How I Underwrite Rental Applications to Mitigate High-Risk Tenants

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My partner and I have acquired and leased hundreds of rental units. As co-owner at my organization, I still have the final say on approving rental applicants. As much as I want to delegate the task, I am aware it is of pretty high value. Having a great tenant in your property is crucial. A troubled one who is constantly late on payments and complaining about dings on the refrigerator can be a headache. A troubled tenant can eat up your cash flow if they’re not paying and you have to evict and replace them.

Leasing Agent

I have an in-house leasing agent who handles collecting the paperwork and necessary documentation from rental applicants. The needed documents include the most recent three pay stubs or current lease and bank statements (if self employed). Once all this is submitted, the agent starts the underwriting process. Be sure to obtain all the necessary documentation from the prospect. It is important that you have a clear picture of the prospect’s history to verify they are qualified to pay rent your properly. If they are not willing to provide all the information, then move on.  


Related: 7 Types of Tenants I’ll Never Rent to

Our Criteria

Criteria for screening tenants can vary depending on what class of property you’re in. For example, with a C class property, you may allow 600 credit score tenants, and with an A class require a minimum score of 700. I am mostly dealing with the working class. These professionals tend to have just an OK credit score. That is the reason why they are paying $700 to $800 in rent. I run their credit through the software Propertyware to make sure there are no outstanding balances from utility companies or judgements from landlords.

My tenants must produce gross 3x the monthly rent. This is by far the most important factor in approving a tenant. If they don’t have that, they must have a co-signor who does. Additional criteria include having no prior evictions within seven years of the date they’re applying for the home, having at least one year on the job (or proof of prior job stability), and having no felonies within the past five years.

Stick to It

It is always best to remain objective when underwriting rental applicants. If they do not make enough income or have been at their job only two months, then you simply have to move on. You want to stick to your criteria because you want to treat every applicant the same. 


Related: The 11 Most Common Questions Asked by Tenants—Answered

Final Approval

I am an optimistic person, but I’ve seen some interesting stuff in my days of underwriting tenants. I was almost fooled by tenants having a friend pose as their landlord and submitting fraudulent pay stubs. When I get the file from the leasing agent, I look for red flags that may have been missed, such as fraudulent pay stubs. Then I start taking a look at income, landlord references, income, etc.

To date, I have not had to evict a single tenant I placed, and I plan to keep it that way. 

We’re republishing this article to help out our newer readers.

What is your underwriting criteria? Has it changed over the years?

Leave your comments below!

About Author

Sterling White

With just under a decade of experience in the real estate industry, Sterling currently manages over $10MM in capital, which is deployed across a $26MM real estate portfolio made up of multifamily apartments and single-family homes. Through the company he co-founded, Holdfolio, he owns just under 400 units. Sterling was featured on the BiggerPockets Podcast and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single-family investing and apartment investing to wholesaling and scaling a business.


  1. Nicolas Chambers

    Hi Sterling, Curious, would you ever take on tenant(s) who were interested in your property as being their first rental outside of living with their parents? Combined they make 3x the rent (earlier in their careers) and have above a 600 credit score?

  2. Deryk Harper

    Hi Sterling,
    You may want to check the recent HUD comments on criminal background checks for tenants. We have had to adjust our application guidelines to be a little more detailed vs just the blanket ” no felonies in last 7 years” type statement . I agree proper screening is one of the most important processes in our business. I also have the final say in our screening process. Thanks for all the useful posts too.

    • Just because you are low income, that doesn’t give you the right to other people’s property. Landlords put up a lot of risk renting to people and have the right to screen to find people who will pay rent and not squat on their property for months while the landlord is forced to file court documents and spend money they will never get back.

  3. Huiping Sheng

    The requirement of 700 will filter lots poor money management renters. It is very high standard but I believe a candidate can meet your standard will good enough.
    Could you please share a little your knowledge about bankruptcy candidate: present job income is fine with wife and one child, and he has a present job manager’s letter (assume the letter is real) but he filed a bankruptcy in 2015 and the credit score is 530.

  4. JL Hut

    Sterling, I agree with you. To me this is the most important part of the business, tenant screening. You can do you work now or pay for it latter with time, lost money, damages and headaches. If they are young and have no landlord reference or something is not quite up to par ask for a cosigner, not just any cosigner but one with a 700+ credit score. I make cosigners fill out a application just like they were moving in and check their references, source of income and credit and make sure they know I expect them to pay for any rent, late fees and damage the primary tenant does not. You wont get many takers but if you do you wont have many worries. Also, make each adult have separate references, not using the same ones. You want at least 3 individual points of view on each person. Why do you think the police talk to as many people as they can that witnessed a crime? not everyone sees everything that takes place. Its the same with a tenant, I want to have no unanswered questions and feel comfortable with them before they move in. I want no surprises. Always communicate clearly what your expectations are before they move in. This will save a lot of work when they move out. No one cares more about your investment than you do, so be careful who you let fill this pair of shoes.

  5. Jeff Pitzer

    Great article Sterling.. my wife and I have 7 doors so far.. she “was” a “softy” feeling sorry for “unfortunate” circumstances… $6k in unpaid rent and financed deposits cured her of this.. we recently had an issue with a family who’s daughter and son in law, who were qualified and on the lease were unable to make their portion of the rent . The father was working out of state and asked to be taken off the lease.. we said no way and informed them that we would begin the eviction process the following Monday. .. the rent “magically” appeared and we haven’t had any problems with them since. Guess that’s what Brando means by “training your tenets”.

    • Joseph Walsh

      It’s amazing how quickly a tenant, even an unreliable one, can be “trained”, if they are generally good tenants and can afford the place. 3 months into “cracking the whip” (done by a management company, turns out I don’t have the personality to do it right), my once variable tenant is paying 2 days early every month….

  6. Steven Bonfante

    This post is very timely and informative. We just put an offer on our first deal, a 4 plex that we will be house hacking.

    As far as existing tenants are concerned, the obvious things for me are getting a new lease signed, getting the existing background checks if available, and verifying rentals.

    Should I implement my own application process and verify financials, backgrounds, other criteria, etc…?

    I have been reading and learning a lot but I don’t know what I don’t know at this point.

    I have no problem taking a “there’s a new sheriff in town” approach.

    • Joseph Walsh

      Since this is your first rental property, I would consider actually hiring an outside property management company for the first year or so, especially with existing tenants. Unless you have managed property before. Also, since you live there, don’t let them know you are the owner, in case you have to evict. Now, a Disclaimer: I only have one property, but moving to a management company has opened my eyes to how it should of been done from day one. Sure, you can do it the other way, self manage, make the mistakes, THEN hire someone when you move on to more properties, but why not “pay” for the education with a predictable cost and learn from a pro, rather than a potentially variable (and costly) “lesson” later on? Just a thought.

  7. Art Veal

    Very interesting article Sterling.

    I have used bank data to screen tenants along with criminal and eviction history. I noticed you said you only ask for bank statements when they are self-employed. Why don’t you get bank statements to verify income and make sure the pay dates on the pay stubs coincide with pay dates on the bank statement. It makes proving if the pay stubs are fraudulent very easy.

    I have been doing that for years and I have not had an eviction in years and only 1 slow paying tenant. I find bank data can give much better insight into a tenant than credit reporting (at least for lower end properties like some of the ones I own). I even built a web app that creates a report on the bank data.

    What do you look for when looking at bank statements, just income?

  8. Rick Rapant

    Hi Sterling,
    Great article and comments. Just wondering what yours and others rental criteria would be in D market area rentals for those who invest in that type of market. I’m investing in the Detroit area where the markets are turning around slowly but steady. Your advice would be appreciated.

    • Sterling White

      Great question. I do not have experience investing in D properties. With that being said I will be unable to provide the best insight. I recommend posting your comment in the forums to get feedback from others who invest in that class, Rick.

  9. Darin Anderson

    I don’t use credit score as a criteria. I simply state No major recent delinquencies and only a couple minor ones (cable bill etc).

    I have rented to many tenants who have sub 600 credit. As long as they met my other criteria I have not had a problem (I am renting in the Midwest at $1,600/mo too, not $800).

    I actually don’t want credit scores over 700 and want nothing to do with credit scores over 750. If I have no other choices I will take them but I know what they are doing. They are just passing through until they buy a house. They are going to turn over in a year or at most 2. I have had applicants tell me that. We only plan to stay 6-9 months, then we plan to buy a house. Might as well tell me you plan to slaughter chickens in the house. The few times I have had 700+ credit scores with very solid jobs, they all left to buy a house.

    High 500’s low 600’s with good stable jobs and rental history are awesome. Give them a great place to live and treat them right and they won’t ever leave.

    Low credit score doesn’t necessarily equal unpaid bills. High delinquencies definitely does by definition. That’s why I focus on delinquencies and not credit score.

  10. robert r.

    I like the idea of adjusting your fico requirements to the property class. To crank on Darin’s point a bit further, the better their credit is the more likely they are to leave and rent somewhere else also. Everyone wants to rent to that engineer, account, or teacher with the 750 + fico, so their process of leaving you is much more seamless. On the other extreme, once you get below 600, your odds of a moral hazard increase. For class C+ properties, I find 625-675 seems like an ideal range for the best combination longevity and loss exposure. Having said that, my longest term tenant that gives me the least amount of headaches, = sub 600.

  11. Curtis Mears

    Great article. I only hope I have as good a track record as you.

    One thing I do is once I receive an application is spend 10 to 15 minutes cross-checking the listed numbers, names and addresses on the internet. I am almost always able to verify the phone number and address of the employer and previous landlords. Once I call to verify the application data, I know I am speaking to the correct person and not a relative or friend.

  12. My litigation strategy is requiring the tenant pay the last month rent in advance. Prospective tenant has to come up with security deposit, first month rent, and last month rent to obtain keys. This is a fair amount of money to most people and ‘invests’ the tenant in the entire length of lease. Seems to take care of a lot of tenant BS. Monthly rent has to be attractive enough to the prospective tenant for them to pursue. I do this with all credit scores.

  13. Lewis Christman

    I’m curious as to “references”. I question the value because who is going to give a reference name of someone who will say bad things? One suggestion that I have heard and will be using is to obtain 6 years or prior living arrangements (landlords) and call the previous ones (not where they live now). Hopefully they remember the tenant and they will most likely give you the honest answer as to how they paid etc. The current one might give the rosy picture just to get them out.

  14. Luis Ortega

    Hello Sterling, love the article, lots of good information especially for newbies like myself.
    Two questions for you or anybody that can give input.
    Do co-signers have to live in the unit?
    What are the pros & cons of having more than one person/signee on the rental/lease agreement?

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