What Every New Landlord Should Know Before Accepting Their First Tenant

You’ve just closed on your first rental property. Maybe you’ve worked some weekends to paint the walls and replace some fixtures or maybe you’re just renting it as-is. Either way, now it’s time to find someone, anyone, to pay rent and start covering that mortgage.

You feel pressure. The longer the unit sits empty, the more money you’re losing. But while it’s understandable to want to fill an empty unit as soon as possible, new landlords who take the first half decent applicant end up regretting it – as if an empty unit was a mini-vacation.

Screening Seems Easy…Until You Do It

All seasoned landlords tell new landlords that screening is essential for tenants. Great advice. But what does that mean for someone who has never done it before?

Application. Need one to establish employment history, history of addresses, relationships to references, along with written consent to run a background and credit check. Some landlords skip this part because one applicant seems personable enough at a showing or has good energy. They quickly learn their lessons.

Credit reports show credit payment history. A 480 score and 15 collections is not suddenly going to change into a responsible tenant for rent. They’ve shown you how they will treat you before you’ve even begun. But a caveat is that a thin credit file isn’t enough reason to disqualify. Someone with lower scores – a legitimate medical emergency forcing their credit down – is different than someone who just has decided to not pay anyone for any reason, ever. This process requires nuance.

Criminal background checks reveal any major offenses – although what’s requisite depends on property type and local regulations – and how many landlords truly care about old possession charges? More than likely, if someone has been evicted twice in the past three years, they’re getting evicted #3 at your place if they even have a place.

The Information the Application Misses

Standard screening attempts to catch those who would otherwise be disqualified easily. Yet other tenants who might truly be problematic slip through the cracks.

Someone could have excellent credit yet be someone who breaks leases, leaves units in disarray or sneaks in dogs without permission. This doesn’t show up on any credit report. Most times prior landlords are exhausted by bad tenants and fail to be honest about their efforts; they just want these problematic people gone so they’ll sing their praises to save face.

This is where inexperienced landlords falter. Limited information means taking risks.

Experienced property managers run a do not rent list that tracks tenant behavior through multiple properties. Rental history shows timely paid rent, lease violations and other patterns unavailable elsewhere. 

By the time something makes it onto a standard credit report, it’s already lost someone money – better to catch these trends before they become your trends.

Income Requirements Matter

This shouldn’t have to be stated but it does – actually verify income.

Three times monthly rent is the goal here. If rent is $1500, tenant should make at least $4,500 per month (take-home). After taxes, utilities, groceries, car payments and any other expected bills, rent should be affordable. If it’s a stretch, they’ll fall behind.

Call their place of employment directly – yes, it feels invasive – but understand it’s standard procedure to confirm employment, position and pay. If your tenant is self-employed they should also know it’s crucial to ask for tax returns or a larger deposit. Everyone should be held to the same standards for fair housing; laws don’t play around.

It’s trickier with self-employed or gig workers – their income could differ drastically from month to month even if over the course of twelve months it’s relatively stable. The same rules apply – nice for everyone for standards – but housing laws should mean universal application – unless you want trouble later.

Why Check References Anyway?

You call the references they give you – those are rarely going to set off red flags. The prior landlord is happy they’re gone; the personal reference is their mother or best friend.

Call them anyway – you may sniff something out – or you can ask questions that give you more information. Did they pay on time? Yes. Would you rent to them again? Yes? Wrong answers; let’s dig deeper: “Did they ever pay late and how many times? Did you actively have to chase them for rent? What condition was the unit when they left?”

Your conclusion should note how long they spent at previous locations – even an evicted tenant who has moved six times in four years will bring red flags even if everyone said they’re great.

Laws You Must Know About

Fair housing is non-negotiable – that means you cannot discriminate based on race, color, religion, national origin, sex, disability or familial status. Some places broaden this category. Thus, how you advertise, what questions you ask and how you hold each applicant are impacted.

If you have certain standards for acceptability, stick with them – if you run a credit check for one applicant you better do it for everyone else – you either need income verification from one tenant or every tenant meeting your criteria otherwise.

Requirements for security deposits vary by state – some states have a max amount allowed – some places require exact storage measures – and specific timeliness during which the amount needs to be returned – with itemized discrepancies per dollar withdrawn as well – mess this up and you owe your tenants double or triple what you took from them in the first place.

Eviction procedure varies state-by-state. Some states make it incredibly difficult – even lengthy and expensive processes – that heavily favor tenants; other situations move much faster yet still require necessary notices; know going in how much of a risk you’re taking.

What A Bad Tenant Really Costs

Let’s talk numbers since hypothetical warnings aren’t enough.

The tenant stopped paying rent in month 3 – you still had to pay your mortgage while evicting – and it costs two months’ rent (on average) in the United States to evict someone. The tenant never paid July either – which means that’s approximately $4500 lost in income when all you needed was one month without a payment on time or one month with an eviction notice that would still take sixty days up until 5 days after the first of the month – and add legal fees ranging from $1000-$3000 and court costs as well as time value on your investment trying to clear this mess up without collecting rent – which is thousands more.

If they ruined your unit more than typical wear and tear – add a few thousand more – security deposits cannot cover everything once standardized; broken appliances and holes in the drywall will add thousands more without compensation from your tenant since people think that’s what security deposits are for, yet they’re not.

Now there’s painting and cleaning and repairs needed before relisting – and you’re up an additional month of vacancy before you found another tenant – you saved yourself all this time and energy by being selective while one bad tenant costs at least $10-$20k – and it’s easy enough to highlight that being picky costs maybe $1500 max by being vacant for an extra three weeks instead.

Take Your Time

That very first tenant sets the tone for your entire relationship with becoming a landlord. Will this be an investment that passively covers expenses or will this become almost another job filled with headaches?

Use a screening checklist and implement one with every applicant – verify employment – background checks – previous rental payment patterns if you can access them – rent checks made out personally – call references even if they’re pointless – make sure income meets reasonable criteria.

You feel pressure to give someone a vacancy so it’s not running off its own bank account – but giving anyone a chance because you’re rushing backfires some much it’s not worth it at all to ever regret this investment from day one.

An empty unit is just money not making money – it becomes bad tenants cost – a loss of sleep/daytime stress/legal fees required or worse, damage beyond normal wear-and-tear which prevents the easily accessible look and paint job before another tenant comes into play; damage caused by refusing to pay – which could’ve been avoided if you’d only checked their rental history when secured elsewhere for sub-par reasons even though they looked good on paper with you but weren’t worth the stress required down the line.

Treat tenant screening as hiring for an important role because that’s what it is – you’ll be entering a legal and financial relationship with this person – and if they’re going to live in your property (and hopefully take care of it), rush that decision and you’ll pay for it later – but take your time and find someone solid and you’ll learn to actually appreciate your new landlord position again.