5 steps to avoid the tenant from hell

By Dustin Graham

Investing in income properties can be an amazing way to generate monthly income and ultimately contribute to a retirement plan. Along the way, however, we all experience multiple challenges – poor tenants being one of them. Some tenants will be obvious bad choices, but others know how to hide their secrets well enough that they often seep through the cracks of selection. So how do we learn to identify these not-so-obvious tenants from hell?
 
1. Conduct a thorough credit check. Review any credit-related information carefully, not just their score. Look at what outstanding debts they have, whether they make payments on time, and try to determine if they will have any upcoming debts (such as buying a new car). Some questions you simply can’t ask, so you’ll have to use your best logic.
 
2. Ensure their employment is sufficient to cover rent and additional tenant costs. Their monthly income should more than cover rent and other obligations. Request an employment letter from each tenant that states their employment status (e.g. full-time, part-time, contract, start date, annual salary). Have the employment letter printed on company letterhead and signed by their direct manager. For self-employed individuals, you’ll want proof that that the company exists and see income generated over the last six to 12 months.
 
3. Conduct a tenant “interview”. This is a good opportunity to learn if you can trust the potential tenants. After all, it’s your home that you’re lending to someone, so trust is an important component. Try to get an idea of their lifestyle – do they enjoy hosting parties, do they present themselves well (indicator of cleanliness), are they handy and capable of general home maintenance, etc? Simply having a non-threatening conversation with the potential tenants can yield a ton of information about them.
 
4. Follow up on references. More often than not references are never called. If they’ve rented before, ask specifically for past landlord references. Be sure to call and ask all pertinent questions regarding payment frequency, cleanliness, any complaints, etc. If they’ve never rented before then you’ll have to get creative when probing their friends and family.
 
5. Be wary of certain rental markets. The numbers may support a particular market for investment, but the renter pool may contain an extraordinary amount of tenants from hell. Either be prepared to have potentially longer tenant searches or avoid these types of markets all together. Poor tenants will always equal headaches and the potential for lost cash flow.
 
Even if you follow all of the above, the odd bad tenant may still get the best of you. In these cases, be sure to have a firm grasp of tenancy legislation so you fully understand your rights as a landlord and their rights as a tenant.

Dustin Graham is a sales representative with Re/Max, the leader of The Graham Partners team located in the west Greater Toronto Area and a consultant on the TV show Income Property.

 

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COMMENTS

  • by Jon 2015-02-19 6:17:32 PM

    Following the some of the advice given in the above article (while it seems sensible), could result in Ontario Landlords violating the Ontario Human Rights Housing Policy.

    For instance, Ontario landlords are NOT allowed to require a tenant applying to rent be employed.

    "Requirements that applicants be employed on a permanent basis or satisfy a criterion of minimum tenure with an employer have been found to discriminate on Code grounds"

    "it is the OHRC’s position that landlords may only verify the fact that the prospective tenant has a source of income, but they may not assess or judge the source type. In other words, landlords are not permitted to discriminate against a prospective tenant because they do not approve of the source of the person’s income (e.g. Ontario Works). "

    Also, using a rent to income ratio seems perfectly reasonable and in fact responsible when screening tenants, the Ontario Human Rights Tribunal prohibits this:

    "It has been and still is a common practice for landlords to assess prospective tenants by applying income ratios (e.g., no more than 30% of a tenant’s income should be required to pay the rent). This practice was assessed in Shelter Corp. v. Ontario151 and found to have a systemic impact on a range of groups identified by Code grounds.152 An Ontario human rights tribunal found that these practices were not bona fide requirements because they had no value in predicting whether a tenant would default on the rent. The later addition of section 21(3) to the Code and the enactment of Regulation 290/98 do not permit landlords to apply income ratios, as has been clarified in a later decision of the tribunal.153 This means that landlords must only assess whether an applicant has enough income to pay the rent. They must not assess whether the balance of an applicant’s remaining income is adequate for non-housing related expenses. "

  • by duncan 2015-02-20 8:53:03 PM

    If Ontario businesses , like banks, car dealerships etc ever had to rely on Ontario legislators/ human rights groups etc to give them business advice or set standards / guidelines in which to follow... Well Ontario would just be bankrupt. I will be a landlord in alberta but Ontario, you can have Ontario. Duncan

  • by Rick 2015-03-01 11:24:52 PM

    You're assuming someone, like myself as a landlord, is making a decision on a tenant based on a single fact (income ratios). It's often more than that. I know my rights as a landlord and I can ask for income, employment history, etc as long as it doesn't contravene the rights of a tenant under Section 2 of the Human Rights Code. I am also familiar that according to the OHRC a person can subject 100% of their income to rental housing. In reality, if I notice someone is doing this then I am bound to find other red flags, which would undoubtably lead to a rejection. As a landlord, I follow the law, but I will always protect my investment.

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