I was having breakfast this morning with a client and the subject of selecting, screening and approving tenants came up. Our discussion first focused on the need for written standards to be used when approving tenants to ensure that you either approve or decline tenants in a uniform and consistent manner and then of course what those standards should be.
For those of you new to the landlord game you may ask: Why is it important for me to have written standards which must be met by any and all applicants?
Simple answer… To keep you out of JAIL!
A less dramatic response might be, so that you could never be accused of randomly selecting or declining tenants based on anything but well thought out and consistently applied standards. Remember fair housing laws are there for a reason… and there are many “do-gooders” out there to ensure these laws are followed. And, they would love nothing more then to take down the “big, bad, rich landlord” for not following these laws. Which by the way require that every applicant must be evaluated and approved or declined in the same manner.
I must admit that it took me a while to get our qualification standards established. Not so much because we were avoiding the issue, but mostly because we were developing our standards and procedures based on each new experience. In time however, we did establish these standards… but they were not as robust as they should have been.
Getting back to breakfast…
In conjunction with our overall discussion regarding standards and avoiding potential trouble during the tenant selection process, my client prepared an initial set of standards that we reviewed. Those revised standards (thanks George for the idea for this article), plus others that I have used are provided as examples of standards which you could implement in your tenant selection process.
Recommended Standards for Approving or Rejecting Tenants
- The application must be completed in its entirety. If it is not properly completed it will be discarded and the application process for that potential tenant stopped.
- Each applicant over the age of 18 must complete an application and go through the application process.
- Prospective tenant(s) must never have been evicted from a property.
- Prospective tenant(s) must demonstrate monthly income at least 3.5 times the monthly rent amount. (this amount can be whatever you desire, with the national standard usually at monthly income equaling 3 times monthly rent).
- Tenant(s) must have a credit score of at least… (XXX). Or, tenant must not have any utility judgements levied against them.
- Tenant(s) must demonstrate that they are currently employed.
- Tenant(s) must have a clean criminal record. (Remember, an individual with a criminal background is one of the only NON-protected classes as regards fair housing laws).
- Previous landlord information provided by the prospective tenant(s) must be verifiable and a favorable recommendation must be obtained from previous landlords. In many cases today prospective tenants may have been living with friends or family… so make sure you know who is providing the recommendation for the prospective tenant(s).
- Current employment information provided by the prospective tenant(s) must be verifiable.
Keep in mind that you may not have to include every standard listed above, but whatever standards you decide to implement from the above list or others that you desire based on your business model, they must be applied consistently. This means that if you require a credit score of 640 for one applicant you must require that score for every applicant.
I would also recommend that you consider providing your list to prospective tenants so that they know how their application will be evaluated.
The bottom line: you need standards and they must be implemented consistently. To do otherwise is only opening yourself up to more hassles then you would ever care to encounter.
Best of luck!
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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.