The Importance of Tenant Selection Criteria When You Rent Your Colorado Springs Home
Determining which tenant to rent your investment property out to can be one of the most confusing areas of property management for many real estate investors in Colorado Springs, especially if you’re new at it.
On one hand, you want to make sure you choose the most responsible tenant possible; a tenant who will pay his or her rent on time and one who can be relied upon not to destroy your property. You want to make a profit from renting your home, not have it sit empty for weeks while you make repairs from previous tenants. Yet, at the same time, you must make sure that you abide by fair housing laws.
With our abundance of military bases in Colorado, as well as retirees who relocate to Colorado Springs, there are several opportunities to make a return on your investment by renting out your home to families moving to the area.
Before you actually begin renting out your Colorado Springs property it is a good idea to sit down and determine the criteria you will use to select that best tenant. Without guidelines you will have no choice but to rely on your instinct to choose the best tenant. While following your instinct are important, owning an investment property is a serious investment, and you need solid guidelines based on experience to help your selection criteria. One of the worst risks you can take is to let your own personal opinions and biases guide you in your decision because this could open the door for a discrimination lawsuit.
First, you should always make sure that you notify prospective tenants that you utilize a fair system to make your decision. If you are fairly new to operating investment rental property in Colorado Springs, you may not be familiar with fair housing laws. Be sure to consult your Colorado’s fair housing office to determine the most up-to-date information on those guidelines which you must follow. Beyond fair housing laws, it is important to make sure you establish criteria that are concrete by which to judge all potential applicants. Having a system by which to select your tenants is crucial.
For example, it is common to require that the applicant provide identification that is verifiable. You may require the applicant to present a photo ID with their application so that you can make a copy of it. This type of requirement is valid because you may need it in the future in the event you need to describe adult occupants of the unit. With so many military families relocating to the Colorado Springs from other areas, often the identification is from out of state. Obtaining a copy of their military ID would also be a good practice. If someone co-signs the application, it is also a good idea to obtain identification for them as well.
It is also quite important to require information which would help you to determine that the applicant can afford the monthly lease payments on your home. Do they have a sufficient income to rent ratio. The general rule of thumb is to recognize applicants that have a gross monthly income that is three times the amount of the rent. One way to document this information is by requesting copies of the applicant’s pay stubs along with their application. If the applicant is self-employed, you might ask them to provide their last tax return in addition to three months of bank statements. If you cannot verify the applicant’s income, this would be a perfectly legitimate reason to deny their application as you have no assurance that they would be able to pay their rent.
Many property managers and landlords also check credit ratings and scores on applicants as well. The purpose of this is to verify the financial responsibility of the applicant. The general guideline is to obtain a credit report on all applicants as well as any co-signers who are over the age of 18. Keep in mind that you will need to receive permission to run a credit report; however, you can request this information on the rental application. Applicants with low credit scores could be legitimately denied on the basis on being unable to prove financial responsibility. If you do not want to deny them on the basis of their credit score, you can often request additional deposit money.
In addition, you should check references. Typically, you should ask all applicants to provide the names and telephone numbers of individuals who can verify the applicant’s income sources as well as character references. Find out how long the personal reference has had a relationship with the applicant, and ask the reference to talk about the applicant’s character. You may also receive some very telling answers to the question, “Would you recommend this person as a tenant?” to a landlord. Generally, applicants should provide three to four references on their application. It is crucially to contact tenants’ references. This will give you an idea of their character and financial responsibility.
Finally, make sure you follow-up on references to check that the applicant has been able to successfully rent an apartment or home in the past and paid their rent on time. In the event an applicant is unable to meet this requirement but does meet all other requirements you may consider requiring the applicant to have a co-signer. This will hold another person, usually with a better credit history, also responsible for ensuring rent payments.
Property investment is a common choice many people participate in, and it can have significant return on your investment. Although, many home owners choose to rent out their homes on their own, many Colorado Springs property investors utilize property management services to help them oversee the day to day responsibilities of being a landlord. Yes, there is typically a monthly fee involved, but the property management company will market your home in Colorado Springs and elsewhere to help attract the right tenants for you. They will also ensure that all fair housing practices are adhered to which reduces your liability. If you would like more information on Merit Co’s Colorado Springs property management services please contact firstname.lastname@example.org
Also, if you are not yet a property investor and are looking for investment property in Colorado Springs, please contact our office. We would be happy to arrange one of our qualified Colorado Realtors® to speak with you and show you some available properties for sale in Colorado Springs or other Pikes Peak areas.