Planning on renting out your condo residence to make passive income? Before you submit an application to the board, make sure you're screening tenants properly. Many landlords make the mistake of skipping the typical apartment screening process because they think the board will do it for them, but this can lead to disastrous consequences. So if you're an investor planning on renting out your condo, here's what you should do to avoid choosing the wrong tenant.
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Why Is It So Important to Qualify Your Tenants?
Many mom-and-pop landlords who rent out their condo residences falsely believe that when they submit an application to the condo board, the tenant will be properly screened as part of the process. So, as long as the tenant is approved, they will be protected. However, this is simply not the case.
The reality is that the condo board only has one right when it comes to reviewing rental applications; the right of first refusal (ROFR). A condo board's right of first refusal only allows them to buy or rent the unit themselves, otherwise they will approve the application. However, approval doesn't mean they've checked the tenant's qualifications and verified their information.
While the board does have some control over the lease terms, there is little they can do to vet the actual tenant or assess their rentability. Many agents and brokers simply advertise the rental listing, find an interested tenant, and submit their information to the board for approval without checking their rental qualifications themselves. Then if the board approves, the landlord assumes they meet the criteria for renting an apartment.
But if the applicant doesn't meet the standard tenant screening criteria, it can have disastrous consequences for all parties involved. So, it's essential that landlords understand how to screen potential renters and ask their agents to do so before submitting a board package. Luckily, the typical screening process for apartments is fairly straightforward if you know what to request.
What Do Landlords Ask For When Renting a Condo?
Before you do any pre-rental screening, you must have a uniform process and treat everyone equally. Use a standard rental application and tenant requirements list that you give to anyone who is interested in renting the property, regardless of who they are. Having a consistent set of standards and requirements will protect you against any fair housing violations if any applicants feel they've been denied unfairly.
Financial Documents
Reviewing an applicant's financial documents is part of the typical tenant selection criteria. You want to verify that the applicant is gainfully employed and earns enough to afford the monthly rent payments. For us, we want to see that the applicant's annual salary is at least 40 times the monthly rent and that they have plenty of savings in case of an emergency.
You'll want to request things like:
- W2s
- Tax returns
- Pay stubs
- Bank statements
- Employment verification letters
- Proof of any other income or assets
Pro Tip: When reviewing the documents, check the money trail. Does the income listed on their employment letter match the amount on their tax returns? Does their annual salary match up with their pay stubs year to date? Forged documents are more common than you might think.
Credit Report
A clean credit report is another standard requirement for a rental property. Landlords in New York City often require a minimum credit score of about 680 to 700. However, this can change based on the location you're in. Keep in mind that it's more important to analyze what the credit report says about their sense of financial responsibility. Do they have a history of late payments or high credit balances? If they're already maxed out, you may be wondering how they'll cover rent and living expenses.
References
References are also a common part of any tenant application screening. You'll want to verify their information and get a sense of their character from reliable sources. You may want to request references from previous landlords or, better yet, ask for their contact info and reach out to them directly. However, when speaking with any landlords, only ask about their historical tenancy information (did they pay rent on time, get along with other tenants, etc.) and do more listening than speaking.
You could also ask for reference letters from a friend or colleague who can speak to the applicant's behavior and character. While not always part of the rental application criteria, this can be helpful in situations where you are on the fence about an applicant and need more information to make a decision. However, don't attempt to meet with them face to face in an interview setting, as this could be a Fair Housing violation.
How Long Does Apartment Screening Take?
The amount of time it takes to screen a tenant can take anywhere from a few hours to several weeks depending on your rental criteria. It all depends on how quickly the tenant submits their paperwork and how long you need to verify it. However, it may help to use a tenant screening checklist to ensure you get all the necessary documents and you make it clear from the beginning what you need from any applicants.
Other Considerations
- Local Laws: Stay updated with any changes in rental laws and tenants rights so you're aware of what you can and cannot do.
- Pets: You are allowed to prohibit pets in your residence UNLESS they are certified medical or emotional support animals. So, you may want to include something about pets in your pre-screening questions for tenants.
- Prohibited Behaviors: It's always wise to be upfront about any prohibited behaviors in the building, such as smoking or extended guests, especially if it may get you in trouble with the condo board.
Leasing your condo residence doesn't have to be all that complicated. Just make sure to have a standard set of rental requirements for all tenants and pay attention to any relevant laws to ensure you are following the proper protocols.
Need help finding qualified tenants? Reach out to our team today to discuss your needs. We can help you screen potential tenants and prepare a board application to ensure it’s a good fit for all parties involved. Contact us today at hello@undividedre.com to get started.
