Good tenant screening is the most important part of protecting your investment property. The wrong resident could cost you a lot of money and headache. The right residents pay rent on time, take care of the rental property, follow the terms of the lease agreement, and communicate openly and transparently.
Most landlords will glance at a credit report, but you have to do a little more digging. Also, you have to follow all fair housing laws and screen all applicants consistently and against the same criteria.
How do you protect your property and your rental income by placing the best possible residents?
It requires a thorough, fair, and standard screening process that starts with a completed application and ends with the offer of a lease agreement.
At Real Property Management Choice, we are careful with our screening process and thorough. The residents we place meet all of our criteria and understand all of the responsibilities set forth in the lease agreement.
Here are some of the things we do to screen them.
Start by Establishing Qualifying Rental Criteria for Fair Housing Purposes
Document and share your list of rental criteria with prospective applicants. There are two excellent reasons to do this:
- Your criteria will protect you against fair housing complaints. You cannot be accused of not telling someone they would need a certain credit score. You cannot be accused of screening two tenants in different ways. The criteria you establish will ensure that tenants know your expectations before they apply.
- Complete and detailed criteria can help tenants take themselves out of the running if they know they won’t meet your standards. That will save you the effort of screening the application and minimize the conflicts it might raise between you and denied applicants.
Be transparent about what you’re looking for during the screening process. This criteria would stop the most unqualified tenants at the door.
Collect Screening Information on a Complete Rental Application
Don’t accept incomplete applications or partial answers. You don’t want to see any blank sections and you have to make sure the application is signed. The signature is what gives you permission to conduct the background check and pull the credit report and talk to references.
Children may move into the home as well, and while you don’t have to screen those individuals who are under 18 years of age, you still want to identify them. Ask for their names and ages so that information can be included in the lease agreement. You need to have a record of who is living at the property.
Most tenants will expect an online application. Make sure you’re using one that’s legally compliant in the state of California and allows applicants to submit the application electronically as well as all the supporting documentation they might need. If you don’t have an application, get a template from a property manager in California or a trusted association such as the National Association of Residential Property Managers (NARPM) or the California Apartment Association.
Screening Steps
You’ve shared the rental criteria and you’ve collected the rental applications as well as the application fees. Now, you need to screen. What should you be looking for?
- Income
Always verify income. What a tenant puts on the application needs to match what you can document in pay stubs, bank statements, or tax records. Your income standards have to be non-negotiable. The most important part of your screening process may be checking income against the amount of rent you’re collecting. You want to be sure your tenants can afford the rent.
Typical best practices in California property management say that a tenant should earn at least three times the monthly rent in order to safely cover that expense and meet their other obligations. Do the math. If your rental property is $2,000 per month, you need to see a total of at least $6,000 a month in gross monthly earnings.
This income requirement can extend to all of the tenants who are moving into the property. So, adult partners who earn their own salaries can combine that income to meet your requirements, as can people who are moving in with roommates.
It is hard to identify fraudulent income statements with property tools. Real Property Management Choice has a direct link with bank data to perform income verifications. It is especially important with prospective applicants with so-so or no credit but very high income.
- Credit and Evictions
Running a credit check directly through a credit bureau is important to avoid accepting any fraudulent credit report printout from prospective applicants.
A lot of rental property owners will have a credit score cut-off as part of their criteria, and that can be valuable in determining who will be considered and who will not. Look past the score, however, and check into the details. A lot of people have medical debt and student loan debt. Credit cards are rarely paid off by tenants who want to rent a home. You don’t need perfect credit, but you do need acceptable credit. You need to see evidence that this tenant pays their bills.
Checking for past evictions or collection from rental agencies is always a priority when you’re screening tenants. Eviction won’t always show up on a credit report, especially if it didn’t go all the way to court.
Evictions are a problem because they are evidence a tenant did not pay rent or violated the lease agreement in a major way. It’s also a big issue because a lot has to go wrong in order for a tenant to ultimately be evicted from a property. It means they were unable to work out a payment arrangement with their landlords. Instead of vacating the property and cancelling the lease agreement, they stayed in place without paying until they were legally required to vacate. That’s not a great record to be working from as a tenant.
- Rental History
Talk to current and former landlords. Or, send an email asking for a reference. A current or former landlord can give you a clear understanding of how your prospective tenant behaves in the property they rent. This should be part of your screening process.
On the application, ask for at least two landlord references. Verify the contact information so you aren’t calling the applicant’s friends or family members. If someone had a bad experience with landlords in the past, they won’t want you talking with them.
Questions to ask a landlord reference might include:
- What were the dates of residency?
- How much rent did the tenant pay?
- Was the entire security deposit refunded?
- How much notice was given before the tenant moved?
- Was any property damage left behind?
If rent was late once or twice, ask how long it took for the tenant to catch up. You can also ask if pets were well-behaved and if the tenant followed the terms of the lease agreement.
Would this landlord rent to that tenant again? That’s a pretty important question that can tell you everything you need to know.
The tenant screening process provides you with a lot of data that you can use to make an objective decision. Then, you’ll have to issue an approval or a denial. If you deny a tenant based on credit issues, there’s some specific wording you need to include in the letter that you send them, in accordance with the Fair Credit Reporting Act. Make sure you have access to this and you know what to do with all the information you’ve collected on this tenant, even if you are denying their application.
We can help with screening tenants and your entire leasing process. Please contact us at Real Property Management Choice.