The Ultimate Guide to Tenant Screening

For most real estate investors, tenants are the lifeblood of your business. They allow you to continue owning your property and provide you with capital to grow and maintain your business.

As a result, you have to perform your due diligence to make sure only the highest quality occupants move in. Using these steps, you’re far more likely to have no problem tenants.

Maintain High Standards

You can limit the possibility of having a trouble tenant if you implement the following strict criteria:

  • Their income must be three times their rent.
  • They must have excellent references from all of their previous landlords.
  • They must have never faced an eviction.
  • They must have no felonies or criminal activities in their history.

So long as you don’t stray from these criteria, then you should be more than half-way to a good tenant.

Be Diligent and Clear

Lay out all of your expectations for your tenant and be as thorough as possible about the unit you’re renting. When speaking on the phone, make sure your prospective occupant knows what they’re getting into. When you meet in person, repeat your expectations. You don’t want either your time or the occupant’s time wasted.

In-Person Interviews

When talking to someone in person, you end up with a better idea of what they’re like. There’s a lot that you can only learn about a person by talking with them face to face. Survey your applicant’s vehicle, attitude, punctuality, and physical cleanliness. You want to make sure you’re dealing with someone who takes you seriously to wear clean clothes and show up on time. This interview can also serve as the foundation for a stable relationship with your eventual tenant.

Credit Reports

A credit report will let you know if your potential tenant consistently pays their debts. A delinquent tenant may compromise your ability to pay your bills. It may also make it harder to set up accounts with utilities for future tenants.

Debt-to-Income Ratio

Knowing how much debt your tenant has overall will make it easier for you to tell how hard it will be for them to pay their bills on time or at all. If your tenant has too many debts, then they may also prioritize them overpaying their rent.

Employment and Income Verification

You want to be sure that your tenant is employed. Stable work history can also indicate general stability. If you can’t verify your tenant’s income source, then that may mean their income is unstable, comes from illicit activity, or that they may be lying. Be sure when verifying employment that you speak with a supervisor or HR manager to avoid the possibility of a work friend lying to you.

Rental History

If your tenant has ever broken a lease or been evicted before then, they may repeat the same pattern of behavior. If they’ve ever broken a lease or been evicted, make sure you’re comfortable with their reasons.

Landlord References

Previous landlords should pretty quickly reveal to you if you want to move forward with a tenant. However, it’s important to remember that some landlords can be very strict. This is particularly so with landlords who rent out spaces that they’re emotionally attached to.

Co-signers

Co-signers become legally obligated for the payment and condition of a unit. They’re used when an applicant doesn’t meet the rigors of the screening process, usually because of their income or lacking rental history. As a result, cosigners should be screened as thoroughly as the renter. Don’t think that a cosigner means that a tenant can’t turn into a problem.

Criminal Background Check

Having a criminal background is a deal-breaker for some people. It doesn’t have to be, but do make sure that you’re comfortable with your tenant’s criminal history if they have one.

Follow the Law

According to the U.S. Department of Housing and Urban Development’s Fair Housing Laws, you cannot deny a tenant based on race, color, religion, sex, disability, national origin, or familial status.

Only Say It’s Rented if It’s Rented

It’s against the law to tell someone a unit is rented if it’s not. So, to make things easier for yourself, accept a potential tenant first and move forward with getting all the paperwork done. Only then can you tell other applicants that they’ve been rejected.

If the Rejection is Because of Their Credit History, Let Your Tenant Know

The Fair Credit Reporting Act (FCRA) states that you have to let your potential tenant know if they were rejected because of their credit report. This includes your tenant’s credit score, debt, missed payments, or anything else in their credit history.

Deny with Specifics

If you have a particular reason for denying an applicant, write it down and save any related documentation. This information will come in handy if the applicant decides to retaliate in any way.

Tell Your Applicant Why They Were Denied if They Ask

It’s not legally necessary to tell your applicants why you denied their application. Although, it is a professional courtesy to explain if you’re asked for one. Not doing so also opens you up to legal liability because the applicant may take legal action to determine why they were denied.

Reject Applicants Kindly

Say something like, “We’re sorry to inform you that your application has been denied. Thank you for taking the time to apply.” By maintaining good terms with potential tenants, you protect yourself if your applicant drops out or a vacancy quickly needs to be filled. You also ensure that you don’t have a bad reputation as a landlord.

Use Deadlines

If you set a sign-by date for your tenant, then you’ll be making sure your tenant signs on time. If your tenant is slow, then you have a reason to proceed with caution because they might be delayed with bill payment or outright late. Using an online application should make this step easier. Similar online software exists to make paying bills easier too.

Screen Right Away

Start screening as soon as you can so that you’re less likely to end up with a vacancy, lose a good renter, or end up with a bad tenant.

Be Wary of Legal Cases

Court cases come up when you conduct a background check. If a tenant has a history of being sued for unpaid rent, unpaid child support, or anything else that reveals a history of nonpayment, then that’s a good reason to pass on them.

Vehicle Repossession

Your applicants’ credit report will show if they’ve ever had a vehicle repossessed. If they have, you should inquire about the circumstances because the repossession may be evidence of past financial hardship.

Watch Out For Applicants in a Hurry
It might seem like you’ve struck gold because your applicant is so excited to move in and so on top of the application process, but their exuberance maybe desperation. Make sure that your applicant isn’t hiding anything or trying to escape a bad situation. They could be trying to avoid getting an eviction on their public record, or they may be rightfully excited. Make sure you know which it is.

Check Their Social Media

People reveal a lot about themselves on social media, and some of those things may disqualify them as tenants. If you see an applicant complaining about a job that they just lost while telling you that they’re still employed, that’s a problem!

Find Out if There’s Anything That Could Interrupt Their Ability to Pay Rent

Simply put, ask, “Could anything interrupt your ability to pay rent?” Your applicant is most likely going to provide a standard response like job loss or medical expenses. But if your applicant is particular with their answer, then it may be possible that they’re anticipating having a particular problem.

Bottom Line

As thorough as you may be with your screening, you still may end up with a problem tenant. Luckily, being thorough makes that far less likely. By being rigorous, you ensure that your investment will be safe and that your business will grow and flourish.

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