5 Tips for Finding Good Tenants in Vermont
One of the biggest components to owning rental property in Vermont is the ability to find trustworthy, reliable tenants who will pay rent on time and treat you and your property with respect. In this blog I will outline how to efficiently attract a reliable tenant, things to look out for, and how to comply with fair housing laws.
1. Know the laws: The Fair Housing Act states that you can not deny an applicant based on their race, religion, national origin, sex, color, familial status, or handicap. You can, however, base your decision on their credit or criminal history.
2. Where to Advertise: The days of newspaper advertisements are dead. Nobody looks for apartments in the paper any more. More than 75% of renters begin their apartment search online. There is an endless list of websites you can advertise, including:
- Loopnet (Commercial)
- CoStar (Commercial)
When you are writing an advertisement it is always best to describe your property and its features rather than describing the type of tenant you are looking to attract. By sticking with the details pertaining to your property, you will avoid any issues with fair housing laws and discrimination.
3. Consistent application process: You always want to have a consistent application process. By being consistent you are decreasing the chances that you will run into fair housing issues. Your application should at the very least require the applicant to provide:
- Drivers license number
- Social security number
- Current address and landlord
- Current landlord's contact information
- Previous address and landlord
- Previous landlord's contact info
- Current employer
- Position held and income sources
- Supervisor's name and contact info
This information should be used to perform an in depth credit and background check. In the state of Vermont you are legally not allowed to charge an application fee. You can, however, charge a fee based on the cost you incur to run the credit and background check. For example if you pay $20 to a third party company that performs the credit and background check and then provides you with the reports, then you can charge the applicant $20. You can not profit from the application process by charging more than $20.
4. Analyzing the credit report: Hopefully you have chosen a credit reporting agency that provides you with a neat, clean credit report that is easy to read. Even then, the information can be hard to decipher. What you want to see is that the applicant has a good history of paying bills on time and that there are no major red flags such as collections. The credit score is a good piece of information to determine how good an applicant is about making their payments. A higher credit score generally indicates a better payment history. Another key component is the applicant's debt-to-income ratio (DTI). You can calculate an applicant's DTI by taking their total monthly expenses plus the monthly rent you would charge and dividing it by their total monthly income. For example, if the credit report tells you the applicant has $500/month in credit card and car payments, and your rent price is $1000, and the credit report verified that the applicant has an income of $4000/month, their DTI is 37.5% ($500 monthly expenses + $1000 rent / $4000 income = 37.5%). The lower the number the better. Generally you would like to see a DTI of less than 35% with 28% or less being rent. In this instance, $1000 Rent / $4000 income = 25% rent debt.
5. Overall Impression: You know the old saying, "trust your instincts"? The majority of the time, if your gut is telling you something is wrong, then there is probably something you are missing. This means you should really pay attention to the information you are getting and pick it apart to make sure you know everything you can about the person you are putting into your property.