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 to rent your 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 tenant 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 person.
The following are the attributes that you want in a tenant:
- 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 you’re looking for, start qualifying prospects based on such qualities.
Start by Pre-Screening Tenants
You should do this when you first make contact with a prospect. This can be over the phone or via email. This will save you valuable time since you’ll be able to filter out tenants that wouldn’t otherwise pass the actual screening process.
During the pre-screening for example, if a tenant 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 tenants also helps catch red flags early in the process.
The following are some questions to ask a prospective tenant 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 check?
- Do you smoke?
If a prospect doesn’t meet these requirements, then it’d be best to continue looking rather than rent to an unqualified tenant.
Require Prospects to Fill in a Rental Application Form
You should always require prospective tenants to fill in a rental application form to help filter our applicants. The following is some information the application form should collect:
- Contact information of the prospect.
- The address of their 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
You want to verify that the tenant is indeed earning what they said they earn in their application form. As a general rule of thumb, look for tenants whose income is at least 3X the price of rent.
So, how exactly will you be able to verify their income? You can do this in any of the following three ways. One, by asking the tenant 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 score is a good indicator of how financially responsible a tenant is. As a general rule, require prospects to have a credit score of at least 680. However, use your best judgment if they have a lower one given their situation.
Verify Their Employment Status
This is important for two reasons. One, it’ll enable you to know whether the tenant is being honest about their income. Two, you’ll be able to know whether their references are consistent.
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
Don’t just contact a tenant’s current landlord and stop there, ask prior landlords, as well. It’s possible for the current landlord to lie in the hopes of getting rid of a problem tenant. On the other hand, a prior landlord has zero incentive to provide false 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 tenants can lie about their 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 in New Jersey 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.