As a property manager and landlord, I have learned that screening can be the most important element in owning a rental property. Picking the right tenant on paper and in character sets the tone for the next 12-24 months for your investment. This means if you have a great tenant with a smooth system in place, you will have an easier relationship with your property manager, easier time self-managing, and/or you will stay motivated to continue to invest in more passive income generating properties.
In realizing how big the leasing/screening step is, we maximize our marketing efforts to make sure we have the exposure to reach the top tier tenants we want to attract. Once we get them through our units and they love our homes, we then swoop in with our screening process that sniffs out red flags and brings truths to the service to eliminate junk applicants fast.
Below is 10 key components to our screening process that we complete with every applicant.
10 Not-So-Obvious Ways to Thoroughly Screen Potential Tenants
1. Request cleared past rent checks.
Since applicants can put anyone down under their previous landlords contact, we came up with the idea to request the most recent three cleared rent checks, front and back. This is assuming they are currently renting. These cleared check copies tells us the following:
- Who they are writing their checks to.
- If the amount matches what they say they are paying and if the amount is the same each month.
- What day the checks are clearing in the bank. If they are clearing by the 5-8th each month, it is safe to say they paying on or close to the first.
In this day and age with paying through online tenant portals, we request an online payment history and the matching bank statements to line up.
When a tenant says they pay cash, that is a red flag and we request the bank statements that reflect the withdraws, which is usually the end of that applicant.
2. Check the tax records.
You can check the tax records to verify the records of landlord provided by the tenant. But if the tenant says that they have been writing checks, it should raise red flags.
3. Obtain an eviction report.
This is the best thing that has happened to landlords in the last decade when it comes to screening. With the help of most of the screening companies or online through the county you live in, it is now easy to see if an applicant has ever been filed on for eviction. You can find judgements on credit reports with this, but most landlords never take it that far, so that applicant’s next three landlords would not realize they were less than perfect tenants until it was too late.
4. Get pictures of pets.
Request recent, clear picture of all pets. This will prevent the 35 lb lab mix from becoming the 80 lb pit bull at move in. Pets are not always a bad thing, so seeing a picture of a pet can make you as the screener put your pet guard down a little and treat the deal fairly.
5. Obtain a copy of their driver’s license.
Requesting a clear, color copy of the applicant’s driver’s license will allow you to verify the address to check whether it matches all other documents from the application or not. It shows when the DL was issued and verifies the date of birth. It also allows you to match up the applicant online with social networking sites, such as Facebook, LinkedIn and Twitter, to learn more about them if necessary. The picture will help you make sure you have the right guy.
6. Perform online research.
The Internet has done wonders for screening, and in the world we live in today, we can learn so much just from Facebook and LinkedIn. Facebook offers a huge insight, and LinkedIn can sometimes show you people you might have in common with the applicant. This allows you to reach out the common connection as another insight to the applicant’s character and verify they work where they say they do.
7. Collect application fees.
We take application fees ($50 per person over 18) not as a profit generator, but as a means to cover the costs associated with screening reports. More importantly, the fees serve as a level of commitment to the property.
I spent the first 6 years not taking an application fee, and multiple times per year an applicant would go through the 24-48 hour process, we would approve them, and they would be gone. Maybe they found another rental or they just realized they didn’t like our unit. An application fee makes applicants think hard before they submit the application, and if they do pay the application fees and then back out, at least your costs are covered.
On the other hand, it is important not to treat it as a revenue stream because you don’t want to build a reputation of taking application fees and not accepting time and time over. We will often refund applicants’ fees if they are not selected, to be fair. We will keep them if they lie on their application or if they back out.
8. Aim for a quick turnaround.
Moving is stressful whether you are 21, 44 or 66. It is a lot of pressure to take everything you own and move it somewhere else — sometimes far, far away. In this renters’ market, it is also stressful as an applicant going up against sometimes 5 or 6 other applicants on the same property. When a tenant submits an application, make sure you inform them of your expectations of how long your underwriting will take. Try to get your questions back to the tenant within the first 24 hours and demand a quick turnaround from them as well.
9. Understand their reasons for moving.
It is important to understand why they are moving. Are they moving because their place is too small or their work is too far from where they are now? As a screener, it is important to make sure your unit is larger and considerably closer to their work. Otherwise, they will be out looking in 11 months again because they didn’t realize they were making the same mistake again.
10. Provide verification of terms.
It is important that the tenant is on the same page with the terms you are expecting. Yes, all those terms will be in the lease, but people don’t always read leases, and you may miss something when you prepare the lease, so what we do is send out an email called “Rental Acceptance Term Email.” This email is a summary of the terms included, such as rent, deposit, term, who pays what utilities, parking, etc. In this email, we also attach the condo association rules and regulations and our tenant expectation handbook. We make the applicants reply to the email that they agree with the terms and the attachments. Even though it will all be in the lease, this email will prevent issues down the road.
Of course, there are a bunch of additional steps we take, like calling and verifying employment, calling previous landlords and looking up any other historical public records, but the 10 points above are processes that have changed our company and many others who have learned from our experience. The fact of the matter is creating passive income needs work. If you want your rental property to provide a constant cash flow, you will have to screen the tenants diligently or you might end up with a lousy tenant.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.