Taking the time to screen prospective tenants effectively can help to significantly reduce problems in the future while also increasing your returns on your properties by eliminating potential damage and evictions. We have designed this guide to help you learn how to separate quality tenants from those who will result in headaches.
First, let's identify what is involved in tenant screening. Screening prospective tenants refers to the process of researching an applicant's background to discover everything you can about them and how they may behave if you rent your property to them. While you can learn a great deal from a rental application, there are limits. It is far too easy for an applicant to manipulate or even falsify the information they provide on an application. Along with reviewing the information provided on the application, it is also important to do some research on your own.
While you certainly cannot look into a crystal ball to determine whether an applicant will be a good tenant, there are some qualities you can look for to help you make a more informed decision when choosing to whom you will rent your property.
One of the most important elements you will want to consider when evaluating prospective tenants is whether they have the ability to pay the rent on time. When a tenant does not pay the rent on time, the need to pursue eviction can be time-consuming and expensive. So, how much should a tenant earn in order to qualify? As a landlord, it is up to you to make this determination, but at a minimum, the tenant should earn at least double the monthly rent. For even greater peace of mind, you may wish to require that tenants earn three times the monthly rent. Along with the amount of rent that the tenant earns, you may also wish to consider whether they have a regular and reliable source of income.
Tenants who have been evicted in the past present a far greater risk for problems. While it is entirely possible that they may have experienced a miraculous change in behaviour since whatever resulted in their last eviction, you must consider whether you are really willing to risk the chance that they have not turned over a new leaf by renting them your property.
Taking the time to conduct a reference and background check is a step that you simply cannot afford to miss in determining whether an applicant is a good candidate as prospective tenant. While an applicant might well be able to muster up enough friends to provide good personal references, the references received from previous landlords can be a reliable indication of what you can expect from the applicant if you choose to rent to him or her. Along those same lines, it is important to conduct a background check to determine whether the applicant has had any problems with criminal activity in the past. While many people would advocate that everyone deserves a second chance, you must ask yourself whether you are willing to take that chance with your rental property.
By setting your standards before you begin to screen applicants, you will know what you are looking for and be able to effectively and quickly separate quality prospects from the rest.
Once you have established your minimum standards, it is time to begin marketing your property to prospective tenants. Many landlords make the mistake of thinking that the pre-screening process begins when an applicant completes the application or even when they initiate a background check. This is not actually the case. The pre-screening process begins when you first make contact a prospective tenant. Furthermore, the first time you speak to the applicant, either on the phone or in person, is not the first contact you have with prospective tenant. First contact begins with your marketing.
Regardless of the medium that you use for marketing your property, the information that you include can help to ensure you communicate the best features of your property while simultaneously eliminating applicants who will only waste your time. Far too often, many landlords leave out the monthly rent out of their advertisements. The goal of this may be to attract more prospects, but ultimately you are wasting your time and their time if you attract tenants who cannot afford the rent. Additionally, you could also be missing out on a gem of a tenant who simply never contacts you because you did not list the monthly rent.
Beyond screening through your marketing, it is also important to screen during your first phone call with a prospective tenant. This is a critical step in the process because it represents the first opportunity that you will have to ascertain what kind of tenant the applicant might be. Once again, the goal here is to weed out time wasters. One way to do this is through the use of open-ended questions that are designed to encourage the applicant to provide more than just a yes or no answer. This is also the perfect opportunity to let prospective tenants know that you will be conducting a full criminal and background check. Do not be surprised if the phone call suddenly ends at this point. Taking the time to screen prospective tenants during the first phone call provides important benefits to both you as well as the applicant. First, it helps you to eliminate time wasters. Second, it reassures quality prospects that you are a reliable and trustworthy landlord.
If the applicant makes it through the phone call phase of the tenant screening process, the next step is to meet with him or her in person. A face-to-face meeting provides another opportunity for you to emphasize your minimum requirements. During this step of the tenant screening process, you will show the property to the applicant. In some instances, applicants will take advantage of this opportunity to tell you that they may not be able to meet the minimum requirements and ask whether there is any wiggle room. Obviously, whether or not you are willing to work with them is up to you and will be based on the situation.
Your rental application is an important tool in the tenant screening process, but keep in mind that it does not tell you everything you need to know about the tenant. Even so, asking the right questions on the application and ensuring that you do not stray into forbidden territory prohibited by Fair Housing laws can help you to set the right stage for proper tenant screening.
So, what should you ask on a rental application?
Before we move on to discussing various background checks, it is important to first take a moment and discuss the types of criteria that you are not legally allowed to screen. While it is certainly fine to screen applicants to determine whether they will be able to pay the rent, it is illegal to discriminate against an applicant who is a member of a protected class.
What is a protected class and how do Federal Fair Housing laws apply to the screening process? According to the US Department of Housing and Urban Development.
Discrimination is prohibited in the sale and rental of housing based on race, color, religion, national origin, sex, familial status, and disability. This includes:
To be certain that we are clear, not only are you not allowed to discriminate against someone who is a member of a protected class, you are also not allowed to ask questions about related topics. Those topics also cannot be addressed in any of your marketing. It is also important to ensure that you adhere to any state or local fair housing laws that may apply to your area that could cover protected classes that are not included under Federal Fair Housing laws.
We are almost ready to discuss the basics of running background and credit reports, but first we need to take a moment to distinguish the differences between the two.
A background check refers to an applicant's eviction and criminal history. A credit report refers to the process of verifying the applicant's ability to pay the rent on time. You should be aware that certain laws do apply to the process of running a credit report. According to the Fair Credit Reporting Act:
"Anyone who uses a credit report or another type of consumer report to deny your application for credit, insurance, or employment – or to take another adverse action against you – must tell you, and must give you the name, address, and phone number of the agency that provided the information."
What this means for you as a landlord is that if you decide to deny a prospective tenant's application based on their credit history, you are required by law to provide them with the contact information for the credit-reporting agency used in making that determination.
At VerticalRent, we make it easy for property managers and landlords to conduct background checks and run no-cost credit reports. With this service, you can rest assured that the entire process complies with the Fair Credit Reporting Act. Additionally, all measures possible are taken to verify the completeness, accuracy, and timeliness of all information contained in eviction and criminal reports.
When speaking with both employers and previous landlords, it is important to ensure you ask the right questions to obtain as complete of a picture as possible of the applicant.
When contacting landlords, keep in mind that contacting the applicant's current landlord is not sufficient. If the applicant is a problem tenant, their current landlord may be all too happy to foist them off on you by providing a glowing recommendation. To obtain a more complete picture, contact previous landlords, as well.
What do you do if the applicant is self-employed? Obviously, this makes the verification process a little more difficult, but there are still steps you can take to verify the information you need. One way to do so is to ask for at least two years of tax returns.
In the process of screening applicants, there will naturally arise occasions when you must deny applicants. When such situations occur, it is imperative that you carefully document your reasons for denying the applicant. This is for your own protection in the event you cannot be proven guilty of discrimination. Always send a letter to denied applicants that states precisely why you are denying their application.
The VerticalRent Best Guide to Tenant Screening has been designed to provide you with a concise guide to help you conduct comprehensive tenant screenings. While tenant screening can take a considerable amount of time, it is an investment that is well worth it.