Know who you are placing in to your investment homes. Next time you screen a potential renter, make certain to verify rental history and rental experience with his or her previous landlords. A standard third party background check does not show a person’s attitudes, mental stability, rental payment history, temperament, or kindness. Speaking to a previous or current landlord can have you peering into your potential future working with this applicant. How the applicant dealt with these previous landlords is likely how he/she will treat you and your investment home moving forward.
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
6 Steps to Check a Prospective Tenant’s Past Rental History
1. Get in the right mindset.
You should be eager to call landlords for honest references. You have every right to make this request of your applicants and their previous/current landlords. You have nothing to fear. You are an investor approaching another investor for help and possible friendship.
Pro Tip: Aim to make calls to landlords in the beginning of your screening process. Some management companies are slow to reply and may take a few days.
2. Understand the renter’s mindset.
Most applicants will not oppose this request. Some applicants may be hesitant to share previous landlord information with you in fear the landlord will fairly or unfairly provide a negative referral. Occasionally, a prospective renter may give you a seemingly legitimate reason they do not want to provide you with their past landlord’s contact information. No matter the reasoning, push through these objections and make the calls to previous landlords.
Some unimportant reasons a landlord may be upset and provide a poor review of the renter may include:
- The landlord doesn’t like foreigners.
- The landlord doesn’t like people coming home after 10:00 p.m.
- The landlord doesn’t like non-English speakers.
- The landlord doesn’t like tenants complaining about real issues.
- The landlord doesn’t like certain opposing political signs on the property.
In short, all the above reasons may be due to a greedy, emotional, unprofessional, or even racist landlord. When speaking to a landlord or management company, aim to understand their professionalism and trustworthiness.
3. Obtain a Release of Rental History agreement.
A Release of Rental History agreement is a separate agreement or a paragraph in your tenant application. This agreement gives you permission from the applicant to ask questions about the applicant’s rental history from their past/current landlords. Some landlords and management companies require written proof that the applicant agrees to their private information being shared.
Written consent from your applicant comes in many forms. A simple agreement signed by the applicant will do. If creating your own Release of Rental History agreement, aim to include the following sections:
- Renter’s personal identifying information (SSN, DOB, driver’s license number)
- Previous property address and rental amount (account for past two years)
- Landlord’s contact phone number and details
- A sentence naming you as authorized to ask questions about applicants
- Dates and signatures of applicants
- Copy of driver’s licenses
Personal experience has shown that many landlords will not require any written proof that you are working with the resident. If you confidently state the applicant’s name and why you are calling, many landlords will openly talk to you about these past/current tenants.
Pro Tip: Regardless of whether it is needed or not, obtain a signed Release of Rental History agreement to keep in this applicant’s folder.
4. Understand your questions.
Know what questions you are going to ask once a landlord or management company agrees to speak with you. Create a list of these questions and keep them on file for this potential renter. Ask objective questions that can be answered with either concrete numbers or yes/no answers.
If you do not have a list of questions, consider the following to start:
- Between what dates did the tenant live in your building?
- What was their rent rate at that time?
- Did they make all rent payments?
- Did they ever pay late? (How many times and how late?)
- Did you have to serve them with any notices?
- Did you have to evict them?
- Did you offer them a lease renewal?
- Has the tenant given notice of their move? If they are breaking a lease, what sort of penalty will be assessed?
- Did tenant observe all rules of the property?
Pro Tip: Most investors grade their applicants on honesty, as well as the background history results. For this reason, if someone lies about his/her history or omits major facts, it may be prudent to pass on this applicant. Sometimes actions speak louder than words.
5. Make the call to the landlord.
You: Hello. Is (landlord’s name) available?
You: My name is ____, and I’m a local real estate investor in the area. You do not know me, but I’m calling because I am working with (applicant’s name), who claims to be a past tenant of yours at (address of rental property owned by this landlord). This address is listed on the Release of Rental Information form. I was calling to hopefully get a reference from you concerning this past renter. If you do not feel comfortable answering a few simple questions, I would be happy to send you over a signed Release of Rental Information agreement first. Either way, I just have a couple of questions for you.
At this point, four things may happen…
- The landlord or management company allows you to ask questions.
- The landlord or management company asks you to email/fax them the Release of Rental Information agreement signed by the applicant.
- The landlord or management company ask you to call back when they are in the office.
- You have the wrong or disconnected number.
Some landlords will be professional and curt, while others will not stop talking about these past tenants and/or other issues in their life. Be polite, take notes, and ask follow-up questions. When speaking to a landlord or management company, aim to understand their professionalism and trustworthiness.
6. Make a friend and solicit unwanted leads.
Towards the end of this phone call, try to get to know the landlord if possible. Perhaps you can also make an appointment to network over lunch.
Ask questions, such as:
- Have you been investing in real estate in the area long?
- Is there anything I can do to help your business?
- Any specific type of leads you’re looking for?
Before you get off the phone, ask the landlord if they ever come across unwanted leads you may be looking for. Mention you would love an opportunity to call these sellers and work these unwanted leads. If you are able to close any, let them know you would happily pay this investor a generous finder’s fee.
How do you perform background checks on your tenants? Have you had luck forming relationships with other landlords this way?
Let me know your experiences with a comment!