3 Steps to Choosing Quality Tenants for Your Rentals

by | BiggerPockets.com

Before we get into the secret hot-sauce tip for picking good tenants, I just want to cover these three basic ways to evaluate if a tenant is going to be a good fit for your property. Before we get into this, you have to get rid of the mindset that all tenants are bad. I mean, these folks are ultimately your business partners.

They put money in your pocket every single month. So treat them with respect. Send them the gift card or gift basket. Wish them a Merry Christmas (and so on). Do you get my drift? You have to do it. You have to try to treat these people with respect.

Ultimately, they are going to be the ones allowing you to live the lifestyle that you desire.

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1. Income Verification

Ok, let’s get into it. The first thing you need to do when screening potential tenants is check their income. This is also known as an income verification. The tenant needs to be earning at least three times the monthly rent—that’s kind of a guideline my property management company and I like to follow.

To make things very simple for you, if the rent is $1,000 per month, your tenants’ combined income (whether they’re husband and wife or their pets have a job or whatever) should be $3,000 per month. That should be the absolute minimum: $1,000 in rent, they should be bringing home $3,000 net. What we really like to see though, is tenants bringing in $3,000 net even if the rent is less than $1,000. It’s just nice to have a little bit of an additional cushion there.

Now what’s really mesmerizing, and I just want to touch on this, is I just came back from Korea and Japan, and over there the rent that folks pay is only a quarter of their monthly income. That’s why there are zero evictions in Korea and Japan.

Related: How to Find a Tenant in Any Market: A Comprehensive Guide

2. Background Check

Anyway, the second thing that you need to do is a background check. You need to make sure that these folks don’t have a criminal background. Unfortunately, even though what happened in the past is not necessarily an indication of what’s going to happen in the future (because people change and people make mistakes) it’s still a pretty good indication of what someone’s personality is like, or what their character may be like. So you need to do a background check.

Dealing with Background Check Results

You definitely don’t want to put someone in your property who has a severe criminal background with multiple felonies. Now, if its a 15–20-year-old felony, I would maybe try to turn a blind eye or work out a deal. Maybe ask the tenant to put down three months rent in advance, or pay an additional deposit. Ultimately, try to figure out a way that you can proactively protect yourself by getting additional funds in advance.

I remember renting to a few tenants with criminal backgrounds. In those cases, we were able to get six months rent in advance. I’ll take that deal every single day of the week, because the simple fact that someone can save six months (or even a year) of rent in advance speaks volumes to me.

3. Eviction History

The third thing to check is eviction history. This is an automatic no fail. If you’ve been evicted once, you’re done. I don’t want to rent my property to you.

Food and shelter are the two most important things to humanity. I was broke once upon a time. I was starving. But I couldn’t eat because I had scraped every single dollar together to afford the roof over my head. So if a tenant got evicted once upon a time, in my opinion, they weren’t just disrespecting the landlord, they were disrespecting themselves. This is something we tell all of our tenants. So, in my opinion, anyone who has an eviction on his or her record—and I don’t care if it’s 257 years old—they are automatically disqualified.

However, if they tell me there was a miscommunication with the court, that they actually paid out the remainder of the lease and vacated the property but somehow the court accidentally still filed the eviction, I try to confirm that with the landlord. I know that sounds a little suspect, but we have rented to people who have had evictions on their record. They sold us on a good story that made sense. In those cases, believe it or not, it actually worked out. Those tenants stayed and paid for quite a long time. So keep in mind it’s possible for there to be inconsistencies with the filings when it comes to the justice system. Just make sure that what the tenant is telling you is accurate.

Related: Tenant Screening Failure: How to Avoid a Similar Fate

The Secret Sauce

Last but not least is Dingo’s hot sauce. I want you to evaluate someone’s character. I’m not sure the legality on this, but we’ll talk about legals in another blog post. If someone complains about a light bulb in one of your rentals that was recently renovated, they need to move to Beverly Hills. By all means, try and live in the Taj Mahal. I’m telling you guys, tenants like these are a recipe for disaster. You are going to get a lot of miscellaneous little complaints. These people are going to nag on your life and on your soul. You don’t want that. Trust me.

It doesn’t matter how much money they make. It doesn’t matter how much of a deposit they’re willing to put down. I don’t care if they are willing to pay rent 17 years in advance. You’ll never hear the end of these miscellaneous “problems” that are nonexistent. When someone is not happy with themselves from within, they won’t be happy with anything or anyone else. I promise you that.

Guys, that pretty much concludes my post for today. I hope you enjoyed it.

Comment below! I’d love to hear any additional tips that you guys might use when picking good tenants for your property.

About Author

Engelo Rumora

Engelo Rumora “The Real Estate Dingo” is a successful property investor, motivational speaker and serial entrepreneur that quit school at the age of 14 and played professional soccer at 18. He is also a soon to be published author along with becoming a TV personality in his very own real estate house flipping show. To find out more go to engelorumora.com . Engelo Rumora has been involved in over 400 real estate deals and founded five businesses in Ohio. The most successful is Ohio Cashflow, a company that specializes in providing turnkey properties in several Ohio markets. The newest venture is List’n Sell Realty, a real estate brokerage based in Toledo, Ohio and soon to be known as the #1 discount broker in the country.

16 Comments

  1. Marina Spor

    Thanks for an important article. Another thing that I look for is the amount of debt that they have. This gives me an indication of financial responsibility and also if they’re living beyond their means (meaning that they will have issues paying their rent at some point).

    Question regarding the 3 times income criteria… is this income before or after taxes? I usually look at gross income (before taxes) but maybe that’s too lax?

      • I would not assume that most people have additional income.

        Requiring 3 times the rent turns the standard guideline on its head, and everyone is doing it now so no one even remembers the standard guideline. Look at the typical tenant income for the location of the unit and the rent should be no more than 7-10 days salary. The purpose is to not price out the people most likely to be your tenants.

  2. Bernie Neyer

    Your Dingo’s hot sauce is dead on. A tenant’s attitude and personality will tell you more about them than even a background check may tell. If previous landlords have done cash-for-keys there may not be any record for evictions, nor a credit down grade. Almost always the perspective tenant will give you clues as to their occupancy, and all to often I’ve only recognized them in hind sight.

  3. JL C.

    Good article. One comment about the tenant with a criminal record paying 6 months in advance: I would have a conversation with them about how they managed to “save” that much. Conversationally, not an interrogation – but I would be highly suspicious unless their work history and rental history and credit report made it very clear their income outpaced their debt. Otherwise, I would assume that 6 month’s rent came from ill-gotten gains.

      • I know a landlord who took a year’s rent in advance. A year went by with no further contact, no complaints, no maintenance requests, no nothing. A year and a day later, no rent. When the landlord eventually went into the house, he discovered the living room had two feet of dirt in it and the house had evidently been used as a grow site. The landlord threw in the towel and walked away from the house. It eventually sold at auction.

    • Engelo Rumora

      Hi David,

      It seems like you’re the type of person that needs a tonne of disclaimers, etc…

      Please see below something I pulled from my website.

      I’m sure Bigger Pockets has their own also 🙂

      Much success

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  4. Jerry W.

    Engelo,
    This is probably the best article you have written. At least for how your investing style fits with mine. The absolute worst mistake you can make as a buy and hold landlord is getting the wrong tenants. No one can afford to wait for the top 1% tenants out there, but identify the train wrecks and stay away. You will still get burned once in awhile, but be careful. My local market has been hammered from loss of jobs and cuts in pay due to the oil price drop. I had a house open for nearly 3 months that was a nice house. It killed me to turn down 3 or 4 applicants in a row for it. I have another house that opened up because the renters bought their own house. I am having the same problem with it. I may end up with a bad tenant, but I will avoid the ones I know are wrecks. I have no problems saying it is perfectly legal to not rent to whiners. You have to be careful if they are from a protected class, but whiners are not a protected class. I have rented to folks who I convicted of a felony, but I knew the circumstances. The character of a person and their ability to pay rent are the biggest factors. Thanks for taking the time to share your knowledge.

  5. Joohn Cliiford on

    Hi, Nice video. 3 Steps for Choosing Quality Tenants for Your Rentals. Really helpful for landlords. So before going to choose any tenant for your home must go through this post. Landlords get a lot of miscellaneous little complaints from their tenant but you have to manage the issues at your level. Some days before I got to know about Rocket Eviction as an eviction service provider of Las Vegas. Thanks for sharing such information with us.

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