Finding qualified tenants for your rental properties is one of the best ways you can protect your investment. By weeding out those who are less likely to pay rent on time and care for the property, landlords will inevitably save themselves a few headaches. But, how do you go about properly screening tenants? Surely having a conversation and asking a few basic questions isn't enough. That's why it is crucial to have a comprehensive, uniform tenant screening process in place to ensure that you're putting the right people in your investment home and securing great long-term renters.
Rental Criteria: What Information Should Landlords Ask For?
When considering a rental application, it's important to be able to get a clear picture of the applicant's background. No, you don't need to know who their best friend was in the third grade, but you do need to know about their employment status, their rental history and their credit score. These factors combined will allow landlords to make determinations about how potential renters will care for the property, if they'll be timely with their payments and if they're likely to be overall good tenants.
When considering income, credit scores and rental history, landlords must be sure that they have uniform standards that are applied to every applicant. Failing to apply the same criteria to every applicant can put investment property owners at risk of violating fair housing laws which can lead to legal troubles and large fines.
Employment/Income Verification
In order to pay rent, tenants need a source of income, right? This is typically easy to verify by requesting that they provide you with their most recent pay stubs. It is recommended that landlords ask to see at least two recent pay stubs so that they can see consistency in income. But what if the person has moved to the area for a new job? In that case, an offer letter from the new employer stating a salary and a start date should suffice. Alternatively, if the prospective renter is not employed at the time, they may be able to provide bank statements showing they have ample funds (enough to cover the entire lease term and then some) available.
Keep in mind that just because a prospective tenant can provide proof of income doesn't mean that their income is sufficient to cover rent at your property. Typically, their gross monthly income should equal about three times the monthly rent at your property for it to be satisfactory. Are there two adults with income who will be leaseholders at the property? Then combining their income when considering their applications is just fine. Another thing to be wary of is a history of "job hopping" or indications that the employment the tenant has provided is temporary. If you see signs of either of these, take the time to ask a few questions about their employment - will the temporary job have the possibility of becoming permanent? Were there extenuating circumstances that caused them to change jobs frequently in the past? If a tenant is open to discussing these things with you, chances are they're not trying to hide anything.
Rental History
Verifying a potential tenant's rental history is arguably one of the most important factors of tenant screening. One of the best indicators of how someone will behave in a particular situation is how they've behaved in similar situations in the past. The prudent landlord will require applicants to provide names and contact information for their two most recent landlords. Why isn't just one enough? Well if they happen to be particularly nightmarish tenants, their current landlord might be willing to say anything to pass them off to you. Or, they may have listed their cousin Joe as their current landlord and, of course, Cousin Joe will give them a glowing reference. Asking for two landlord references will allow you to get a much clearer picture of their payment history and how they've cared for rental properties in the past.
What questions should you ask previous landlords? You need to know about payment history of course - did they pay their rent late? If so, how often? If someone paid their rent late once or twice over a few years, that probably isn't a big deal. But, if they paid their rent late nine times in a year, that may be a hint that this person isn't too concerned with paying on time or simply isn't able to pay rent on time. You should also inquire about the condition of the property when they moved out (or if they still reside there, ask if the current landlord has seen the inside of the property). Do they keep the property neat and clean? Do they report maintenance issues in a timely fashion? These things will be indicators of how they'll treat your property. You may also want to ask about lease violations - did they have unauthorized pets or occupants? If they've had a past history of lying to landlords, chances are they might try to lie to you as well.
Credit Checks
Though credit scores are certainly important, remember they are only one part of the screening puzzle. You should have a minimum score requirement (around 600 is usually a good place to start), of course, but it is advisable to also look at the credit report and see what factors have determined that score. Many people's credit took a huge hit when the housing market crashed in 2008 and is currently taking another hit with the Covid-19 pandemic. See what types of debt they owe - do they have outstanding medical bills? If someone is uninsured and has to go to the hospital, they could amass huge bills that will drastically lower their credit score. Do they have tens of thousands of dollars in credit card debt? Foreclosures? Money owed to other landlords or property management companies? The takeaway here is to take the time to read through the report and, if their credit score is a bit below your minimum requirement, see why. If it is obvious that they aren't careless people but perhaps fell on hard times, you may be able to consider making alternative arrangements like requiring a larger security deposit if allowing them to rent your property.
Working with a Professional Property Management Company
Doing thorough screenings of potential applicants can get pretty time consuming. If you're an investment property owner with a full-time job and family obligations, it may be easy to let some of these qualifications inadvertently fall through the cracks and end up with some not-so-great tenants. Tenant screening services are one of the top reasons landlords choose to employ the services of professional property management companies like Sweyer Property Management. Those who apply to rent properties in our management portfolio are required to meet certain standards and provide a plethora of information to have their applications considered. Besides having comprehensive screening processes and strict criteria in place, the experts at Sweyer are also well-versed at spotting red flags (trust us, we've seen just about everything).
Are you tired of getting stuck with bad tenants or perhaps just don't have time to thoroughly screen everyone who is interested in your investment property? Reach out to our team of professionals today to learn more about our tenant screening process or to schedule a no-obligation rental analysis for your investment property.