If you’re like many people who live and own homes in one of Canada’s hot real estate markets, you’ve either considered creating a rental suite in your home or you already have one. These income suites help those who otherwise wouldn’t be able to get into the Toronto or Vancouver real estate markets, for example.
But for many of these owners, it’s the first time that they’ve been landlords; a common worry is how to select good tenants, or dealing with problems and big expenses should they rent to the wrong people. In areas with sellers’ conditions, like the current Edmonton real estate market, high vacancy levels can also pose challenges to new first-timers.
If you’re a newbie landlord, here are four things to consider when selecting your tenants.
Follow the Rules
While you have some latitude in deciding who to rent to, there are laws in place to protect against discrimination and it’s important that you understand them so that you don’t accidentally violate them or appear to. You cannot discriminate against tenants based on things like their race, sex, religion, family status, or disability. You should also familiarize yourself with the tenancy act in the province you live in. For example, here are the BC Residential Tenancy Act and the Alberta Residential Tenancies Acts for you to read through. If you live in another province, you can easily find their RTA online.
Understand Their ‘Why’
What is it about your suite that makes it particularly appealing to your prospective tenants? Is it close to their work or school? Is it affordable? Do you allow pets? Do you have room for their car?
It’s important to understand why your suite makes sense for your tenants because you want to find someone who will rent from you for a long time. Every time that there is tenant turnover, you’ll have to spend time and money finding a new tenant. But if your suite and the prospective tenants are a great match, there’s higher likelihood that they’ll stay there and save you the headaches of renting the suite out again.
Another ‘why’ you should be interested in is why the group of people who want to rent from you are living together – especially if they’re roommates and not a family unit. Do they know each other already and have they lived together before? If they’ve met online while searching for apartments or they’re friends who haven’t lived together before, that could mean that they might not get along and that one or all of them will want to move before the lease is up.
Do a Credit Check and Verify Their Incomes
You might meet a nice couple who you like, feel like you can trust, and want to rent to but don’t let your emotions get in the way of making a sound decision. Before you sign the lease, you need to do a credit check and verify their incomes. Running a credit check is easy and will allow you to see how timely they are at paying their bills. You should also check their income-to-debt ratio because if they have a significant amount of debt that could affect their ability to pay rent.
Verifying their income is also easy – just ask for a copy of their pay stubs and call their employer in order to ensure that what they’ve told you about their employment is true.
Look at Their Rental History
The last thing you want is to rent to someone who has a habit of staying six months or a year in different rentals. That’s a big red flag could mean that they like to move around, that they’ve had problems with their landlords, or that they haven’t paid their rent and been evicted. None of these things are good signs.
Ask for references from former landlords and follow up to find out how people who have rented to them previously feel about them. Make sure that they always paid their rent on time, that they didn’t cause damage, and that they gave proper notice to their landlord. The last thing you want is tenants who will cause unnecessary expenses or stress. If the tenants are student who don’t have a rental history, ask their parents to co-sign the lease.
If You Do Your Homework, You Can Rent with Confidence
Ultimately, when you’re looking for a prospective tenant, you’re looking for someone trustworthy who could potentially rent from you over the long-term. Investigating their background and talking to their references should give you a good idea of whether or not they’re responsible and could stay in your rental suite for a long period of time. It’s better to do your homework now then find out you chose the wrong tenants later.
