Toronto Homes & Real Estate - REMAX Hallmark Realty Ltd.

I am considering buying a multi family home as an investment but I am concerned about tenant issues, what advise can you give me for choosing the right tenant?

05 August 2014
REMAX Hallmark

You should thoroughly research a prospective tenant before making a final decision. If you accept tenants without screening and verifying their information, terminating the rental agreement may be difficult even if you discover later they provided false information.

Consider hiring a professional to screen prospective tenants. A professional will have access to credit data and systems in place to ensure a complete vetting process. As a landlord, this service is a tax deductible expense. Some real estate agents specialize in this type of service and will also market and show the property for you until a suitable tenant can be secured. Alternatively, a property management firm offers this service to clients, but be aware that they will also have the expectation of managing the property on an ongoing basis which adds an ongoing monthly expense.  

The three key considerations for screening are:

1. Income and Employment

2. References

3. Credit worthiness

Be sure to verify a prospective tenants income and employment and it is recommended that you also ask for other outstanding financial obligations similar to a lender to determine their GDS and TDS ratios. This is your best indicator to know the tenant can afford the cost of the rent.  

It's critical to check past references with previous landlords. Do not put all your stock in their current landlord as they may be looking to get rid of them and the best way to do that is to give them a good reference. Go as far back as possible and question any gaps in time line. If they do not have a rental history or poor credit, you could ask for a guarantor on the lease. 

Unless you are a member of a credit bureau, you will not be able to generate a credit report. You could ask the prospective tenant to provide one with their application, but this may add a level of complexity to the process that neither party is equipped to manage. 

The best way to find the most qualified tenants for inexperienced and time strapped  landlords is to hire a pro and ask them to show you how it works the first time. You will cut your learning curve and mitigate your risk, which is always desirable when the goal is to grow your portfolio.

Barbara Brindle - Broker of Record, Manager RE/MAX Hallmark York Group