Throughout 2015, Canadian landlords witnessed record low vacancy rates and a healthy rental market. However, 2015 also revealed that a tight rental market doesn’t necessarily guarantee good tenancies. A few landlords experienced the perils of a landlord’s market, and learned the hard way that effective tenant screening is key to successful tenancies.
Here are some lessons learned in 2015:
1. A rental market that is good for landlords is tough on tenants, and that can bring out the worst in people. Desperation turns to deceit. Highlights of 2015 include tenants who were caught lying on rental applications. Savvy applicants concocted sob stories and scammed their way into rentals. Once there, they hunkered down and manipulated the clunky eviction process, living rent free while system delays ate up most of the year.
How can you avoid becoming a victim in 2016?
Be aware that the worst tenants are looking for landlords who seem laid back or inexperienced. These landlords don’t dig very deeply when screening tenants. If you are a new landlord or come across that way, you are most at risk. The solution: make yourself look experienced even if you are not.
Create professional-looking rental ads, know your stuff when you speak with tenants, and be firm. For instance, don’t be willing to make major concessions right out of the gate — tenants may be feeling you out to see if you are a pushover. Advertise that you require a tenant background check, and stick with that plan once you spot a potential renter.
Demand a completed rental application each time. One notorious tenant was charged with criminal fraud after falsifying a rental application. The best way to catch a bad tenant is to ask for pertinent information, and then verify that information.
Verify that references are legitimate. There were cases reported this year where references were staged. In a previous case, the applicant was using a false identity, and the reference was describing another tenant. Take a few minutes to complete this very important due diligence.
Run a credit check on an applicant before accepting rent, handing over the keys, or signing a lease agreement.
2. Secondary suites became increasingly popular in 2015. While this arrangement is a potential win-win for both property owners and tenants, it can be costly if the owner doesn’t step up as a landlord. It’s a serious commitment that requires diligent tenant screening and active property management.
Take the time to learn the trade before you run the risk of income loss.
3. Landlords can be too selective. A strong market can lead to multiple applicants. Landlords may have their pick. However, in 2015, we saw landlords who focused on personal characteristics rather than qualifications. The result: out-of-pocket losses for discrimination.
An increased number of rental applications can create a false sense of power when it comes to selecting the perfect tenants. But ignoring Human Rights laws can quickly consume any profits for that year — and many more to come.
Rejecting a tenant because of a perceived disability is one such example. Denying tenants access because of companion animals was another common mistake throughout the past year.
Good tenants cannot be identified by outward appearance or personal characteristics. Families with children can be the most stable; young professionals can be transient or neglectful of the property. It’s risky to play the odds that your ideal will consistently pay off. The better course is to develop a more sustainable tenant screening protocol, one that works for all applicants, and for years to come.
4. More tenants need roommates. Rents are out of reach for many tenants, and with a serious shortage of affordable housing, many people have no choice but to share expenses with others. That, combined with more millennials in the market, reshaped rental demographics.
Unfortunately, roommate rentals and guest arrangements don’t always benefit landlords. To cut down on potential losses, follow these rules:
One of the best ways for a bad tenant to get into your property is to move in with an existing tenant. Watch for it. Perform a tenant background check on each adult applicant. This requires obtaining separate rental applications from each proposed co-tenant. Then, make sure each adult signs the lease agreement.
Tailor your tenancy agreement to fit the co-tenancy. For instance, the form should address joint and several liability. Seek legal advice if you are not certain what should be in your lease.
Vacation rental websites like Airbnb gained popularity this year. These listing services offer tenants the opportunity to make extra cash by renting out a room — or just a sofa — by the night. While tenants celebrate the opportunity to make more money, few are aware of the dangers, and landlords may incur significant risks, including injury to the tenant or others, injury to the property, and even difficulty in removing long-term guests from the property.
A guest policy is a must-have for a tenancy agreement. If possible, limit commercial uses like vacation rentals, and reserve the right to run a tenant background check on long-term guests.
5. A shortage of housing creates more long-term tenancies. On the face of it, there is nothing wrong with keeping your current tenants, so long as they are good tenants, and they were carefully screened before they moved in.
However, the damage that a long-term tenant can wreak on the property is astonishing. Toss the idea that the longer the tenant stays, the better the tenant is behaving. As some landlords discovered with year, just because a tenant is paying rent does not mean that they are taking care of the property, following the rules, or obeying the law.
When screening tenants, consider the possibility that this person may be in the property for the next four or five years. That way, it’s easy to understand that spending a few minutes running a credit report and speaking with previous landlords is little sacrifice to avoid a nightmare tenancy.
Neglect is another issue that stems from long-term tenants. If the landlord is not turning the property every year, then special arrangements need to be made for upkeep, repairs, updating and inspecting for damage. With planned vacancies, it’s easy to get workers lined up to redo a unit in a shorter period of time. With tenants in the property, there are issues involving quiet enjoyment and the right to privacy that can delay projects or crank up costs because of the tenants’ interference.
Ignoring these concerns doesn’t help. Landlords who order work regardless of the tenants’ feelings may face rent abatement or payment of damages on top of construction costs.
If possible, renew the lease for additional terms, like one year at a time, rather than allowing the lease to default to a month-to-month tenancy. It is easier to manage a property that is under a set term than to be unaware of when your next vacancy is likely to occur. The lease should contemplate more than just the issues likely to occur in the first year.
6. Rent increases were modest in 2015, and that trend will continue next year. It’s more important than ever to keep costs low. One of the best ways to do this is to adopt a no-smoking policy. Along with attracting the best tenants, smoke-free properties are easier to maintain, cutting costs and reducing turnaround time.
This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).
Click Here to Receive Landlord Credit Reports.
Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.