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Here in Ontario, we have some of the most tenant-friendly rental laws in North America, most often to the detriment of a landlord. While most tenants are law-abiding individuals, there can be situations where “bad” or “unqualified” tenants intentionally (or unintentionally) take advantage of these protections at the landlord’s expense.
You have all heard the horror stories – landlords with their nightmare experiences dealing with problem tenants. You know the ones, from the destruction of property, unpaid rent, noise complaints or a barking dog, a landlord has very little recourse.
Given how slow and expensive the Landlord Tribunal and court systems are, it is always best to avoid any issues at all costs. Get ahead of any situation with a quality screening process!
As a landlord having a “bad tenant” can cost tens of thousands of dollars with little or no opportunity to recoup these funds. Consequently, a landlord should focus on the covenant of a Tenant prospect and complete a thorough due diligence process from the get-go.
The best protective measure that a landlord can take is to run a best-in-class tenant screening process. No shortcuts taken!
Below we have outlined our Top 5 Tenant Screening Tips to ensure your home or investment is well protected for the long term:
1/ Follow the Rules:
You can legally ask some questions on a rental application, and many you cannot.
There are some reasons you can legally deny a tenant from renting your unit, but many are not permitted.
If you deny a tenant for the wrong reason, you could find yourself in legal and potentially financial trouble. The easiest way to avoid such a costly mistake is to hire a professional real estate agent or property management company well-versed in best practices and the Ontario Human Rights Code.
Examples include gender, ethnicity, race, age, number of children, expected pregnancy or sexual orientation. Be very mindful and respectful of this when reviewing rental applications.
2/ Look at Income Holistically:
You have probably heard the rule of thumb that tenants shouldn’t spend more than 30% of their income on rent. But the truth is, every Tenant’s situation is different, and these rules of thumb don’t apply in a rental market as hot as Toronto! It is common for tenants in Toronto to have upwards of a 50% rent-to-income ratio without ever having issues paying rent.
When considering a tenant’s income, it is essential to look at several factors collectively. Of course, one aspect is, how much money do they make? But also: Where is it coming from? How stable is that income? Do they earn commission? If a tenant lost their job, could they quickly find a new one? Do they have a backup plan, savings, investments or a family member that could assist?
Establish where their income is coming from and verify as much as possible. At Fox Marin, we typically ask tenants for a letter of employment, two recent pay stubs, and the contact information for their employer. Reviewing documents, calling their employer and asking questions can all assist in verifying the income information that a tenant provides. And, a little cross-check on Linkedin never hurt either!
3/ Credit Check (but also be aware of its limitations):
It is essential to understand a few things about Credit Scores without going into a considerable amount of detail – they are a bit of a black box for consumers. Most Canadians have a credit file with the two credit bureaus in Canada, Equifax and Transunion. These credit files include a history of when a consumer has (i) inquired about borrowing money, (ii) borrowed money, and (iii) repaid that money. An analysis of this information is amalgamated and reflected in your Credit Score. Note that each credit bureau calculates this number differently.
We at Fox Marin typically ask prospective tenants to provide a full credit report with their rental application. This gives us helpful insight into their borrowing habits and history. A potential tenant with a credit score above 800 is great, and a score between 700-799 is good. When you see scores below 700, you may want to take a deeper dive into their credit history.
Typically young people and new immigrants to Canada don’t have much credit history because they recently started borrowing money resulting in sub-700 credit scores. This doesn’t necessarily mean they won’t pay their rent on time; it just means that there is not enough credit history (in Canada) for the credit bureau to give them a higher credit score. In such cases, you may be able to ask for additional rent upfront (pre-paid rent) or request that the Tenant add a guarantor or co-signer to the lease agreement.
4/ Ask for A Rental History:
The best way to predict the future is to look back at the past! So, it’s time to find out where and what the prospective Tenant has been up to with their former living arrangements. We always ask prospects for their current and former landlord’s contact information. Contacting those references is an excellent way to verify the identity of your prospective Tenant and learn a bit more about them!
5/ Social Media & Google Search:
Last but not least – it’s always a good idea to Google the prospect’s name! It’s incredible what’s out there and how much you can learn about a person. You know the adage, a picture says a thousand words – Instagram, Facebook, Linkedin, Tik Tok & Pinterest are great resources. Here at Fox Marin, we have found published articles about potential prospects, criminal activities & unlawful pursuits simply by scrubbing the world wide web! Don’t underestimate your private investigator skills (they can pay off big time).
The considerations mentioned above make up the bulk of the tenant screening process, and no one factor should be considered in isolation. The tenant screening process requires you to understand the entire profile of a prospective renter using multiple cross-checks.
If you are renting out your condo for $3,000/month to a new tenant and they end up staying in your investment for three years, you are signing a contract with a stranger that represents over $100,000 of revenue. You are entrusting them with your hard-earned asset. So, it makes sense to us that your upfront effort and due diligence to source the best and brightest Tenant is important for a winning partnership and your long-term upside!
If you are looking to up your Tenant Screening game plan, please do not hesitate to reach out to our rental team for additional advice and insider ideas! Our dedicated Leasing Division has got you covered from beginning to end!
When it comes to leasing with Fox Marin, our listing services for landlords go far beyond simply uploading your property on MLS. From the moment you engage with our team, we will walk you through the entire listing process and manage the transaction from start to finish.
Working with Fox Marin on the lease of your property not only guarantees maximum exposure but ensures your property is leasing for its full market value. In addition, our leasing division is extremely well-versed in both landlord and tenant rights and obligations. We make sure to keep you informed throughout the entire leasing process and ensure that you are fully protected under the Act.
Ready to start leasing with FM? Take the first steps in getting your rental property market-ready and ultimately, retain an AAA tenant for top market value!
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This article was written by Jerome Werniuk, a Sales Representative at Fox Marin, working with residential clients to buy, sell, lease & invest! Jerome has lived and worked in many exciting neighbourhoods and real estate markets across Toronto, New York, and San Francisco. Now representing residential clients in the city that has always been his true home, Jerome is excited to channel his unique knowledge base in real estate and technology to help his clients achieve their desired results. Having negotiated transactions with Fortune 500 companies, Canada’s largest commercial real estate firms, and individual landlords, Jerome brings a breadth of negotiating experience to the table!