How To Screen Tenants

by Mr. Cheap

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This post is part of a five-part series about tenants leaving a condo and finding and screening the new tenants:

I recently had my tenants give me notice and had to go through the process of finding tenants for the second time. I initially expected that it would quite straightforward, seeing as I’d gone through the process before and put quite a bit of thought into it at the time. Surprisingly, I found it quite an anxiety-producing experience: I guess I was out of practice after 3.5 years. Luckily, a couple of my favourite Money Smarts commenters, Rachelle and Alexandra, were willing (and very able) to answer questions, and I think the process went as well as could be expected.

I’ll try my best to identify which suggestions were from who. My apologies in advance if I take credit for something that was actually from one of them (I’ll grab any credit that isn’t nailed down).

Why They Left

I gave my tenants a rent increase earlier in the year, and they gave me notice less than 2 months later. Since rent increases require 90 days notice, and terminating tenancies require 60 days notice (and they paid for the last month’s rent when they moved in), they actually left before the increase took effect.

It’s a VERY debatable point with landlords: do you raise rent on good tenants? I remember one place I was living, they increased my rent from $650 to $700 / month and that was the straw that broke the camels back and I moved in with my girlfriend at the time. Their apartment sat empty for 2 months after I left, which obviously lost them a lot of money. There’s some point when tenants will leave, and the rent going up gets them closer to that point. On the other side of the coin, moving is a pain in the butt, and has a number of expenses associated with it as well. If you’re going to pay more than the increased rent over the next year on the move, are you really saving anything? Also, tenants often get distorted views of “market rent”. They think of prices in terms of what apartments cost last time they were apartment hunting, rather than what the current prices are (and are often shocked when they start hunting and everything is more expensive than they remember).

Given that I only raised my tenants’ rent by 2.1% (and this was after 3.5 years), I find it hard to believe this would have prompted them to move. They also had told me they were considering moving, as one of them was going to school in another part of town and it would have been a brutal commute. I acknowledge that this MAY have just been them being polite, and I drove them out (I’m certain that would be the interpretation of the “never raise the rent” crew).

The reasons to raise the rent is obviously a business decision. While a 2.1% increase of the gross rent may not seem like a lot, when it gets added to your bottom line it can be significantly (this would have been more than a 10% increase in my monthly cashflow).

The new tenants ended up paying the increased rental amount, so the market determined this was a fair price.

Notice to Vacate

I’ve had a very good relationship with the previous tenants, but I certainly wanted to do everything “by the book”. They just wanted to informally tell me when they would move out, but I insisted that they get me an N9 form. They were confused and bothered by the fact that, in Ontario, tenancies end on the last day of the month, but start on the first day of the month. I was sympathetic to this, and thought it was a fair question “where am I supposed to stay overnight with all my stuff?”. Both Rachelle and Alexandra had similar reactions to this and basically said “how is this the landlord’s problem?”. In the end I tried to soften it a little, while holding firm by sending them the following info:

Unfortunately, that is how it works in Ontario (that you need to vacate on the 30th). Surprisingly it isn’t a problem as often as you’d think. Often tenants won’t be in the new unit (they might leave a couple days early from the unit you’re moving into and the new landlord may let you in on the 30th), or the new tenants don’t need the old unit on the first, or the new unit has been empty (like when you first saw the unit you’re in after the renovations), etc., etc., etc. Some buildings have storage they’ll let you use overnight. I once had to move all my packed belongings to a friend’s living room over night (and then move everything again into the new unit the next day). Some people rent cube vans and use them as overnight storage as well as transportation.

They were still unhappy, but in the end, it worked out exactly as I suggested (they were able to move into their new place 1 week early). They couldn’t understand why I wouldn’t let them stay a few days into the next month, but obviously this would have cost me an entire month’s rent.

Another friend of mine who owns and rents a bunch of units says that he will leave units empty for a month for clean-up and repairs between tenants. He acknowledges that this is a big expense, and in part because of this he really looks for very long term tenancies (and has been quite successful in setting up his units with these). This was a higher expense then I was willing to take on between tenancies.

Thanks again to Alexandra and Rachelle! More details in future posts…

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{ 12 comments… read them below or add one }

1 Mike

That’s funny that the tenants thought you should let them stay free for a couple more days. You should have “Sure, just pay for the next months rent and you can stay up to the end of that month”.

As for why they left – just a guess, but maybe the rent increase was just the catalyst for them giving notice. As you say, they were thinking of leaving anyway – if you hadn’t raised the rent they probably would have stayed a little longer, but still would have left.

I don’t agree that it’s the renters problem with moving on 2 separate days. I’ve always been able to work this out by talking to the landlords/other renters and never had a problem.

2 larry macdonald

A rent increase of 2.1% after 3.5 years is not much. Don’t think it was why they decided to leave. Indeed, they may find in their new place, the landlord will raise the rent by more. But perhaps it was the way the increase was handled? More emphasis on how they are valued as a tenant and how your rental income is falling behind on expenses?

3 Mr. Cheap

Mike: Yeah, that’s certainly possible, but in my heart of hearts (I’m pretty sure it isn’t just wishful thinking), I think they left for their own reasons. I’m half tempted to give them a call our of the blue, ask them to be totally honest and ask if the rent increase had anything to do with the move…

4 Mr. Cheap

Larry: I actually sent them something along exactly those lines (maybe I could have done a better job with it):

“Hi XXXXX and YYYYYY,

Congratulations again on your engagement!

As I mentioned on the phone with XXXXX, unfortunately in the time
you’ve been in the condo my costs have gone up. When you first moved in, the condo fees were $$$.$$ / month and have increased to $$$.$$ (and increase of over $50 per month). My insurance is going up in March to $500 (from the previous rate of $370), and the condo has been reassessed and the annual property tax has been raised.

You’ve been wonderful tenants (and I really hope you decide to stay
after the wedding). I feel that I’ve honoured my original commitment
not to raise your rent at the end of your lease when you first moved
in (and have kept the rent the same through 2 more leases).

As of June 1st there will be a 2.1% (less than $30) increase to the rent. As per Ontario law, landlords can’t raise the rent more than once per
year, so this is “locked in” (no further increase) until June 2011.

You’ll receive an “official” version (with much the same information)
in the mail shortly. Please let me know if you haven’t received it
within a week or so.

Thanks,

Mr. Cheap”

5 Rachelle

I’m big believer in rent increases every year. If you want you can “trade” that right for a new lease or postdated checks. You then give them a credit in their lease for doing something for you.

I did an evaluation on a property where one of the tenants was paying $575 per month for a one bedroom. This is the same rent he was paying when he moved in 18 years ago. Meanwhile the landlord’s costs have increased.

There’s no way that the tenants moved because you increased their rent $30. It costs money and time and hassle to move. If they moved it’s because they were already planning to move.

6 Financial Cents

You can do everything perfect sometimes and still be in a mess depending on who you are dealing with. I don’t think you did anything wrong. Out of practice, maybe. Out of line, no way. I totally agree with the last comment, finding a good tenant is scarce, not an easy task…based on my experience. If the increase wasn’t that much, I would have to assume they left for other reasons. I would be surprised if that was the main one. Emotionally and financially, moving ain’t cheap.

7 Sam

Mr. Cheap, I have had experience with rent going up annually, and it’s actually something that I have expected, knowing that expenses do increase at some point. HOWEVER, I left one of the apartments I used to rent because the increase was 10%. This was too much for me, so I had to pack my bags and look for another place to stay.

8 Mr. Cheap

Sam: For my unit (and many in Ontario), a 10% increase would be illegal.

9 Sam

Mr. Cheap, it’s good that you a “cap” for the rental increase. I won’t mind 3-5% increase, but it should be illegal everywhere to raise 10%. :)

10 QD

Rent increases every year shouldn’t be a problem. It’s a business and prices increase over time. Next year the increase is only 0.7% with HST coming into play, it seems almost absurd.

I give our residents a “Residents Binder” for each property that includes a section on what they need to do to terminate the lease. That way they know what steps they need to take and we have set it up front.

11 cecil henry

When tenants see a pattern of continuous rent increases year after year. They start to look around and think about leaving.

Trust me, I’m one.

Especially when the landlord says he doesnt increase rent every year ‘just because I can’ and then goes and does it. If the initial rent was high and at the limit of acceptability for the tenant, then raising the rent beyond that will precipitate them moving.

12 k.dickie

Tenants should try to understand that if rent includes (utilities)they are getting good deal .Since all extra electricity,water usage (we know some tenants do not care ,keeping lights on all day while they are out /or leaving windows open in winter /summer heat or air condotioner running while it is wasted by going out of the window etc. Repairs,property taxes going up ,garbage /waste management separate charge by Govt ,these are a lot of expenses which tenant does not see .I understand they are paying rent but sometimes that is reason rent is allowed to go up by certain percentage by law.It is easy to blame landlord but tenant /landlords law is more favourable to tenants rights than landlord. I know I have seen horror stories while attending a session of Tenant/landlord court . Unfortunately all landlords are not filthy rich,they could be hardworking average citizen ,paying mortgages on rental property while juggling 2 jobs.If your landlord is nice/treating you well ,why move around ,pay moving cost ,?unknown scenario unless Landlord was terrible.

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