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Investing in real estate is a great way to establish a means of earning passive income, but your ability to keep your rental property occupied is essential to your success. If you have trouble keeping long-term tenants or take on a tenant who can’t pay, your property will end up costing you more than it will make for you. For this reason, it’s necessary to take the time to evaluate any applicant before you agree to let them rent your property.

Run a Credit Check
A credit check can give you a clearer picture of an applicant’s ability to pay their rent every month. The first thing to look for in the credit report is whether or not the individual pays their bills on time every month. If you see a pattern of late payments, you can probably assume they pay their rent late as well. You should also look at the applicant’s income to debt ratio to ensure they can meet their financial obligations with little difficulty. If they have a large amount of debt, it’s unlikely that they will have the ability to also keep up with rent payments.

Conduct a Criminal Background Check
You should start by conducting a tenant criminal background check for every individual who submits an application with you. Since criminal records are a matter of public record, you can search for criminal records for anyone. You should find out in advance if your local courthouse charges a processing fee and, if so, this amount can be added to the tenant application fee. A thorough background check will search federal, state, and local databases, including records with the Department of Corrections. It will also include a search of the sex offenders database.

Always Check References
It’s a common practice for property owners to request references from former landlords, but it’s almost as common for those references to go unchecked. If you take the time to ask for references, you should make the effort to call and verify those references. This will help you find out how the tenant treated the property in addition to helping you learn about the tenant’s rent payment history. You may also get other insights from previous property owners that will help you determine the quality of the tenant before you approve or decline their application. Prior to checking references, you should have a prepared list of questions to ask each person you contact.

Verify Employment and Banking Information
Some dishonest applicants may try to provide false information, so it’s important to verify their ID as they submit their completed applications. In doing so, you can verify their employment by contacting their employers. You should find out about their employment history, including how long they have been with their present employer. In requesting a copy of their pay stub, you can verify their rate of pay. This is important because you’ll want to ensure they make three times the cost of the rent or higher, so you can feel confident that you have chosen an excellent tenant with a strong ability to pay their rent each month.

Verify the Tenant’s Reliability
Most tenant applications include a section for the applicant to list their previous addresses. This is an important section to review because it will tell you something about the individual’s history as a tenant. For example, if they remained at their most recent address for several years, this indicates someone who stays in a rental for an extended period of time. Alternatively, someone with a long list of addresses indicates an individual who moves around frequently. They may move around by choice, or they may have been compelled to leave some rentals due to a failure to pay rent. If you do see a questionable history, you should look deeper into that individual’s background. Alternatively, if you have another applicant with a more stable background, you should choose them over the less reliable tenant.

Even after you have gone through these steps, you may still have to rely on your own instincts. In fact, trusting your personal opinion can be helpful when you have two or more candidates who all seem equal in other respects. If one tenant seems more trustworthy than the others, you should follow your gut and approve that applicant. In some cases, your intuition can become the deciding factor in choosing the best tenant for your rental property.

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