It’s no secret. Condo investors who want to generate long-term revenue through real estate must understand how to find quality tenants. This is tenant screening 101.
There is no way to earn sustained cash flow if tenants do not pay their rent. Simple as that. And no longer is tenant screening as simple as placing an ad in the newspaper and then staring at your phone. As a real estate investor, you must identify your ideal renter market that meets your investment style. And, then you need to follow through with effective screening practices.
These two important tasks are the focus of today’s article.
Tenant Screening: Who is Your Target Renter?
Before investing in a particular property, a seasoned real estate investor will already have an idea of who they want to rent to. Retirees? Single professionals? Students? Families? High-income Bay Street VP? The various features of a condo property will appeal to different demographics, and you should already know who those are.
Therefore, you need to ask yourself, who is my target renter?
To identify your target renter market, you must pinpoint your investment philosophy. Take a look at all your current, or future, investment properties and decide which lifestyle they appeal to.
If the condo development is in the heart of student rental housing and near two post-secondary institutions, you may not want to target retirees as your market. So, in this case, the features and upgrades you decide on will cater to a younger target renter.
If your condo development is on several busy bike trails, has a large gym, and is right next door to a YMCA, you may consider reserving a bike rack or two in your building. Why? Because you are likely to attract tenants who have an active lifestyle. A tenant that is drawn to your condo will more likely than not be an active person.
Or, is your condo a 2-bedroom unit in a Toronto suburb with a lot of schools around with kid-friendly amenities? Yes, I’m talking about those splash pads! I’ll let you guess who your target renter is in this case. You get the point.
Always consider these factors, and plan accordingly.
Tenant Screening: Finding the Perfect Tenants
Once you have identified your target renter, you must start your tenant screening process. This is true whether or not they fall into your target rental demographic.
There is no doubt that thanks to Al Gore’s Internet, tenant screening is getting easier and easier. However, tenant-provided information can be inaccurate or misleading, and we are here to help you avoid potential disaster.
Here are our five tenant screening tips for maximum cash flow and minimum headaches:
- It’s extremely important for you as a landlord, or your designated representative, to meet potential tenants face-to-face. You can tell a lot by a tenant by meeting them in person, asking them questions, and conversing with them as if your hundreds of thousands of dollars asset depends on it. Because, it kind of does.
- Ask potential renters to submit a rental application. This is a simple checklist of information that a renter fills out. It includes important information such as work history, previous landlord references, and income. See here or here for sample rental application templates.
- A credit check is a must! This can be done easily through Equifax with the renter’s permission, or you can ask renters to submit an Equifax report with their rental application. I personally like asking tenants to submit their own, it shows me that they’re committed.
- Conduct reference checks – both employment and landlord. You wouldn’t believe the misstatements and outright lies I’ve uncovered with a few phone calls. It’s always good to confirm a tenants employment with a quick call. Get one the phone, it will only take a few minutes.
- Run the numbers! Consider the potential tenant’s income level compared to their rent and future bills. If the renter earns $40,000 a year, they likely can’t afford $2,000 a month. The standard rule is that no more than 30% of gross income should go towards rent. So, someone who earns $60,000 can afford no more than $1,500 a month in rent.
Quality renters will have no problem jumping through a few tenant screening hoops to live in a property they love. After all, this will be their home.
There is no such thing as a perfect renter, which is why you need a stringent tenant screening process that includes the above checklist. Ask any seasoned investor, and these are some of the top tips they follow to ensure ongoing and long-term positive cash flow.
Remember, evictions are costly but good tenant screening practices are free!
Matt Elkind, Co-Founder CONNECT Asset ManagementTags: Condo investment, condo value, Connect Asset Management, finance, GTA, Investment, Matt Elkind, Real Estate, Real Estate Investment, Real Estate trends, Toronto, Toronto condo, Toronto real estate