How to run background and credit checks on potential tenants?

Question

Hey guys, I'm now ready to start finding tenants for my first rental property. I just finished rereading Brandon Turners book on managing rental properties, this time with a highlighter and notepad, and I'm wondering how to run credit and background checks on applicants. Is it even common practice to get them done before moving into a rental?

Chris Baxter · Answer

Application fees aren't done in Canada and may in fact be illegal in some jurisdictions... In reviewing anything on BP (or books from BP), defer to the Canadian experience (which is why this Canadian forum exists). The US is exceptionally landlord friendly, whereas most jurisdictions in Canada favour the tenant in legislation.

Roy Cleeves · Answer

@Elijah Williamson congrats on your first property. I totally agree with @Chris Baxter.

You definitely want to run background checks before accepting any tenants.

1.  Google their names

2.  Check their current living space - drop by with whatever reason you have to use.

3.  Call their past landlord - not the current one - ask them if they would rent again to these tenants.

4.  Review the application - how does it look?  Is all information there and is it neat and complete or messy and missing info?  Do they make at least 3 times your rental cost to them?  How long have they worked at their jobs?  How old are they?  How many people will be living in the house?  Do they have pets they are bringing?  Why are they moving from their current rental?

5.  Check their work references.  First, verify the phone number as a business number and not a friend's cell number.  Ask them to provide an employment letter from their employer.

6.  Have them provide you with a copy of their full credit report for all people that will be living at the home.  They can get a free report from CreditKarma.ca. Review all sections for any poor credit history.  Also, review the amount of money owed to creditors on this report.  If they owe too much then they may have trouble paying you.  If they have a score of 680 and above and no late payments then they are a better risk for you.

If you have any doubts, then move on to other tenants.

The difference between enjoying being a landlord and NOT is the tenants that you accept for your property.

Good Luck!

Account Closed · Answer

@Tim Miller

Those don’t exist in Canada, and our payment system is 100% free through our banks via etransfer or autodebit.

Paul Sverdlin · Answer

Credit check in Canada is not as easy to obtain as BP books may suggest. Asking a tenant to provide one is usually met with a blank stare since tenants either have a bad history which they would like to hide, or more commonly they are just clueless on how to obtain an Equifax report. What complicated matters more is that EQ does not allow for 1-time report check, it requires people to sign up for monthly billing which then needs to be stopped by calling EQ directly. In some cases tenants become furious that I am not happy with just a "score" from Credit Karma, they are not comfortable sharing the entire credit report with a stranger. Even more frustrating is the fact that a poor score of 601 can be labelled as "fair" by Credit Karma. Tenants don't realize that "fair" goes not mean good or excellent, they just think they have a fair score and get upset when I turn them down.

For now I keep asking them to pull it and even offer to pay them $25 if it turns out their score is actually good. People with nothing to hide and with enough smarts to pull a score usually are better tenants; its worth the trouble of asking.

Note that a bad score is rarely a rejection point in itself for me. There are many special situations like a divorce that could have affected someone's score. I talk to people, look for honesty in responses and consistency in the story they tell, sometimes that's worth way more than a "good" score in itself.

Finally, you can ask them to fill out an application through Naborly website ($25), however in my experience few people would go through the trouble of uploading their documents, filling out all the forms and paying $25 just to apply for a place.

Tim Miller · Answer

Self managing is not the easiest thing to do. If you are determined to DIY, you'll need to use a screening service. Example: Zillow, Apartments.com. We use MyRental.com the tenant pays for their own report that you set the requirements for.

You will also want to use a rental payment service like Zillow, Apartments.com. We use Innago and it works great. Good luck

Roy Cleeves · Answer

You could ask for the tenant to provide a criminal check yet that is not common here.  I don't know if you could order a criminal check on the tenant yet the tenant could order one.

Ian Walsh · Answer

Appfolio provides this as a service I believe.

Elijah Williamson · Answer

@Roy Cleeves

What about background/criminal checks? How can I obtain these?

In Brandon's book, he suggests charging a application fee ($35) to process the application. Is this a normal practice here as well?

Chris Baxter · Answer

@Elijah Williamson congrats on your first property.  Are you 100% certain that you want to self manage? I would personally look for a PM that will take on all the headaches of dealing with tenants (including screening). Does that add expense? Absolutely! It also provides freedom and ensures that you have control over your time (the most valuable asset).  If you want to self-manage, a quick search for 'tenant screening Canada' will yield many results.  Adding more detail about what market you are investing in will help trigger advice for successful screening services in your area. Good luck!

How to run background and credit checks on potential tenants?

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