Tenant screening is one of the smartest steps to make your property management experience as headache-free as possible\u2014and protect your investments. <\/p>\n\n\n\n
Here are some things to keep in mind:<\/p>\n\n\n\n
Have you heard the story about the tenant who deliberately threw maggots down the stairs to the tenant below? Or how about the tenant who moved 15 children into an 800-square-foot house? These stories are not fiction; they are true stories taken from actual BiggerPockets members and just a tiny sample of what a real estate investor often must go through as a landlord.<\/p>\n\n\n\n
However, by learning how to screen tenants effectively, you can reduce the chance of this happening and relieve the stress, headache, and backaches that often accompany the landlord\u2019s job. This guide will help you learn to discern a good tenant from a bad one, a responsible tenant from an irresponsible one, and a nonpaying tenant from a paying one.<\/p>\n\n\n\n
This authoritative, step-by-step guide teaches how to rent your property to great tenants with minimal headaches, stress, or costs.<\/p>\n\n\n\n
Learning how to screen tenants is important because it can save you a lot of headaches down the road as a landlord. While no tenant screening method is a 100% guarantee against problem tenants, it will help you weed through applicants and select the best ones in most cases. <\/p>\n\n\n\n
Having a strong tenant screening system in place can help prevent lengthy legal disputes and even property damage. In some situations, especially if you deal with multiple-occupancy home leases (e.g., apartment blocks or house shares), it can also help you make sure that everyone you rent to gets along and is happy. This in turn leads to lower tenant turnover, which means less work finding new tenants for you.<\/p>\n\n\n\n
It\u2019s OK to screen people for some criteria, but not others.<\/p>\n\n\n\n
Generally, you can deny rental applications of those with poor rent payment histories or someone with a violent criminal history. However, discrimination against someone in a protected class is not only morally wrong, it\u2019s also illegal. This section will let you know what those protected classes are.<\/p>\n\n\n\n
The following was taken directed from the U.S. Department of Housing and Urban Development\u2019s Fair Housing Website<\/a>, which states:<\/p>\n\n\n\n In the Sale and Rental of Housing: No one may take any of the following actions based on race, color, national origin, religion, sex, familial status, or handicap:<\/em><\/p>\n\n\n\n In case you missed it, here are those classes again:<\/p>\n\n\n\n While it is vitally important that you don\u2019t discriminate against those classes, it is also important that you don\u2019t even ask questions about those topics. This means don\u2019t ask what their race is, how many children they have (you can<\/em> ask how many people will be living there), or if they have a husband or wife. Save yourself legal trouble and simply do not ask. <\/p>\n\n\n\n This also applies for advertising: DO NOT advertise for \u201cno kids,\u201d \u201cgreat Hispanic neighborhood,\u201d or \u201chome great for families.\u201d This is against federal law. Check out our guide on Fair Housing Laws<\/a> for more.<\/p>\n\n\n\n In addition to Federal Fair Housing Laws, your state may also have landlord-tenant laws that must be followed regarding fair housing, which might include:<\/p>\n\n\n\n Be sure to check with your state and local laws to ensure compliance with fair housing standards. A simple Google search for \u201cyour state\u201d and \u201cfair housing\u201d should give you the answers you need. The last thing you want is to accidentally end up violating fair housing laws.<\/p>\n\n\n\n As mentioned, federal fair housing laws prevent discrimination against family status, and prohibiting children is illegal. However, there is an exception to the law, which states that certain properties are designated as a \u201c55+ community.\u201d According to HUD, in order to qualify for the exemption, the housing community\/facility must satisfy each of the following requirements:<\/p>\n\n\n\n In other words, if 80% of the units in a community owned by you have someone older than 55 living in them and your visible intent is to provide housing for an older age bracket and you abide by the laws that govern this exemption, you can exclude a familial status to include only those who are 55+ in age, thus discriminating legally against those with young children.<\/p>\n\n\n\n Once you\u2019re ready to tackle tenant screening, you\u2019ll take the following steps to do so efficiently and properly. <\/p>\n\n\n\n One of the most important steps in tenant screening and finding the best qualified ones is by coming up with your list of minimum requirements for the property. This list of standards should be told to the tenant on the telephone, placed on the rental application, placed on your Craigslist ad, and told in person to eliminate those who simply will not qualify. Having a clear list of requirements saves you and your applicants time. <\/p>\n\n\n\n The following four standards are commonly used by landlords on BiggerPockets:<\/p>\n\n\n\n By giving an exact minimum income requirement, you can filter out those who might believe they can afford to pay the rent but really can\u2019t. Requiring income to be three times the monthly rent has been used by landlords for many years\u2014as well as banks and other financial institutions that supply loans. Note that the salary that\u2019s considered using this method is gross, not net.<\/p>\n\n\n\n There are situations when a good prospective tenant may not meet the 3x rule but still be worth considering. This especially applies to people who run their own businesses and have irregular incomes. In these instances, they may be able to compensate for a lower monthly income with savings or other assets. They may also be able to offer a guarantor, a person who vouches to step in for them if they are unable to make rent for whatever reason.<\/p>\n\n\n\n The references you receive from past landlords are the best indication of the way the tenant will behave for you. A bad review from a past landlord is a huge red flag for most landlords. When requesting references from past landlords, you will get more out of them if you ask specific questions; for example, ask them to be honest about the tenant\u2019s cleanliness, whether they got into any trouble with neighbors, and whether they were courteous and reasonable when resolving any issues with the property.<\/p>\n\n\n\n A tenant who has a serious eviction history is unlikely to ever rent from me. I realize that many people change, but I\u2019m not willing to take that risk.<\/p>\n\n\n\n I want tenants, not problems. If a tenant has a background filled with criminal activity, I am very hesitant to rent to them. Again, people do change, but it is not a risk I\u2019m willing to take.<\/p>\n\n\n\n This brings us to the question of allowing a cosigner: Should you do it? The answer is: It\u2019s not a bad idea under some circumstances.<\/p>\n\n\n\n A cosigner is a person who agrees to be financially responsible if the tenant is unable to pay their rent on time. They sign the rental lease agreement along with the tenant; hence the name. A cosigner can reassure you, the landlord, that you won\u2019t have to go through the stressful, costly process of evicting a tenant. <\/p>\n\n\n\n Contrary to popular belief, needing a cosigner doesn\u2019t mean that the tenant is undesirable or financially irresponsible. Some people may recently have experienced a career change or a change in family circumstances, which has affected their income. Others may be recovering from the financial ill effects of the pandemic. If you like a tenant but are not 100% sure of their long-term financial prospects, having a cosigner can benefit both you and the tenant.<\/p>\n\n\n\n If you live in a low-income area with a sluggish housing market, taking on a tenant with a cosigner can also simply make the difference between having rent come in and having a property stand empty.<\/p>\n\n\n\n Note, however, that when accepting a cosigner, you should screen them exactly like you would the tenant, running and background and credit check. Ideally, a cosigner should be a resident in the county where you are renting.<\/p>\n\n\n\n You\u2019ve begun advertising for your property and have begun receiving calls. Contrary to popular opinion, tenant screening doesn\u2019t begin with a background check or a rental application\u2014it begins with the initial contact. This is known as \u201cprescreening.\u201d<\/p>\n\n\n\n As you can probably tell by the length of this guide, tenant screening is not a flippant activity that you can do in a few seconds. Tenant screening can take a considerable amount of time\u2014and you don\u2019t want to waste that time on every person who shows interest in your property. This is why prescreening is so important. <\/p>\n\n\n\n Think of the tenant screening process as a funnel\u2014like the kind you would use to pour oil into your vehicle. At each step of the process, you are able to narrow down the pool of applicants until only a small few\u2014or just one\u2014match. Prescreening is the widest part of that funnel and will help to keep away those who obviously won\u2019t qualify.<\/p>\n\n\n\n Having prospective tenants fill in an online tenancy request application form is a very effective early stage in the tenant screening process. First, people who are genuinely interested in the property and serious about renting will have no problem answering a few questions online and providing accurate information about themselves. You will automatically weed out those who aren\u2019t all that interested, as they won\u2019t bother with this step.<\/p>\n\n\n\n Your prescreening efforts begin with your advertisement. Whether you are using the newspaper, Craigslist, Zillow, or another service to market your property<\/a>, the information in your advertisement can further help to weed out time wasters. For example, by placing the location in your ad, you can screen out individuals who are looking for another location. (Don\u2019t worry\u2014if you don\u2019t feel comfortable putting in your exact address for any of your rental properties, just put a general location or a nearby landmark.)<\/p>\n\n\n\n\n
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State and local fair housing laws<\/h3>\n\n\n\n
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A note on age and children discrimination<\/h3>\n\n\n\n
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one person 55 years of age or older per unit.<\/li>\n\n\n\n
publish and adhere to policies and procedures that demonstrate an
intent to provide housing for persons 55 years or older.<\/li>\n\n\n\n
Secretary for verification of occupancy through reliable surveys and
affidavits.<\/li>\n<\/ol>\n\n\n\nSteps for Screening Tenants<\/h2>\n\n\n\n
1. Set your minimum requirements<\/h3>\n\n\n\n
Income must be three times the monthly rent<\/h4>\n\n\n\n
Tenants must have good references<\/h4>\n\n\n\n
No evictions<\/h4>\n\n\n\n
Clean background<\/h4>\n\n\n\n
Should you allow a cosigner?<\/h3>\n\n\n\n
2. Prescreen prospective tenants<\/h3>\n\n\n\n
Request an application<\/h4>\n\n\n\n
Prescreening through your advertising<\/h4>\n\n\n\n
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