***As usual, this is not to be taken as legal or formal advice - it's just based on my personal experience and the experiences of others. Use your best judgment and always seek professional advice.
Keep in mind that it's possible for ANY tenant to decide to stop paying or pay late, but your job is to choose the ones that have the least possible risk
The COVID Effect
We've been hearing stories of landlords and property management companies whose late-paying and none-paying tenant rates has increased from around 7-10% to up to 20-30% in April 2020 when COVID hit. That is way too much, even the pre-COVID amount of 7%. These property managers and landlords didn't do the proper screening, they just wanted to stick any tenant in any vacant unit.
With the tenants that I've found for all my clients, every tenant has paid 100% of the time so far, even during COVID. Here's how I've been screening.
Stage 1: Screening the Tenant and Staying Out of Trouble
So, you've listed your unit for rent and you're getting some replies.
Reply to every inquiry with some basic questions - "do you mind telling me a bit about yourself? Who is moving in with you?, etc" and try to get them to open up about themselves. You can't actually demand for a full application upfront or anything obviously, but it might help you get a feel upfront if this tenant will work for you. If it's one person looking to rent out with 6 other buddies in a bachelor unit, it's probably not going to work out.
Ask More Questions During the Showings
It's always important to ask open-ended questions, politely, to get them to tell you about themselves. What I mean by open-ended is something that gets them speaking freely, instead of answering "yes" or "no" questions. Jot them down in your phone when you are done talking with them if they seem like they'll be applying.
Screening the Applications (one of the most important parts)
This one of the most important parts of finding a good tenant, and is a touchy area because there is always some kind of bias in the back of people's minds that could become legal issues. I'll list out what's not allowed to cause you to deny someone in a bit.
When looking at the application, the first thing I like to check for, is to make sure that that they've told me in person and in the pre-screening matches what's in the application. As soon as something doesn't line up, I'd say roughly 40% of the time it's because they're lying. So give them the benefit of the doubt and let them explain, but be more cautious going forward because it's often hard to verify their story. If their income is different from what they've stated before, for example, they might say it's because they got a raise. Ask them for written permission to call their boss.
Make sure their income is satisfactory for the lease. You can't legally use any sort of percent rule (like maximum 50% of the income can be for rent), but if you see on the application that they leased a brand new BMW 7-series and they have a $60,000 debt that costs them $500/month, it's probably a safe bet that their $2000/month income isn't sufficient for your $2500/month condo. Keep in mind other costs they'll be paying, such as utilities, internet, cell phone, tenant's insurance, etc.
Keep an eye out for other details. If they're moving to Toronto but are staying at their full-time job as a janitor in Ottawa, something isn't right. You can't work as a janitor from home.
In terms of their employment, I find that a relatively easy way to find out if they work there sometimes is to look up their employing company site and look at the "Our Team" section to find their name there, since it's open to the public and not violating any privacy laws. Otherwise, ask the tenant permission to call/email their employer to confirm.
Regarding the last place or two of residence, it's tricky because the tenant could have put down their friend's contact info, and you wouldn't know. A good way to confirm that they lived at the address they stated on the application is to view the credit report, such as from Equifax.
There are a ton of other things that I can keep explaining that will take a long time, but basically, cross reference as much as you can, and make sure all the puzzle pieces fit together. It would also be best to get a professional to have a look for a second set of eyes, such as a property manager, because going through 20 applications can make you miss a few details.
Regarding what you cannot legally use to make your decisions when screening a tenant in Ontario are: religion, ethnicity, sexual orientation, disabilities, citizenship status, etc. - so basically anything that would be considered a violation of the human rights code and discrimination. Even if you do have a partial bias in the back of your mind for whatever reason, make sure you have a main reason that is legal, and only state that.
What Is Requested With the Applications
What we usually ask for is a credit report. Go through the whole report to make sure there are no recurring late payments, even if the score is somewhat good. We prefer to get the reports ourselves, which requires their signed permission, but costs us money - $25 I believe. Some landlords pay it themselves and some charge the tenant, if they agree. If the score is bad, it's best to not listen to the sob stories and let another landlord take on that risk. If they do NOT have a credit history, that's not a bad thing. It just means they haven't had credit in Canada yet because they just moved here, or perhaps prefer not to have any debt.
Next up is proving income. For employed people, we ask for 4 recent paystubs, so we can see how big the fluctuations are in income. If it's self-employed people, we look at 2 years of tax returns, to see if the business is failing, afloat, or doing alright. If it's someone on an assistance plans, we request formal proof such as a letter that shows how much they're getting and tax statements to confirm that.
We also ask for driver's license or health card to copy (to verify identity), in which case we can black out the personal info if requested for the sake of their privacy - we just want to see that their name, birthday and photo matches and it's less likely to be someone pretending to be someone else. Of course, they could forge a lot of these documents, but it's often difficult and time-consuming, which achieves our goal of decreasing the chance of a bad tenant.
Keep in mind that actions such as looking through at their public and viral Instagram photo to see them doing the "Outlet challenge" and burning the house down is a violation of their privacy and not recommended (what you do is your business though!).
Other Examples of Red Flags to Look Out For
- When the tenant says "I am a great tenant, you're missing out on a great opportunity" when they're refusing to give you their credit report
- When the agent keeps pushing and saying "they are a great tenant"
- They act unpresentable at showings (shouting and laughing with their buddies, or coming drunk)
- Sob stories about how they'll be on the streets tomorrow
- Someone that needs to move in TODAY
Stage 2: Approving the Tenant
Make sure they give you last month's rent to hold the unit for them - otherwise continue to show it until someone you have approved does. Make sure you have a checklist of what's required before they move in - proof of tenant's content insurance, proof of utilities transferred in their name, first month's rent paid, lease signed, and whatever else you agreed on.
Inform them upfront of what you require from each other as a tenant and landlord, write it all down, and both of you sign it, with a copy for each of you. There have been countless times where something wasn't discussed, such as who gets which parking spot and who mows the lawn, which can be avoid by being agreed on before the lease start.
Stage 3: Maintaining the Relationship With Your Tenant
It's different with every tenant, depending on their personality and your relationship with them, so I won't go too much into this. Essentially, I'd like to say that it's nice to drop off a gift on the holidays, for example, or a bottle of wine on their birthday. It doesn't cost too much for you, and they'll feel a bit more comfortable with you, and are more likely to feel too guilty about paying rent late.
Keep in touch every now and then. Shoot a text to see how they're doing and to see if everything is alright with the home. This might help you because tenants often don't complain about issues to avoid being a burden, and it might damage your unit, such as a leaking pipe.
If they do complain, and it truly is an issue, such as no heat in the winter, get on it ASAP. Keep your tenants happy, and they're likely to stay longer, which saves you the headache of re-renting it. Otherwise, you might them not wanting to pay rent until you fix it, they might take you to the Landlord and Tenant Board to dispute, and you'll end up with a bad relationship. If it's something like a light bulb - I suggest discussing this BEFORE the lease starts - tell them that minor easy repairs are on them to fix, because some will nag you about every little thing.
One thing I will say, is this. Be nice, considerate and ethical with your tenants, but also be firm. If you are a pushover with them, they will take advantage of that, even without realizing sometimes. For example, when a tenant gave notice to leave the unit, we're legally allowed to start showing the home. We started off with 3 showings per week, but he asked us to temporarily make it once a week. We agreed, thinking that we're being nice. When we tried to get it back to 3 times a week, he didn't let us in. It's sort of how many employees right now got used to the idea of working from home because of COVID-19, and will want to keep staying home when their employers start asking them to work from the office again.
Stage 4: Dealing With Late Payments
If there comes a time that your tenant has to pay late, as frustrating as it may be, try to work it out. However, tell them upfront, before the lease starts, that they will always be given an N4 (Notice to End Your Tenancy Early for Non-Payment of Rent) on the first day that rent is late, as standard procedure, to protect yourself. If they are honest ethical tenants, they won't have an issue with that. During those rare times that you would serve them the notice, they would have about 2 weeks to catch up on rent without having to go to the Landlord and Tenant Board anyway. It's not being "ruthless", it's something you're allowed to do by law to protect yourself, because you never actually know if they're lying to you or honestly struggling a bit.
When giving them the notice, either give it to them in person, or slide it under their door in an envelope, but either way, make sure you have a photo or video of it. I place the phone in my front shirt pocket and leave it to record a video as I leave the notice. That way they can't say they didn't get the notice, if it comes down to going to court.
If you truly believe your tenant is struggling, because they've paid on time for the past few years, and the home is in great shape, you can always help them out by sitting down together and coming up with a short-term plan. Again, be empathetic, but firm. This is a business, not a charity.
There is a ton more I can go into in this topic, but I'm not sure how many of you will even make it to the end of this video/article. The key things are to get the applicants to open up through rapport, screening as vigorously as you legally can, listen to your gut feeling, make sure all the pieces of the puzzle fit, and maintaining a good relationship with your tenants without being a pushover.