As the housing market continues to decline, some property owners who have not been able to sell are becoming Landlords by default.   It is estimated there are 10 million small and medium-sized residential landlords in the U.S., many of whom only have one rental property, and Arizona is no exception.  Most of these property owners became landlords because they had purchased another residence and were ready to move on, but prices were too depressed in their area to sell; or they couldn't get the price they wanted.  So to mitigate the cost of an additional home while waiting for the market to improve, they decided to rent it out.   If you've been thrust into that role, you're probably wondering if your tenant will pay the rent on time, and take care of your property.

The most important step you must take in your new role of Landlord is screening prospective tenants.   Taking these initial steps will prevent problems down the line:

Foremost on the list is proper identification. Before accepting an application, ask for a photo ID and compare faces and names. Do this for each adult who will be living in the unit.  If this sounds overly cautious, just remember it is easy to cover up poor credit or a criminal history by giving a landlord the name and Social Security number of a friend or relative with a clean record.  

By providing contact numbers for employer(s), bank(s) and personal references, applicants should understand that you will be contacting everyone directly, and that you perform a complete tenant screen with credit check.  But to make sure there are no misunderstandings, ask each applicant to sign a statement agreeing to let you check their personal and credit information. You can provide a separate form or simply include the following statement on your application above the signature line:

"I authorize the verification of the information I have included on this form, as well as verification of my credit history, as they relate to my tenancy and to future rent collections."

Once you have a completed rental application and have verified the identities of the adults who will sign your lease, your next step is to review the application. Ensure all fields are filled in and legible. If any of the information is missing, call the prospect and ask for it. Missing information is often a red flag.    When you get the credit report, verify the identification information in the application.   Check age, prior residence, birthday, etc.   If something does not match up, there a red flag.   Ask for an explanation from the applicant.

If you rely on credit agencies and other sources of information to make decisions about whom you will accept as a tenant, you need to comply with the federal Fair Credit Reporting Act (FCRA).

It is a good idea to read the Federal Trade Commission (FTC) landlord guide "Using Consumer Reports: What Landlords Need to Know" to ensure compliance with the FCRA. It provides guidance on how to use reports from credit bureaus and describes what you must do when evaluating an applicant.

Be prepared to contact former and current employers, landlords and references when screening applicants. Listen for what they say, as well as what they do not say.   Especially from the current landlord, who might want to be rid of the Tenant and will say anything to pass him/her on to the next unsuspecting Landlord.  Plan to contact a minimum of two prior landlords.

Still want to do it yourself?

Don't be embarrassed if this seems too daunting.    Enlisting the services of a professional could save you money in the long run.   You can mitigate your risk by using a Realtor® to find your tenant.  And for ongoing management, you can choose a property manager to collect rents, provide maintenance and repairs or any combination of these tasks.    See more tips on this subject and others affecting homeowners at my website: www.AudryWolff.com