How to Vet (and Keep) Great Tenants

Are you planning on renting out your ADU for additional income? Given the hot rental market in the Los Angeles area, it’s a good idea. But as a brand-new landlord, how do you find the best tenants? It all comes down to screening.

The following guide will show you how to attract ideal applicants and screen potential tenants thoroughly, fairly, and legally.

Why screen tenants?

It’s very important to thoroughly screen tenants, as bad renters could end up damaging your property or failing to pay the rent. They could also be loud and disrespectful, which is particularly a concern if you and your family are living right next door!

Additionally, the screening process helps you know what to expect from the applicant as a renter. Think of it as a way to learn more about your future tenant and close neighbor.

How to advertise your ADU rental

Before you can screen your applicants, they’ll need to apply. And they’ll be more likely to apply if the application process is simple and straightforward and the listing is clear and informative.

Where to advertise

These days, the vast majority of renters find listings online on sites like Zillow, Trulia, HotPads, and Apartments.com. Advertising your rental listing online means more people will see it, and it allows you the opportunity to include high-quality photos, a virtual tour, and/or plenty of information about the unit.

Use a full-service company (such as The Rental Girl in LA) if you want help listing the rental.

Photos

Potential applicants prefer rental listings that offer high-quality photographs of the unit.

Although it may seem counterintuitive, prospective renters tend to prefer staged photos vs photos of an empty unit. Furniture helps give a sense of scale and makes a space look lived in. Even though it’s not their own furniture, staged photos help an applicant imagine their own furniture and other items in the space.

If you like, Otto can refer you to a staging company and a professional photographer so you can show off your ADU to the fullest in online rental listings.

Listing copy

Your listing should include a description of the property and surrounding neighborhood, whether or not it’s pet-friendly, and a list of amenities.

Think about things that make the unit special—is it walkable to restaurants and bars, accessible to a manicured backyard, or contain its own laundry machines? Make sure to include all of that in the listing!

It might be worthwhile to mention the benefits of living in an ADU, as some potential applicants might be skeptical. The floor plan might be compact, but it’s easy to clean and inexpensive to heat and cool. It can be a perfect option for students, seasonal workers, or anyone looking to embrace a minimalist lifestyle. Additionally, there are many benefits to living in a brand-new unit with modern appliances. Many people would rather live in a smaller new unit than a larger old one with outdated appliances and few amenities.

Tenant Screening 101

When it comes to screening potential tenants, it is important to evaluate applicants legally and equitably.

First, it is illegal to discriminate against rental applicants based on any of the following:

• Race
• Ethnicity
• Gender
• Age
• Disability
• Religion
• Family size or status
• Immigration status

If a potential renter believes you rejected their application based on one of the above criteria, they could sue for discrimination.

That being said, there are plenty of legitimate reasons to deny an application. Some of these reasons include:

• Insufficient income
• Poor credit
• Criminal record (in some cases)
• High debt-to-income ratio
• Unfavorable references from past or present landlords

When vetting tenants, it is best to set clear guidelines, apply them consistently, and maintain comprehensive records.

It’s also a good idea to write out a checklist of your screening process and rental criteria to use along with your background and credit checks. That way, if a potential renter claims discrimination, you can reference the checklist to prove the specific reason for denying their application.

Give all applicants the same rental application to fill out. For the sake of fairness, it is recommended to accept the first qualified applicant for your rental property (and in some places, this is legally mandated).

Special considerations for ADUs

There are some specific concerns for backyard ADUs that don’t necessarily apply to other kinds of rentals.

Because your tenant will be living in such close proximity to you and your family, you’ll want to make sure expectations and boundaries are clearly defined. If you have a pool, do the tenants have unlimited shared access? What about backyard access or gardening privileges? Do you want to set any quiet hours? How do you want tenants to communicate with you (e.g. is it okay to knock on your door, or would you prefer they call/text/email instead)?

Carefully consider all of the needs, boundaries, and requirements that you can anticipate and be sure to include them in the rental listing, or at least make sure they’re communicated to interested parties before they apply. It will save everyone time and energy if you communicate upfront about any special circumstances, in case they turn out to be dealbreakers for the prospective tenants.

What makes a qualified applicant?

You may wonder how to tell if an applicant would make a good tenant.

A qualified applicant will:

• Pass their credit and background checks. We recommend using a third-party tenant screening service to perform background checks, such as Tenant Screening Center or American Apartment Owners Association.
• Receive good references from previous landlords
• Afford to pay the rent, according to your guidelines

Bonus tenant-vetting tips

• The internet is your friend. Look up an applicant on social media or do an online search to see what you find.
• Watch out for signs of dishonesty. Do they claim to be a nonsmoker, but smell like cigarette smoke? Even small “white lies” can be a major red flag.
• Good employees make good tenants! Ask for a work reference on the rental application so you can ask a supervisor about punctuality, cleanliness, responsibility, etc.
• Call more than one previous landlord. Some people give their friend's cell number to pretend they are their landlord, so try to verify the landlord’s identity if possible. Ask how long they’ve owned the property and how long the tenant lived there. If you can easily find the public records showing the landlord’s mailing address, ask them to confirm their zip code.
• If the applicant has been evicted in the last 5 years, do not rent to them.
• Make sure to do a criminal record check, and immediately disqualify any applicants convicted of property damage or any kind of violent crime.
• Do a credit check and consider not just the amount of debt a potential tenant has, but the type of debt as well. Not all debt is created equal, and student or vehicle debt is preferable to credit card debt.

Keeping tenants happy

When you find a good tenant, it’s worth putting in the effort to keep them! Here are our dos and don’ts for landlords hoping to keep their tenants happy:

Do:

• Respond to repair requests ASAP
• Respect tenants’ privacy. Let them know ahead of time if you’ll be stopping by the property. It might not be legally mandatory, but it is common courtesy, and your tenants will appreciate it
• Consider allowing pets. Pet owners often make responsible tenants, yet many rental properties don’t allow pets out of concern for the property damage they might cause. Charging a pet deposit or modest monthly pet fee can help mitigate these concerns, and pet-loving applicants will be grateful for the accommodation!

Don’t:

• Surprise your tenants with big rent hikes. When you do need to raise the rent, tenants appreciate a moderate increase with plenty of upfront notice. See the “Setting Fair Rent” section below to learn more.
• Place unreasonable expectations or limitations on your tenants. They’re adults, after all; they can responsibly manage occasional overnight guests and large houseplants.

Setting Fair Rent

In order to be a successful landlord, you’ll need to make sure that the rent you charge is high enough to cover your operating expenses and turn a profit. However, charging the highest possible price is not the answer. You’ll need to set the rental at a fair market price for the area.

Look on Zillow or another apartment rental sites for other nearby rental units similar to yours, and see how much they charge. Compare not only the square footage and location of the units, but also number of bedrooms and bathrooms, age and condition of the unit, and any amenities or included utilities. Find the average of what these other rentals are charging and apply it to your own unit.

Raising rent fairly

It’s likely that at some point during your landlord career, you’ll need to raise the rent. As we mentioned above, it is always best to do so in a respectful manner that gives plenty of notice to your tenants.

You’ll also need to check whether your property is under some form of rent control (e.g. the Rent Stabilization Ordinance in LA City) and confirm how that impacts how much you can raise the rent.

In the City of Los Angeles, rent increases can only happen once a year and the increase can be no more than 8%. If your property falls under a different jurisdiction, we recommend researching the rent increase laws in your area.

Property Management Companies

If vetting potential renters sounds like too much work—and it can be a lot—you might want to consider hiring a reputable property management company to do the work for you.

TGN Property Management, Glaser Property Management, and EGL Properties are a few highly rated property management companies in the Los Angeles area. And if you’d like to manage the property yourself but would prefer to outsource the application and vetting process, companies like TurboTenant and RentRedi offer customizable applications, screening reports, and background check services.

Conclusion

Choosing the perfect tenant is hard work, but it’s worth it!

When you’re renting out an accessory dwelling unit on your property, the stakes are higher than most rental situations. You’re not just choosing a tenant, after all, but a close neighbor as well.

If you put in the effort to properly screen and vet tenants, you will have a much better experience as a landlord and neighbor.

When you’re ready to start designing the perfect rental unit, contact Otto for a free consultation.

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