what many think, managing property is a job. It can be profitable job, but it is still work; and as with any job there are unexpected issues that arise. So plan ahead, or be prepared to lose much more than you put in. After all, those who fail to plan… plan to fail. Happy renting!


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Mazyar Hedayat, Esq.On-Call Attorney

Mazyar M. Hedayat is a Rocket Lawyer On-Call Attorney in Chicago. He attended the University of Chicago and University of Michigan, where he earned his MBA from the Ross School of Business. He earned his JD from DePaul University College of Law....

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