The Compleat Tenant Screening Process: Pre-Screening

by | BiggerPockets.com

OK, before anyone says anything silly: yes, “compleat” is a word. It’s just a little archaic, but it has a meaning I really like—it’s very close to “complete,” but it specifically refers to a person who has all of the skills they need, or a set of skills that includes everything a person needs in order to be considered fully competent. This guide is intended to convey everything you need to know to become a compleat tenant screening expert.

Why Tenant Screening?

We chose to write this tenant screening guide because in a high-risk/high-reward market like one of the markets we operate in (Detroit), the number two factor that makes or breaks an owner’s investment is the quality of the tenants that move into their properties. (The number one factor is and will always be the quality of the property itself, of course.)

So, let’s get started!

It All Begins with Criteria

The tenant screening process needs to start with the end in mind—specifically, what are you willing to accept as a “minimum viable tenant”? There are lots of metrics that people can and do use in order to make that assessment, but we’re not even worried about metrics at this point—we’re talking about the most fundamental attributes here, the really non-negotiable bits:

  • Functionality: The prospect must be able to function independently in terms of accomplishing the basic goals of daily life, or they must be applying alongside someone who can do that and is trained to help them get by. (Told you we were talking fundamental attributes here.)
  • Financial Viability: The prospect must be able to show that they have sufficient income to pay rent regularly, or if they don’t, they need to submit and get approval for a plan showing how they intend to pay at least the first few months’ rent while they get their feet under them. They must also submit letters of explanation describing why any previous credit issues shouldn’t remove them from consideration.
  • Residential History: The prospect must not have been evicted for any ‘dealbreaker’ reason like destruction of property and must submit an acceptable letter of explanation for any other type of eviction.
  • Criminal History: The prospect must not have been convicted of any ‘dealbreaker’ crimes like arson or drug dealing and must submit a letter of explanation for any felony whatsoever and/or any misdemeanor that might indicate a poor tenant, such as vandalism or possession with intent to deal.
  • Personality: Finally, the prospect must not have left behind a trail of former employers & landlords, and other references that have only negative feedback. When you chat with them, they must not make you wonder how they survived to their current age.

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Related: 7 Types of Tenants Who Cause MAJOR Landlord Headaches

Some companies might want stricter, more numerical standards like “must have a credit score above 620” or “must make at least 300% of their rent in income each month,” and you can certainly set those kinds of non-negotiable standards as long as your socioeconomic environment supports them. Just remember that once you set them, those standards should be rock-solid, no-exceptions standards to avoid potential HUD discrimination lawsuits. Realistically though, what we have above really is the absolute minimum any landlord should be looking at in order to accept someone as a tenant.

Sidebar: Know (and Follow) the Law

When putting your criteria together (and throughout the tenant screening process), you must always keep in mind the Fair Housing Act (FHA), the most significant U.S. law that dictates what you can and can’t do during the screening process. According to the FHA, you cannot consider any of the following when screening applicants:

  • Race/Color/National Origin
  • Religion*
  • Gender*
  • Marital/family status*
  • Disability

When we say you “cannot consider” those factors, what we mean is that you cannot:

  • Include any mention of any of these attributes or anything directly related to these attributes in your advertisements. So not only can you not say “no kids,” you can’t even say that the backyard is “perfect for games of tag.”
  • Require different rules for applicants in or out of one of these groups (for the same unit). For example, you can’t up the security deposit for a Latino applicant or an applicant with five children.
  • Steer particular applicants toward or away from a given unit due to these factors. That includes anything from saying “we can find something more appropriate for you” to lying and saying a unit is off the market when it’s not.

And importantly, because there’s almost no way to prove exactly why you’re treating different applicants differently, it’s 100% always the best idea to treat all applicants identically until you’ve figured out one or more of the “non-negotiable bits” above that gives you a solid, legal reason to do otherwise.

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Related: What to Do as Soon as You Deny or Approve a Prospective Tenant

Pre-Screening

One of the most annoying aspects of the tenant screening process is that the more competitively-priced a home, the more likely you are to get genuinely bad applicants—people who know they’re not going to get into a mid-market rental, but figure that if you’re desperate enough to  underprice it, you’re probably desperate enough to ignore some minor details like joblessness.

To circumvent this process, be very upfront with your applicants about what your basic requirements are.  You have a few opportunities to do this.

  • First, in the ad itself, you can put simple blanket statements like “No convicted felons, no registered sex offenders, and no unemployed applicants please.” Also no matter what blanket statements you decide to include, you should always use the ad to inform applicants of your application fee. Just knowing that they have to pay $X non-refundable dollars is enough to turn off a lot of poor applicants.
  • Second, when the applicant reaches out to you, you can look for signs that they might not be great tenants. But more importantly, you can warn them what you intend to ask for as part of the application process. Convincing a substandard prospect to not apply at all because they don’t want to give you their bank statement and SSN, saves you a lot of time.
  • Finally, at the showing, you can have your showing agent assess their demeanor in more detail, and importantly the agent can get a look at their personal habits. Most importantly, they can get a look at their car. There are few betters ways of identifying someone who will trash a house than seeing that they flagrantly drive around in a trashed car.

Remember, every tenant you can turn away before they submit a full application is one that you don’t have to waste time and money screening!

That’s it for this bit—come back next time for an in-depth dive into the central document of the tenant screening process: the application.

How do you prescreen tenants? Any questions about this process?

Leave your comments below!

About Author

Drew Sygit

While in the mortgage business, Drew rose to a VP position at the first broker he worked for and then started his own company. In the pursuit of excellence, he obtained several mortgage designations and joined mortgage & several affiliate association Boards. He also did WebX presentations and public speaking. It was during this time he started personally investing in single-family rentals, leading him to also start Royal Rose Property Management with two partners. He also joined the Board of a local real estate investors association, eventually becoming its President. The real estate crash led to an offer from the banking industry to manage a Michigan bank’s failed bank assets they acquired from the FDIC. The bank acquired four failed banks from the FDIC, increasing from $100M in assets to over $2B while he was there. After that, he took over as President of Royal Rose Property Management. Today, he speaks at national property management conventions and does WebX presentations.

4 Comments

  1. Katie Rogers

    Just because a tenant will not give you their bank account or SSN does not mean they are a sub-standard tenant. Ask the very last landlord I ever had, and from I rented the unit for 5 years and left it not only :broom clean” but move-in ready. There are good reasons to give no one your bank statement or SSN.

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