Landlords who have been managing properties for a few years know how important it is to find a good tenant who will pay on time, every time. Owning rental properties is an excellent way to build long term wealth while cash flowing each month but the key there is “cash” and that means actually collecting it each month. You want tenants with good credit and make enough money to pay the rent comfortably.

finding good tenants

What is comfortably? You can use a formula that banks and mortgage companies use. These lenders like to see a borrower’s house payment be no greater than 33% of gross monthly income and no more than 40% for all credit obligations.  If someone makes $3,000 per month then appropriate rent is somewhere around $1,000 with another $200 allotted for credit cards and such. To find out what a potential tenant’s monthly debts are, pull an independent credit report which is available from the major credit reporting agencies. On your rental application, include an all-purpose Authorization Form that gives you permission to not just pull a credit report but to also verify income from an employer.

Pulling credit is fairly straightforward but an Employment Verification request is a bit different. The form will identify the employee and asks of the employer:

  • Is the person employed there and for how long?
  • How much does the employee make each month and what is a year to date total?
  • Is the employee in good standing and what is the prospect for long term employment?

You should easily get answers to the first two questions but don’t be afraid of a little pushback on the third one, an employer may think they’re issuing a long term commitment to the employee. Once you get your request back, compare what is listed on the report with copies of pay check stubs and W2 forms from last year. If you’ve got a match, then along with a good credit report, you’re on your way to having a steady, reliable tenant.