Everett, Wash.
Published: Sunday, January 25, 2009

Tips for selecting a quality tenant

By Steve Tytler

 Question: Following up on your recent column about renting out a house, we have a rental house and we are having a difficult time filling a vacancy. After reading your column for years, we know that renting to a bad tenant can be a costly mistake. We want to know what kinds of questions you ask prospective tenants, and I believe you have also suggested contacting their employer. What questions do you ask the employer?

T.B., Everett



Answer: Any time you are having trouble filling a rental vacancy, it is very tempting to rent to the first person who shows interest in your property because you worry that another interested rental applicant may not show up any time soon. I know, because I've been in that situation myself. It's very tough to hang in there and wait for a good tenant, but you must stick to sound business practices.

Whether you own one rental house or several rental units, it is crucial to treat your investment as a business. Real estate is not a passive investment like investing in the stock market. When you buy a rental house, you're running a business and creating a part-time job for yourself. If you take your job seriously, you will prosper. If you treat it as an afterthought, you are setting yourself up for failure.

As I have stated many times, the key to success in the landlording business is to take the time to select good quality tenants. Most tenant horror stories can be traced back to a hasty decision by an amateur landlord who rented to the first person who showed up because they didn't want to "waste time" showing the house to other prospective tenants. In your case, it's more a case of desperation than taking the time to sort through multiple applications. But either way, it's a serious mistake.

Now, before the renters reading this column get the wrong impression, let me emphasize that I am not advocating discrimination in any way, shape or form. My only criteria for selecting a tenant are:

Does the applicant have sufficient income to pay the rent? Most landlords want to see a monthly gross income of about three times the monthly rent, or close to it.

Will the applicant pay the rent on time? This is determined by analyzing the applicant's credit report.

Will the applicant take good care of the property? This is determined by talking to the applicant's previous landlords.

Those are the only factors that really matter. Race, sex, age, marital status, etc. are irrelevant.

You should use your rental application form to gather pertinent information about the applicants, but beware of discriminatory questions. For example, there is no law against asking for the ages of prospective tenants but it is illegal to discriminate against children. In other words, you better not even give the appearance that you're using the information to screen out families with kids.

As I mentioned last month, you must run a credit check on all rental applicants. This is critical. It is permissible to charge the applicant a fee to cover your out-of-pocket expense, but you cannot make a profit on this fee. For example, if a tenant screening service charges you $35 per applicant you could not charge a $50 rental application fee.

I want to know as much as possible about the tenants before I let them move into my property. You may find this hard to believe, but some people will lie to you. One common trick is to write down the names of friends as previous "landlords." To combat this, I never call the reference and say, "Hi, this is Steve Tytler. Jim Jones said he rented a house from you last year. Was he a good tenant?" Such an introduction only tips off the fake landlord, who then proceeds to tell you what a great tenant Jim was. Instead, I try to catch them off guard by saying something like, "Jim Jones gave me your name as a reference. How do you know him?" A phony landlord might slip up and say, "Oh, Jim's an old frat brother of mine ...," while a legitimate landlord would say, "He rented a house from me last year." I know this sounds sneaky, but it's better to be safe than sorry.

As for employer references, the purpose is simply to verify that the rental applicant really works where he or she claims to work. Few people will admit to being unemployed. When calling the place of employment, don't identify yourself as a landlord, just ask to speak to the owner or manager of the company. It's not uncommon for applicants to list their co-workers or friends as their "supervisor," so don't ask for the person named on the rental application; make sure you talk to the boss. You can't be too careful.

Believe me, I know how painful it is to make the mortgage payment on a vacant rental property, but don't panic. If you find it difficult to attract a good quality tenant, you are better off lowering your rent rather than settling for a questionable renter. A bad tenant will cost you more money in the long run than a relatively small decrease in your rental income.

Mail questions to Steve Tytler, The Herald, P.O. Box 930, Everett, WA 98206, or e-mail him at economy@heraldnet.com.
© 2009The Daily Herald Co., Everett, WA