With the costs of real estate steadily rising in Toronto and the surrounding cities and towns, landlords can afford to be increasingly picky about who they rent to – there are simply more renters on the market right now. But that being said, renting is still a risky business, and you want to make sure your rental applicant is going to pay the rent on time, isn’t going to cause damage above usual wear and tear, and is generally a good person to rent to.
The Basics: A rental application and a reliable credit check
First of all, you should have a solid rental application and a reliable credit check system in place. To get guidance on both, you can become a member of the Ontario Landlord Association for a low monthly fee.
Having a properly prepared rental application can save you from both obvious and not-so-obvious pitfalls, like the obvious one this Mississauga landlord recently found himself in after posting a racist Kijiji ad. The application will tell you if they can pay the rent, the credit check will tell you if they are willing to pay the rent. Remember that you are not allowed to ask for personal information such as marital status, number of children/plans to have more, age, or if they are on social assistance. You cannot even do this verbally.
Stick only to the facts that are on the application, don’t make small talk in which you can inadvertently ask these questions. While an applicant is not required to provide you with their Social Insurance Number (SIN), you can still do a proper credit check without it – you can also refuse to rent to them if they don’t provide you with a SIN. It is common for potential tenants to refuse to hand over a SIN due to concerns over privacy of information, and you should properly destroy any rental applications that you don’t accept to limit your own liability in this area.
Assessing the rental application
A good rental application will ask the applicant to list their employer, contact information for their employer, references for past landlords, and personal references. You aren’t going to contact personal references, these are just names you want on file in case the tenant skips out on you so you can track them down. You do want to contact employers to make sure that the applicant is secure in their employment, and to verify income. Where available, you’ll also want to contact past landlords to discuss their experiences with the tenant.
If a potential tenant is self-employed, things can get murky. You can ask for their Canada Revenue Agency Notice of Assessment for the past three years to verify income, but the self-employed generally have a number of writeoffs that may show an income lower than what they actually receive. In these cases, rely on the credit check to further assess the situation if you think they will be a good tenant, as well as checking out their business online and/or in person to ensure it is legitimate; and active.
Younger people in their first apartment may not have past landlords as references, as they may be moving out of their home or a postsecondary school residence for the first time. If their income is verifiable and the credit check is good, you can usually let this slide. Also, keep in mind that past landlord references can be easily faked; you may be talking to the applicant’s family member or a friend, and not a real past landlord. The most reliable past landlord reference is with a past property management company and not an individual.
Always require an in-person meeting to fill out the rental application; you can only properly assess a potential tenant if you meet them in person.
Assessing the credit check
The credit check tells you if the applicant is willing to pay rent. Once you’ve run the potential tenant through a reliable credit check, look for items like missed payments or being in collections. Ideally, they’ll have a good credit score; above 700 is ideal, and 600-700 could be acceptable with proven steady, higher income. But in a landlord’s market, you can easily toss out anyone with a questionable or below-superb credit score. A proper credit check will also sniff out potential identity thieves.
You do have to be ruthless when it comes to screening potential tenants. For example, if a tenant is self-employed with a lower income reflected on their Notice of Assessment without prior landlord references and has a good credit check, you may want to pass on them since they don’t check two of the three important boxes; verifiable income and past landlord references. A bad credit check is a good reason on its own to make an applicant an automatic fail, even with verifiable income and good past landlord references.
Require automatic payments
Another good tool to ensure that the rent is paid on time once your applicant is approved is automatic payments. If the applicant has a regular income, this should not be a problem. They may have a certain date they are paid each month, and you can adjust the payments to reflect this. In today’s digital age, there’s no reason to have to chase after your tenants for payments when rent is due.
So when should you turn down a rental application? The short answer is any time you feel like it. If you get a bad feeling about a tenant, turn it down. If they don’t tick all the boxes they should, turn it down. A bad tenant can turn your investment into a liability very quickly, and you do have the final say over who gets to rent your property – just be sure to do it tactfully. For example, with your self-employed applicant, simply state that the verifiable income is below the threshold of what is acceptable. This is a business transaction, and nothing more. The more you explain yourself, the more grounds you may give a tenant for suing you for refusing their application – a very real possibility in today’s hot market.
If you feel you are a soft touch or don’t have the time to handle the finer details of assessing a potential tenant, consider hiring a Toronto property management company like Highgate. We’ll do all the legwork for you, and our years of experience in the business enable us to sniff out potential bad tenants much more easily than you could as an individual property owner. Contact us today to find out more.