Step By Step On How To Find Fantastic Tenants

You’re on the hunt for fantastic tenants, you’ve advertised your property for free using Kijiji, Facebook marketplace, and other free listing websites. WOW, you’ve got viewing bookings lined up and after a few showings, you’ve got interested candidates. Now what? What steps should you take to protect your investment? Let’s discuss step by step on how to find fantastic tenants.

Step 1: Here’s what I would ask for as part of the application process from a potential tenant:

1. Applicant’s Drivers license: front and back scanned copies.
2. Employment letter: must include salary, length of service, and HR contact information, along with when the employment letter was issued.
3. Paystubs: last two paystubs they’ve received.
4. Professional references: i) their manager or a senior manager they report to at their place of work, and ii) a prior landlord.
5. Personal reference: a friend who has known them for at least 5 years, also ask for what they do professionally.
6. Credit Check: Ask for a detailed credit score along with the detailed report (from www.equifax.ca – preferred however TransUnion works as well)
7. Bank Statements: Ask to see the last 3 months. This is the only time you’ll be able to ask for this as part of your due diligence process – once they move in you can’t ask for their statements again.

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Now let’s break down the above and look at what you should do with the information you’ve collected. Always remember this is your investment – your money, do your due diligence and spend a decent amount of time investigating each candidate you’re considering.

1. Driver’s licence: visit https://www.dlc.rus.mto.gov.on.ca/dlc/ and enter their driver’s licence number and you’ll find out if the info provided is real and the status of their driver’s licence. This is a great resource for Ontario landlords, and I’d highly recommend if you’re not from Ontario finding out if your province/state has a similar service available.
2. Employment letter: just because they’ve given you a letter with everything that you’ve asked for doesn’t make it real. Call the number on the employment letter and talk to the person who issued it (usually an HR personnel), Google the company name and make sure the phone number and address Google shows match the number and address on the employment letter. You could also take it a step further and search for the company on LinkedIn and make sure it’s legitimate, and while you’re at it see if the potential tenant has a LinkedIn page and go through their history, see if they’ve jumped around a lot in short periods. Red flags such as 4 jobs in 2 years as an example, validate if they’re a stable employee who can hold down a job and can pay their rent on an ongoing basis “on time”. Pro tip: also, LinkedIn searches for the person who issued the employment letter and makes sure they also work at the same company, not necessary but a cautious validation.
3. Last two paystubs: gives you the ability to validate that their gross income matches their employment letter annualized and potentially what they’ve verbally told you they make. Make sure the paystubs aren’t forged so make sure the outline, text, and design look similar between the two. Pro tip: let’s say your rent is $2,000/month, if their paystub shows they make net (after taxes) $3,000/bi-weekly then they’ll be spending annually 31.7% of their after-tax dollars on rent and they’ll still have plenty left over for their other necessities, entertainment, savings etc. However, if their net pay is $1,700/bi-weekly then they’re spending 54.3% annually on rent and for me, this is a sticky point as they won’t have that much left for normal expenses or emergencies. Don’t get me wrong if they’re responsible with their finances they could pull it off, but do you want to take that chance? For me anything less than 45% towards rent is a good position for a potential tenant to be in but you can decide what you’d be comfortable with.
4. Professional references: Do yourself a favour and call them! However, the questions you’d ask a prior landlord vs a current manager would be different. Ask probing questions of each to understand their current situations and understand their character better. To a current boss you might ask, do you see this person growing at the organization – helps validate job stability, or you might ask do they complete their tasks on time – helps correlate on-time rent payments, or generally how do they get along with their coworkers – to understand if they’re social – the last thing you want is someone who doesn’t get along with their coworkers which might give you an idea how they’ll be like in the community there in once they move into your unit like with your immediate neighbours. If it’s a landlord reference it can get tricky, if it’s a current landlord they might lie and give you a raving review to get his tenant out of their property and into yours so you need to be cognizant of that – you could push your luck and ask them if they’d be willing to show a bank statement proving the potential tenant has paid on time – again long shot but the option is there, however, if it’s a prior landlord from a few years back asking them if they’ve paid their rent on time, if they’ve ever had any problems with them, how often did they call you for maintenance issues and even how was the properties condition when they moved out. All these questions will give you insights into a potential tenant. Feel free to check out these professional references on LinkedIn as well, to make sure the current manager works at the same company as the potential tenant indicated or has a history there – again the due diligence you do now will help you avoid major headaches in the future.
5. Personal reference: In most instances, this turns out to be a friend, but still give them a call and ask them how long they’ve known them if they’d rent out their home to this candidate, and what’s a flaw this friend has? Everyone has a flaw and friends would know so if this person was willing to be a reference be sure to probe them to figure it out – the more you know about the possible tenant the better it is.
6. Credit Check: Go further than just looking at their score. This gives you the only chance to review their finances because once they move in they won’t need to provide you anything further, have they ever been late with payments in general, do they have a high level of debt and if so what type of debt, have they ever declared bankruptcies, do they apply for credit often. All of these will give you more insight into how they are with their credit and tells you a lot about their creditworthiness. Think about it, let’s say they’re an amazing tenant, but of no fault of their own they lose their job while they’re living in your home, i) this gives you the closest insight possible if they will continue to pay their rent obligation and ii) if they came to you and asked for a deferred payment or an alternate payment plan at least there’s a really good chance based on their history they’ll keep their word and catch up on rent or make up for it. I think of someone’s credit score as their financial character, you can learn a lot about a person’s financial character by reviewing it.
7. Bank Statements: You’re using the last 3 statements to pick up on any patterns, both positive and negative. You’ll use the statements to see both debits and credits to their accounts to account for three things, 1) does their income deposits line up with their paystubs/employment letter, 2) that every month they finish in a positive financial position (and we don’t see negative balances throughout the months – which could be a red flag), and 3) most importantly, if they’re currently renting (based on what they’ve told you) that they’ve been paying their landlord on time the prior 3 months. This a very effective way to cross-check other information they’ve submitted but also to see how they’ll treat rent payments with you.

Bonus Tip: before you hand over the key, become the biggest creep (…legal creep that is…) you can be when doing your due diligence, check their LinkedIn profile, see if you can see their Facebook or Instagram pages, and even search their full name or phone number on Google and see what kind of results you get back. All of this helps you build a better picture of whom you’re about to rent the unit out to. Do the due diligence on your potential tenants OR get ready to cover all the expenses associated with the rental property for months before you’ll be able to get approval to legally evict them from your property. All this due diligence will give you the ability to pick a tenant and rent to them confidently.

YouTubeVideo: Bad tenants = Flood of bills for YOU!

How about using a real estate agent vs finding a tenant yourself?

Here’s the hard truth, no one is going to care more about your property than you do. It doesn’t matter if you use a real estate agent or not, ask for all the above details and do your own due diligence as a final level of check. Using an agent helps with MLS exposure and having them filter appropriate candidates based on what you’re looking for but ultimately this is your property so make sure you still review the candidates. Again, I personally know many great agents, but they’re human, so if they miss something you’d want to make sure you catch it.

Why consider everything that was said in this article? I’m a landlord, but I’m also a renter (for tax reasons) so I’m writing this with knowledge of being on both sides. More importantly, I also understand all the loopholes and how bad I could make it on my landlord if I wanted to – luckily for them, I have a heart, and my integrity means a lot more than saving rent at the expense of another hardworking landlord. The truth is most landlords in Canada are family run and hiccups with tenants can really put them in a horrible situation mentally, and financially, and even cause problems within their families due to financial hardships.

On another note, if at any point during the tenant interview stages, you find out they’ll have a roommate or a significant other living with them make sure to get them on the lease as well and ask for them to provide the other person’s information as well. With a secondary person on the lease usually, I’m not as diligent with all the checks above if I see they’re employed, make a decent income and have a good credit score but it’s always good to get the information for your records. To each is their own and you can cater the level of due diligence as you feel comfortable for the second party. Personally, the primary applicant is who I want to be 100% sure has all their ducks in check.

NOW … You’ve found the perfect tenant now what?

Step 2: Reach out to them via phone and congratulate them for being chosen and let them know you’re looking forward to having them rent their future home. At this time, ask them to meet in person for the following:

1. To review and sign a one-year lease.
   1. You’ll find the Ontario standard lease agreement here -> Click This Link
2. To sign off permission to correspond via email once they accept.
   1. This agreement is required in Ontario if you want to communicate via email or digitally. Highly recommend getting this agreement in place.
3. Ask them to send you an eTransfer of the first and last month’s rent in advance of meeting up, not after or if they’re more comfortable bringing a draft/certified cheque from a bank with them when they meet up with you.
4. Refundable key deposit: $100-$500 is what most landlords charge depending on the key type. For instance, condo fobs are usually more expensive, so they ask for a bit more. Again, be reasonable with your ask and keep in mind you’ll have to return this at some point when they move out. Let them know they can add this dollar amount along with their first and last month if it’s easier.

Now you may be asking why do 1 to 4 in person when it can be done digitally. Great question, it’s to give you one last chance to ensure you don’t pick up on any red flags (trust your gut). This is what I’m comfortable with and if you’re ok and comfortable feel free to do those virtually. Once you have the above in hand ask them to set up the following:

1. Get tenant Insurance i) Ask them to send you a copy of the policy and make sure you have a copy of this in hand before handing over the keys and ii) Tenant Insurance can be purchased through any insurance company. If they’re not sure you could recommend them to TD, RBC, etc. All banks also sell ‘Tenant Insurance’.
2. Setup Utilities: Water, hydro, gas and whatever else the property will require as outlined in the lease agreement sent to them. Also, ask them to send you a copy of these to you via email.

IMPORTANT: Before you hand over the keys make sure you have 1 to 6 covered and have copies of documents in hand for your records.

WHOOOHOOO congrats on finding a quality tenant. At this point, you know you’ve done everything possible to cover all basis and pick the best candidate possible to rent to in your market. Good luck and wish you all the best!

Bonus Tip: Now that you have a great tenant in place do everything you can to keep them happy. I’m not saying buy them birthday or holiday gifts or become best friends, however, if they call for a repair or maintenance show up! It doesn’t matter if you can fix the problem right there and then but every tenant will appreciate your effort to show up and genuinely care about the home and their families’ needs. Some repairs will take time due to scheduling with a contractor but that’s understandable – you showing up goes a long way to keeping them happy, them seeing you put in the effort, and in return them paying the rent on time. It’s the small things that matter.

Did you find this blog post insightful? If yes please share it directly with someone else, a friend, a family member who you think could also benefit from it. Thank you for your time and till the next blog drops goodbye and wishing you financial growth.

HOA

P.S. If you’re interested in reading how you can succeed in your Canadian financial journey also check out our You don’t play Monopoly? There goes your financial freedom!

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