I’ve had a draft of this post sitting in the Four Pillars draft queue for over a month, and after a recent question by JN it seemed time to finish it and post it. While I hope it gives a decent overview of finding, selecting and finalizing a tenancy for a rental property, please keep in mind that I’ve only actually gone through this process once. The tenants have stayed for 3 years (but I can’t stand on my results), and I put quite a bit of effort into figuring out each stage in the process (reading, talking to other landlords, going through the proper procedures, etc). A previous post on this topic was part of my “Getting Started With Investment Real Estate” series.
Philosophy on Renting
Before you even start trying to rent out your property you must know yourself and what you’re looking for. Do you need to get a tenant (any tenant) in the property as soon as possible? Do you want to focus on finding the best tenant possible, even if it takes longer to fill the unit or leads to a lower rent? Do you want to maximize the income from the unit? Do you want to minimize the bother your tenant causes? Your answers to these questions will affect how you go about the process of finding a tenant.
For the record, my belief (which underlies my suggestions in this post) is that no tenant is better than a bad tenant (and I’d rather minimize bother than maximize income).
The first step in getting tenants into an empty unit is to let people know that it’s available. If you have the time and inclination, I would first try to advertise through every available free channel (e.g. Craigslist, Kijiji, posters in the neighbourhood). If you aren’t getting a large number of responses (at least 10+) you need to crank up your advertising immediately and maybe consider paying to post in the local newspapers or paid internet postings (such as ViewIt in Toronto).
I provide as much information as possible in the advertisement to help people make their decisions. I put together a website for the unit (which I referenced in each ad), which had pictures, maps of the area, and lists of local amenities.
Determining what is market rate for a unit is tough. If more than half of the people showing up to view the apartment choose not to fill out your application then your rent is too high. Lower it. Keep lowering it until you get half the people to fill out your application. If someone takes an application to fill out at home or says they’ll contact you later, they’re just being polite, they aren’t interested. If everyone is filling out an application than your rent is too low. I’m not 100% sure the best course of action in that situation (I’d probably pick the best person, and be upfront with them that I know they’re getting a good deal and warn them that the rent will be increased at the end of the lease).
A large number of people won’t show up for appointments. If they find another place or something comes up, for whatever reason they don’t bother to let a potential landlord know. I suspect tenants view it as one situation they’re in control and can safely stick it to a landlord. When I was renting my unit I’d rush over to show it whenever was convenient for the people who called. Next time I’m doing it I’m going to plan all the showings at one time (maybe on a Saturday afternoon) and make them 20 minutes apart. I’ll take the name of anyone who can’t make the showing and offer to contact them if it doesn’t rent.
I walk around and point out the nice features of the apartment and answer questions. If there’s something that’s a negative about the unit I don’t point it out, but I certainly acknowledge it if the tenant inquires (such as no security guard, no air conditioner, or no dishwasher).
If you do a Google search for rental application or ask any friends who invest in real estate for a copy of their rental application you should be fine. First and foremost you don’t want any illegal questions on your form. The purpose of the form isn’t really to get the answers (although they might rule out some applicants).
If someone has a convoluted explanation for why they can’t tell you their current landlord or why they don’t have a current employer I’d probably drop them as an applicant. There may be good reasons why they are in the situation they’re in, but don’t spend your time trying to assess their unique challenges.
Check out anything they’ve listed and see if you can verify it (I was able to tie a woman’s “current landlord’s” phone number to her father’s consulting firm with Google). If they’ve lied on the application, reject them.
Contact current and previous landlords. If they’ve ever had problems collecting rent reject that applicant.
Keep the form. Sometimes if you run into problems later their “personal references” will be a way to track down a tenant or may help you with other problems.
In Ontario you can do this with Rent Check Credit Bureau. They’re expensive for only one unit though ($20 per check and a $100 annual membership fee or something like that). You can avoid the membership fee if you join the landlord self-help center for $25.
You want to look for delinquent payments (if they aren’t paying other people on time, why will they pay you in a timely manner?).
If there’s problems with the credit check, reject them and move on to the next applicant. If you run out of applicants, advertise again and show it to some more people (perhaps lowering the rent if you’re having trouble getting enough applicants to find a good one).
Lease & Keys
At this point you have a tenant, fill out a lease (you can sometimes buy one at a bookstore, get one from a landlord’s association, or ask for one from a friend who rents properties), get first and last months rent (and damage deposit if local laws allow).
Let the other applicants know that you’ve rented to someone else.
I don’t claim this is gospel, and if anyone with more experience disagrees with anything I’ve written, please comment below. Also comment on any alternative approaches you’ve had success or failure with.