8 Essential Tips for Screening Tenants

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I am sure you have heard this saying regarding real estate deals… “some of my best deals, were the ones I didn’t do”?

The same can be said for tenants as well.  “Some of your best tenants are the ones you didn’t accept.”

The problem with selecting tenants is that your selection process can’t be arbitrary or emotionally driven.  Well, it shouldn’t be unless you want to find yourself at the mercy of a judge/jury.

Listen closely. For every landlord, the process of selecting a tenant is the most critical action you could take.

It is more important then location, purchase price and probably even rent amounts.

WHY???

Simple. if you choose the right tenant you will most likely get your rents on time every month, your property will be well maintained, and the neighbors will love you.  If you choose the wrong tenant, well, your life will be pure hell and you will end up paying the mortgage until you can get rid of your tenant.

So… your objective is to find good qualified tenants… but as the saying goes “you have to kiss a lot of frogs to find the prince”?  And, that means having to Say No to many more applicants then you accept.  In fact, you find yourself accepting most applicants you are either extremely lucky or your market is a landlords utopia.

The question becomes is this: how do you Say No?

Well, actually the NO part is easy.  It’s all of the reasons and justifications that become the hard part.  The reason being is that when selecting a tenant the number of housing laws that come into play can be significant.  From a housing prospective almost every tenant is in a protected class… and there are activists in every community that will constantly test how landlords go about accepting/declining tenants.  And, if you are not doing things correctly… you will have wished you did.

There are several key elements that every landlord must adhere to when screening tenants and selecting/declining them.  While the list below is by no means the complete list, it should get you started.

Screening Tenants: 8 Steps for Finding, Checking Backgrounds & Selecting Your Tenants

1.  You should have a set of written criteria that every applicant must meet to be accepted.  These criteria might include verifiable income 3 times the amount of the rent, or a credit score of 6oo or above, or never been evicted or been in rent court.  You get to determine your criteria (within the bounds of local/state/federal laws) and once you have them apply them consistently.

2.  You need a formal application process that includes an application that is completed by the prospective tenant.  Important information to include: personal information (name, current address, SSN), to name a few) for everyone over 18 years old who will be living in your property.  Current and last two landlords.  Current and last two employers.  Next of kin, vehicle (make, model, license number)., etc.

3.  Charge an application fee.  Be sure to know what your local laws are regarding application fees.  Some location allow them as long as they are reasonable and most will allow you keep these fees if the tenant is turned down.  The application and the fee to submit an application is the first hurdle a tenant must get over… if they don’t make that first hurdle they have taken themselves out of the running.  Also, our application specifically states that the application must be completed in its entirety and if it isn’t the prospective tenant will not be considered.

4.  Get permission via a separate document to pull a credit report… and then do it every time.  The importance of a credit report cannot be overstated.  The obvious purpose of a credit report is to determine the credit worthiness of prospective tenants.  However, in today’s climate with so many new renters coming into the market due to foreclosures, the chances of them having high credit scores are slim.  But, the two things a credit report will quickly help you to assess is… do the SSNs and street addresses match and are there utility judgments against the prospective tenant.  The SSN and street address mis-match is a great way to catch someone trying to hide something and of course if there are utility judgments you should be concerned whose name will the utilities be in once the tenant moves in.

5.  Get permission to contact current and past landlords… and do it.  You would be surprised at the number of tenants looking for a new place to live… right now, that haven’t notified their current landlord of their intent to move.  Do you think they will treat you any differently once you become their landlord?  Don’t count on it!

6.  Get permission to contact current employer(s).  You will find that both current landlords and employers don’t want to answer open ended questions.  It is best to develop a form that can be provided to these parties that ask direct questions that when answered will provide you with the information needed to make informed selection decisions.

7.  Visit prospective tenants in their current home.  While I know this could be a logistic nightmare… whenever we did this and we selected the tenant based on this visit and of course the other criteria, we always had a very profitable outcome.  Just consider… you show up at the prospective tenants current home with one last piece of paper to sign and you walk into a full-blown over-the-top party in progress.  It that the kind of tenant you want in your property? 

8.  When you finally get around to saying NO… always do it in writing.  Make sure that you provide the reasons for declining this tenant, whether it was income, your site visit, landlord input, etc.  If the reason had anything to do with the information on their credit report you must identify what agencies you used.  The key to the tenant selection process and in making the determination to say no… is that you must be consistent.  You cannot let your emotions factor into you decisions… and if you develop and consistently use robust criteria you will never have to deal with tenants who become your worst nightmare.

Remember that if  you are doing your job correctly you will be declining many more tenants then selecting… so do it right!

Best of luck!

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About Author

Peter is an active and successful real estate investor in the Baltimore Maryland region for the past 8 years and is one of the founders of The Club Mastermind a real estate investing coaching program focused on local coaches helping investors to perfect their game.

9 Comments

  1. As someone who’s gone shopping for apartments in san francisco, i find it hard to believe that there IS such a thing as renting without a formal application process. Since demand for rentals in SF is so high, just saying ‘no’ to most of your applicants is something that most landlords can take for granted – and this may become the case in more and more cities across the US.

    Still, this is some excellent and well-articulated advice.

  2. Great post! Just a quick comment to add on contacting employers … we’ve had tenants play some pretty tricky games with faking their employer by giving us a friends cell number so we always look up the company name online or using the phone book. We call that number not the one the tenant gives us.

    Also, the form for employers may help but even more effective is to have your tenant sign a letter giving you permission to ask the employer the specific questions you need to ask. Then you can fax that to the employer because they bigger companies often will not disclose ANYTHING without written permission from their employee.

    Really great list here!!

  3. This is a terrific piece with solid information that any landlord must follow if they plan to be successful. Certainly you can take shortcuts, but be certain to budget for vacancies and legal fees spent trying to evict a tenant. I have represented many a landlord who got caught up in the legal morass of tenants who first stop paying for financial reasons, then use every health code and building violation to justify rent withholding and claims of retaliatory evictions. In the worst cases, it can be months of legal battles and thousands of dollars in legal fees (for both the landlord’s attorney and the tenants’ since there is typically fee shifting for their defense). Julie’s suggestion of independent verification is also excellent.

  4. great post Peter. I’m not renting out any apartments but I will pass this on to my buyers list as this is some very valuable content.

    As a renter, I would feel weird if the landlord didnt ask me to fill out most if not all of this info. If the don’t care to find out any info about me, that leaves me to wonder how much they will care for their property.

  5. Remember to check the country clery of court and municipal court websites for both civil and criminal charges. I look at the most recent 5 years or sooner because I believe people can change. I look at the county they live in and the surrounding county court sites as well.

    I also check out their facebook accounts. if theirs is blocked you can still see their friends sometimes so i look at family or their friends who they are in pics with on the profile shot. Search their walls and photos to see if they would be someone you would rent to. To be honest I have gotten more from facebook and court sites than a credit report.

  6. I think it is very important to do more than a credit check – you should also do a full background check as part of your tenant screening. You need to know if they have a criminal record, especially if there is a drug or abuse conviction. It also helps to know if they’ve had any previous evictions, or current tax liens. Credit reports, especially in this economy, only tell a small part of the story.

  7. Adair, we have been running all of those checks for a while. It costs a bit more but the extra measure of protection afforded my landlords is well worth it.

  8. I am not an experienced landlord.
    I have a nice property at the border of nice city and not-so-nice city. And the property is newer with great amenities. So I ask for high rent, and people with good jobs love the property, but not impressed with the neighbor; people without good record dream to rent there. A lady claimed to make great income is asking me to reduce her deposit, since her bank balance just barely has one month rent + deposit. and She just leased a brand new BMW. shall I give her a chance or not?

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