House Hackers: Want Great Tenants? Screen Like This
Carefully screening tenants is a must-do for those who are renting out real estate. The importance multiplies when house hacking—especially if you plan to continue living in the property. These people are going to be your roommate or neighbor!
For those of you who do not know what house hacking is, here is a brief explanation.
House hacking is purchasing a one- to four-unit property with 10 percent down or less. You live in one part of the property and rent the rest out, such that the rent you collect fully (or partially) covers your mortgage.
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This is one of the best ways to build wealth. I highly suggest everyone does it in some capacity.
There are many ways to house hack, including:
- Traditional: Buy a duplex, triplex, or quadplex. Live in one unit while renting the others.
- Rent by Room: Buy a single family home. Live in one room, rent out the others.
- Short-Term Rental: Buy a single family residence with a mother-in-law suite or auxiliary dwelling unit. Live in the main house and rent out the extra space, either full-time or on Airbnb.
- Live-In Flip: Buy a semi-distressed property. Fix it up over the course of two years, and sell it with the first $250K (or $500K if married) tax-free.
In this article, I am going to run you through how to screen a tenant for a house hack. Before we get into the tactics, let me lay a quick foundation.
We are going to think of finding the perfect tenant as a funnel. You should aim to increase the leads flowing in, then focus on filtering out any unqualified leads based on pre-determined criteria. Then, you’ll be left with a few perfect tenants to choose from.
Related: Tenant Screening: The Ultimate Guide
Step 1: Select Your Criteria
Before you list your property for rent, you are going to want to write down a set of standards you expect each tenant to meet.
Some might be:
- Minimum income-to-rent ratio
- Minimum credit score
- Clean background check
- Positive references
Writing down your standards will help you in two ways. One, it will protect you against any claims of discrimination. Secondly, it will help you remember and will hold you accountable for when it comes time to choose a tenant.
Do yourself a favor, and write down your minimum criteria before reading the rest of this article.
Step 2: Conduct Pre-Screens
Once you’ve determined your criteria, it is time for pre-screening. If you are listing your property effectively, you are going to get a lot of inquiries.
Your time is valuable and so is their’s. Rather than setting up a showing for every person who inquires, first do a little bit of research.
Try to find them on social media. Look through some of their pictures and posts. If they seem weird or sketchy, you can politely refuse their request.
For example, one time I had someone inquire about a room in my house. His Facebook profile had a picture of him with a gun in one hand and fanning out several $100 bills in the other hand. No, thanks… Next!
If you look through their social media and everything seems OK, ask them to chat on the phone for five to 10 minutes. This will not only allow you to get a feel for your potential tenant, but it will build your credibility, as well. That way, if you do like them, there is a higher probability they will show up to tour your property and may even choose your place over someone else’s.
When you are on the phone with a potential new tenant, do your best to make the conversation natural. Here is an example of a phone conversation I might have with a potential tenant named Jim.
Craig: Hey, Jim! It’s Craig from Facebook Marketplace. Is now still a good time to chat about the unit (or room) for rent?
Jim: Yeah, sure!
Craig: Cool, man! How is your day going?
Jim: So far, so good! I’m actually about to head to work in a little bit.
Craig: Oh, nice! What is it that you do for work?
Jim: I actually work as a security guard at the local prison. I usually work the graveyard shift. It pays a little more, and there is something about being awake when most of the world is sleeping that I really like.
Craig: Nice, dude! Yeah, I can only imagine how that would be. A world without traffic, honking, and hundreds of thousands of people sounds real nice. But let me tell you a little bit about the place. The house is a 2,400-square-foot, five-bedroom, two-bathroom house. There are three bedrooms upstairs and two downstairs. The room that is available is the one upstairs, and it is your standard room with a closet—no private bath or separate entrance. All of the roommates get along nicely, but quite frankly, we all have different schedules. Very rarely are we all home at the same time. Does that all sound good to you?
Jim: Yeah, that sounds good!
Craig: Sweet. So tell me a little more about you. What is that you like to do for fun?
Jim: When I’m not working, you will find me in the mountains. In the winter, I enjoy snowboarding, and in the summer, I love to hike and camp.
Craig: Awesome, man! It sounds like you will fit in nicely. Let me describe the process to move forward. The next step is that we would have you come look at the place. If you like it, we will send you an application to fill out through a site called Cozy. As part of that application, there is a background and credit check that will cost you $40. Does that all sound good to you?
Jim: Yup. No problem at all.
Craig: Great! Then let’s set up a time for you to come look. We are having some people come by on Thursday between 4 p.m. and 6 p.m. Does that work for you?
Jim: That should work.
Craig: Awesome! I’ll confirm with you on Thursday and text you the address then.
See how that conversation flowed naturally while I was still able to obtain a good amount of information about him?
I understand what he does for work, so I have a good idea as to whether or not he makes enough money to pay rent each month.
Secondly, I understand what his pastimes are to make sure that he will fit into the culture of the house.
Lastly, he knows that he is responsible for paying $40 for the background and credit check. If he actually fills out an application, it will confirm that he is serious and will tell me about his credit and background. If he has bad credit or a troubled background, he’d be wasting $40 on the application.
I can get these big questions answered all while judging the quality of the conversation to see if this is a person I want to live with or next to. There might be some other deal breakers for you, so make sure you work those into the conversation.
If the pre-screening and phone call goes well, be sure to set up the showing at the end of the phone call.
Step 3: Complete Actual Screening
When the day arrives to show the property, the first thing to do is to confirm with all prospective tenants that they are still planning to come check the place out. You do not want to be wasting your time waiting for people who are not going to show up.
For that reason, I like to do group showings. I tell them to come anytime between 4 p.m. and 6 p.m., and I am sure to be home between those hours.
I always introduce myself to everyone who walks in and can quickly get a feel for them based on their appearance. What are they dressed like? How do they carry themselves? You can tell a lot just by meeting someone in person.
Group showings allow you to show more people the property in less time. It also instills competition amongst potential tenants, making them want to fill out an application sooner if they truly want the place.
That brings us to the next step: the application. After the showing, if someone wants to move forward, you send them an application. I like to do it through a site called Cozy. It’s completely free for landlords to use and includes all of the relevant information you need to collect.
If you are not using Cozy or something similar, be sure to ask for pertinent information including:
- Job title, pay, and work references
- Credit score
- Background check
- Previous landlord and roommate references
- Do you smoke? How often?
- Do you have pets? How many?
Once you have this information, it is time to verify that all of it is true. The credit and background check come from a third party, but it’s always good to confirm that the name on the reports aligns with the name on the application.
The second thing you want to do is to confirm their pay. You can do this by either requesting pay stubs, calling their work reference, or both! I recommend doing both. It’s entirely possible to manipulate a pay stub to make it look like they are getting paid more than they are.
It is essential that you obtain previous landlord and roommate references. In the case of screening tenants, past performance is indicative of future results. People rarely change when it comes to their living situation. If their prior roommates, landlords, or neighbors hated them, you probably will, too.
Lastly, there are a few other things you may want to know about the person. Do they smoke? If so, how often? Do you want to be picking up cigarette butts in the yard?
Do they have pets? Remember, these people are going to be living with or next to you. Do you want a dog around? These are all things you need to consider when screening for house hacks.
If you are comfortable with the tenant’s application and he or she passes your screening, you can go ahead and accept the tenant and plan the move-in date.
Always be sure to screen your tenants, and screen them properly! Do not take any shortcuts here—especially when house hacking.
These are going to be your future roommates and neighbors. Eventually, they might even occupy the property without you there. You are going to want to trust them to keep the property in good condition.
I hope this article has been helpful! Happy house hacking!
Can you think of additional screening steps or tips for house hackers seeking tenants? Do you have any tenant horror stories?
Share in the comment section below!