People often think real estate investing is incredibly lucrative and that by owning a few properties, you're set for life. While there's certainly money in real estate, the average return on investment is just 9.5%. And that's just the average; if you rent to a bad tenant who causes you financial difficulty, that percentage could be much lower.
To get decent returns on your property, you need to rent to trustworthy, reliable people. The only way to establish trust is to conduct a robust tenant screening process. So, how does the process work?
This article describes three key steps in the tenant evaluation process you can't afford to miss.
1. Check Their Finances
When doing a tenant history review, you should pay close attention to finances. After all, it doesn't matter how agreeable a potential tenant seems if they can't afford to pay the rent every month. You might be able to forgive a late payment here and there, but if a tenant consistently has trouble with payment, it'll make a huge dent in your investment returns.
One effective way to check finances is a credit check. By doing a credit score for tenants, you'll uncover if the applicant has any history of bankruptcy or debt. These are red flags, as a tenant with financial problems could be compelled to pay off debts, leaving them unable to pay rent.
2. Criminal Background Check
Of course, looking into an applicant's financial history won't necessarily give you insight into the applicant's character. Being a good tenant is about more than being able to pay rent on time; renters also need to take good care of the property.
Renters who fail to report maintenance issues or who recklessly damage your property could also take a sizable chunk out of your returns. Thankfully, the worst offenders for this behavior are easy to spot. People with a proclivity for mayhem tend to have a criminal record.
By doing a criminal background check, you can separate the well-behaved tenants from the troublemakers.
3. Trust, but Verify
One of the big mistakes when screening tenants is to take everything the tenant says at face value. Everyone needs somewhere to live, so even people who are usually quite honest can be driven to lie in the rental application process.
If someone says they have a certain job, you should verify that the position actually exists. You might ask to see pay stubs, employment letters, or tax returns. You can also check up on an applicant's story by doing an interview and asking the right tenant interview questions.
Effective Tenant Screening Is Crucial
Given how much bad tenants, who don't pay rent on time or who damage the property, can impact returns on your investment, you can't afford to not do a robust and comprehensive tenant screening check. If this all sounds overwhelming, don't worry; many landlords feel the same. That's why they often outsource the tenant screening process to a professional company.
Here at Oak Trust Properties, we have the expertise and knowledge to help you uncover everything you need to know about a potential tenant. We're committed to giving you peace of mind by maximizing your investment returns. Contact us today to learn more about our tenant screening process.
