Tenant Screening: 6 Reports and Services Available to Landlords (Plus, 3 Mistakes to Avoid!)
Properly screening your rental applicants to find qualified, reliable tenants is one of the most critical steps you will take as a landlord or property manager. In fact, prioritizing strong tenant screening practices is one of the best ways to maximize profitability on your real estate investment. (1)
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Good tenants mean on-schedule rent payments, less chance of property damage, and fewer lease agreement violations. Bad tenants can reduce your profits and be extremely difficult to get out once they’ve already signed a lease and moved in.
The best way to find the right tenants while avoiding any potential discrimination issues is to educate yourself on Fair Housing laws (as well as state and local laws) and create an official set of screening criteria that you apply equally to all applicants. Developing this will streamline your application process by weeding out potential tenants who do not meet your minimum criteria. It also minimizes the chances of a discrimination claim, as this process will take your subjective opinion out of the equation.
Types of Tenant Screening Reports
Tenant screening reports should be used to discover potential tenants’ financial responsibility and rental history. These reports are usually accessed online and processed with information provided by the tenant on their rental application.
- Credit reporting: Reviewing credit history and debt obligation will give you a good idea of your potential tenant’s financial responsibility and their ability to pay rent on time, every time. Poor credit can be a red flag on an application, unless there are unusual circumstances.
- Criminal reporting: Criminal reporting can be tricky, because there’s always a chance someone with the same name as your applicant has been convicted of something. Landlords can legally deny an applicant based on a criminal record if the past crime relates to a lack of respect for property or safety of other individuals. But be cautious with this—landlords cannot have a blanket policy to deny any applicants with a criminal record according to the Fair Housing Act.
- Eviction reporting: Many tenant screening services or credit reports will show evictions that were the result of a court order. However, be sure to verify rental history and references to speak with other landlords that had your applicant as a tenant. Evictions are complicated and time-consuming, and they put you at risk of losing rental income during the process.
What to Look for in a Tenant Screening Service
Before you can confidently screen your tenants, you’ll need to select a tenant screening service provider that fits your needs. The most essential considerations when researching services are customer service, speed, and quality of data.
- Customer service: Choose a reliable service that cares about your needs and offers open, two-way communication. A provider with a well-trained staff to support and educate you will be essential in the long-run.
- Speed: You want your screening results to be high quality and in depth—but not take days to compile. The longer your screening process takes, the more likely you are to miss out on qualified applicants who applied elsewhere.
- Quality of data: Most importantly, the data from your provider need to be accurate. Look for tenant screening providers who get their credit reports from a reputable credit bureau. Make sure the provider you select uses high-quality sources for background checks.
Tenant Screening Mistakes
Here are some of the most common mistakes I’ve seen landlords make when it comes to tenant screening reports:
- Not screening every single tenant: Some property managers choose to only screen applicants they are skeptical about, but this isn’t a great approach. You can’t judge a book by its cover, so for your own protection, make sure you screen every individual who plans to live in your property. A blanket screening policy can also protect you against discrimination claims.
- Starting the screening process too late: Start the screening process as soon as you have an interested tenant, or you’ll risk having an unoccupied unit and higher vacancy rates. Unoccupied units are the biggest income killer.
- Ignoring subtle red flags: Sure, a history of multiple evictions or a lengthy criminal record are big red flags, but there are other minor warning signs landlords should keep an eye out for during the application process. Did the tenant complain about the rental application process or complete the process incorrectly? Are their past landlord references verifiable? Have they had more than three addresses in the last three years?
Tenant screening is a necessary part of being a landlord, so set up a system that will work for you and use it every time.
Are there any valuable methods of screening applicants I failed to mention above?
Add them in the comment section below.