Taking the time to prepare your rental property and create/advertise an appealing listing doesn’t matter if you don’t find a great tenant to sign your lease with.
The only way to prevent renting your unit to a bad tenant is by performing in-depth tenant screening.
In this article, we’ll be going over what you need to know to master tenant screening and fill your vacancies with the tenants you want.
The first step of tenant screening is requiring a rental application. Rental applications allow you to learn basic information about renters to help you weed out unqualified tenants before spending the time and money on credit reports and background checks.
Your rental application should ask for contact information, previous and current residences, employment history, a list of references, and proof of income.
You might also consider accepting your rental application online, as this makes things easier for renters and increases the likelihood that they’ll apply.
Proof of Income
One of the most important pieces of information you gain from a rental application is the tenant’s total income. You should never sign a lease with a tenant who can’t afford the price of your rent. It’s recommended that your tenant has a total income of at least three times your rent price. This ensures that they can comfortably pay your rent on top of their other financial responsibilities.
The most common documents used for proof of income are pay stubs, W-2 tax forms, and bank statements. With that being said, there are a number of other documents that can be used (1099 forms, Federal Income Tax Returns, social security statements, annuity statements, interest and dividend income, etc.).
Even if someone brings in enough income to afford your rent, that doesn’t mean they’re financially responsible. For this reason, credit reports are a must. Reading a credit report gives you an idea of how someone handles their money.
The goal is to rent to someone who will reliably pay rent on time. On a credit report, you can see the frequency and severity of missed payments for rent, credit card bills, etc. A late payment every now and again is no cause for concern. However, a tendency to pay late is a major red flag.
Criminal History Check
The first component of a tenant background check is a criminal history check. Criminal records are public information, and it’s within your rights as a landlord to deny housing to an applicant who could endanger you, your property, your neighbors, or your other tenants. Some states have laws that prevent you from denying someone of housing for less serious crimes, so be sure to research your state’s legislation.
Criminal records can be obtained from county, state, or national databases. National searches are the quickest and cheapest and are usually all you’d need as a landlord.
Eviction History Check
Eviction history records tell you if someone has ever been evicted, and if so, they provide you with dates, locations, case numbers, and reasons for the eviction. Eviction reports are not fail-safe, so it’s always a good idea to contact a tenant’s previous landlords just in case eviction records are incomplete.
Generally speaking, you should avoid renting to someone who has been evicted. With that being said, wrongful evictions do occur, so it may be worth asking the tenant about the eviction to get a better picture of what happened.
Tenant Scoring System
To protect yourself if you get accused of discrimination, you must adhere to a tenant scoring system. A tenant scoring system allows you to grade each tenant using the same set of criteria to determine which is the most qualified. The criteria might be based on credit scores, total income, eviction history, etc. Be certain that none of your criteria has anything to do with the classes protected by fair housing laws.
Keep tenant scoring sheets for every applicant. That way you have documented proof that your methodology was fair.
Knowing all the steps you should take during tenant screening can save you a lot of trouble down the road. While tenant screening may seem like a lot of work, it’s well worth it when you’ve signed a lease with a great tenant. Furthermore, to make things easier, property management software provides you with all of the resources you need to conduct thorough tenant screening.