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Welcome to the comprehensive guide for landlords seeking to streamline their tenant screening process! Here at the Wayne Schilstra Team we understand how hard it is to be a landlord because we are all landlords ourselves. In an up and down economy and fluctuating real estate market, finding the right tenant is paramount. This guide is designed to help you navigate through the essential steps and documents required for a tenant evaluation with the goal of helping you secure long-term, reliable occupants for your property.
1. What is tenant screening and why is it important?
Tenant screening is a systematic approach to evaluate prospective tenants, ensuring they are reliable, financially stable, and a good fit for your rental property. A thorough screening process minimizes potential risks, such as late payments, property damage, and lease violations.
2. Essential Documents to Request from Potential Tenants:
In order to conduct valuable due diligence as a landlord, it is recommended you request the following documents for each potential tenant:
Rental Application: A comprehensive form capturing the applicant's personal, employment, and rental history.
Proof of Income: Recent pay stubs or an employment letter to validate stable income.
Credit Report and Credit Score: An insight into the tenant's financial habits and responsibility.
References: Contact previous landlords and employers to verify the tenant's reliability and behavior.
Photo Identification: Validate the identity of the prospective tenant.
Rental History: Review previous rental engagements and reasons for leaving.
Bank Statements: Optional, for additional financial transparency.
Guarantor Information: For tenants with limited financial history.
3. The Legal Framework:
The Ontario’s Residential Tenancies Act sets out the laws and regulations with regards to the rights of both the landlord and tenants. As a landlord, it is important that you know your rights and the tenant’s rights because it enables you to conduct a proper screening that respects the rights and privacy of applicants. It will also help you when you write up a lease, making sure it conforms to the laws and regulations set out by the Ontario government.
4. Conducting the Screening: What am I looking for?
When screening potential tenants, landlords should pay particular attention to two key financial indicators: the debt-to-income (DTI) ratio and the credit score. These metrics provide valuable insights into the financial health and reliability of a prospective tenant. Here’s how landlords can interpret these factors:
Debt-to-Income (DTI) Ratio:
The DTI ratio is a critical financial metric that compares a person's total debt to their gross monthly income. It is expressed as a percentage and helps landlords understand how much of the tenant’s income is going towards debt payments, which can impact their ability to pay rent consistently.
How to Calculate: Divide the tenant’s total monthly debt payments (including credit cards, loans, and other debts) by their gross monthly income. Multiply the result by 100 to get a percentage.
Ideal Ratio: Generally, landlords look for a DTI ratio of 40% or lower. This suggests that the tenant has a manageable level of debt and is more likely to afford the monthly rent. However, this can vary based on the property location and rental market conditions.
Credit Score:
The credit score is a numerical expression based on a level analysis of a person's credit files, representing the creditworthiness of an individual. A higher score indicates a better financial history and a lower risk for landlords.
Range: In Canada, credit scores range from 300 to 900.
Acceptable Scores: A score of 650 or above is generally considered acceptable for most rental situations. This indicates a “fair to good” credit history and suggests that the tenant is likely to make payments on time. However, landlords may adjust this threshold based on the competitiveness of the rental market and the availability of applicants.
Context Matters: It's important to consider the context behind the numbers. For example, a slightly lower credit score might be acceptable if the tenant has a solid rental history and a reasonable explanation for the score (such as a one-time medical expense).
When assessing these financial indicators, landlords should also take into account the overall context of the tenant's application, including employment stability, rental history, and references. It's important to balance financial criteria with other factors to make a well-rounded decision.
5. Singlekey Tenant Reports: Your Secret Screening Tool:
Singlekey Tenant Reports are revolutionary tools that offer a comprehensive overview of a potential tenant's rental and financial history. These reports combine credit checks, eviction history, background information, and more, providing a holistic view of the applicant.
Benefits of Singlekey Tenant Reports for Landlords:
Comprehensive Analysis: Get a detailed report encompassing credit scores, income estimates, and past rental behavior.
Risk Assessment: Singlekey’s unique tenant score helps predict the likelihood of rent default.
Save Time: Quick and easy access to vital information streamlines the decision-making process.
Enhanced Security: Verifies tenant information, reducing the risk of fraud and rental scams.
A single key report is $25/applicant. Oftentimes as a landlord you can pass this expense on to the tenant. This is beneficial for a couple of reasons: first is that you don’t have to pay for the report, and second it shows that the tenant is serious if they are willing to pay the money to get this report. To complete a report, you will need the tenant’s email address to send them a request via SingleKey. The tenant will receive an email with your request. They must consent to the credit check and provide their personal information directly through the secure SingleKey platform. This process ensures that the tenant's privacy is respected and complies with legal requirements.
6. Decision Making:
Utilize the information and insights gained through documents, interviews, and Singlekey reports to make an informed decision. Remember, a well-informed choice leads to a trustworthy and long-lasting tenant-landlord relationship.
Proper tenant screening is the cornerstone of successful property management. Although screening tenants can seem daunting, with the right approach and tools it becomes an invaluable part of successful property management. By adopting thorough screening practices, you not only protect your investment but also cultivate a positive, lasting relationship with your tenants.
