Buying an investment property in New Jersey is the first step to generating passive income. Next, you’ll need to ensure that you rent to a great tenant. But how exactly do you find a great tenant for your rental property? By having a thorough tenant screening process.
Today’s blog will take you through everything you need to know about screening tenants.
Know What Kind of Tenant You Want
Begin by thinking about the kind of renter you want to rent your New Jersey rental property to. Once you have something in mind, think of some criteria that will enable you to choose that renter.
The following are the attributes that you want in a renter:
- One who will be able to pay rent without issues every month.
- A tenant who has a stable job.
- A tenant who has a good rental history and landlord references.
- Someone who is responsible and reliable.
Once you know what kind of renter you’re looking for, start qualifying applicants based on such qualities.
Start by Pre-Screening Tenants
You should do this when you first make contact with a potential tenant. This can be over the phone or via email. This will save you valuable time since you’ll be able to filter out applicants that wouldn’t otherwise pass the actual screening process.
During the pre-screening for example, if an applicant has a pet and you have a “no pets” policy, then you wouldn’t need to show the unit to that tenant. Pre-screening your New Jersey applicants also helps catch red flags early in the process.
The following are some questions to ask an applicant during your initial contact:
- Why are you moving?
- When are you looking to move in?
- Can you provide references from your employer and former landlords?
- Will you allow a credit report check?
- Do you smoke?
If a potential tenant doesn’t meet these requirements, then it’d be best to continue looking rather than rent to an unqualified applicant.
Require Prospects to Fill in a Rental Application Form
You should always require prospective tenants to fill in a rental application form as part of the tenant screening process to help filter out applicants that don't meet basic criteria. The following is some information the application form should collect:
- Contact information of the applicant.
- The address of the applicant's current residence.
- The name and contact information of their current landlord.
- Names and contacts of previous landlords.
- Their employment information, including current and former employers. Plus, their salary as well as the length of employment.
- Their authorization for you to conduct credit and background checks.
Verify the Tenant’s Income
As part of the tenant screening process, you want to verify that the applicant is truly earning what they claimed on their application. A property manager will typically look for applicants whose income is at least three times the monthly rent to help ensure they can pay reliably.
So, how exactly will you be able to verify an applicants income? You can do this in any of the following three ways. One, by asking the applicant to provide you with recent and dated pay stubs. Two, by requiring them to provide a W2 tax form.
The form will show their income from the previous tax year. Or three, by giving their employer a call.
Analyze the Tenant’s Credit Score
A credit report, including the applicant’s credit score, is a strong indicator of how financially responsible they are. As part of our tenant screening process, we require prospects to have a credit score of at least 680. Reviewing their full credit history can also give valuable context. However, you can use your best judgment if their credit score is lower, depending on their overall financial situation.
Verify Their Employment Status
This is important for two reasons. First, it helps verify whether the applicant is being honest about their income. Second, it allows a property manager to confirm that their references are consistent. Thorough tenant screening ensures you're placing reliable renters in your property.
The following are some questions you want to ask the prospect’s employer:
- Does the tenant work at your company?
- How much does the tenant make a month?
- When did the tenant start working for you?
- What position does the tenant serve in your company?
- What are the employment terms?
Get in Touch with Former Landlords
As part of a thorough tenant screening process, don’t just contact a tenant’s current landlord. Reach out to prior landlords as well. A current landlord might give a positive review just to offload a problem tenant, while a previous landlord has no reason to be dishonest. A property manager will take this extra step to help ensure you get accurate information.
The following are some questions you want to ask the references:
- Did the tenant rent from you?
- Did the tenant pay rent on time?
- Was the tenant a good communicator, especially when it came to repairing and maintenance issues?
- Did the tenant take good care of their rented premises?
- Did the tenant inform you that they are looking for another place to live?
- Would you consider renting to them again?
Be aware that when you screen tenants, they can lie about their rental history and references. Therefore, be sure to ask the reference about currently available units to ensure that you are in fact speaking to their current or former landlord and not one of the prospect's friends.
Act Within the Confines of the Fair Housing Laws
According to the Fair Housing laws, it’d be illegal to deny housing to a prospective tenant based on a protected characteristic. Protected characteristics by New Jersey Fair Housing Laws include race, color, religion, gender, national origin, sexual orientation, and gender expression.
Summary
Tenant screening should be a crucial part of any leasing process. Among other things, it’ll protect your investment and make managing your rental as hassle-free as possible. If you find it daunting, Lone Eagle Management can help!
Contact us today to learn about our property management services.