Creating A Tenant Screening System & Why You Shouldn't Reject Anyone!

(TLDR: How To Create A Tenant Screening System. Reading Time: 5 Minutes)

Hi Everyone,

I'm by no means a pro at screening tenants, but with my experience I've found by following these steps you will decrease the chance of bringing in a jerk into your premises.

PLEASE NOTE: This is not legal advice, please consult a RE attorney if you don't understand aspects of tenant law. Use this info at your own risk. If you want to learn tenant law in California, I highly suggest you pick up a copy of NOLO's The California Landlord's Law Book: Rights & Responsibilities.

Your Property = The Quality Of Your Tenant

If you're renting out a slum, expect slummy tenants. Expect high turn over, evictions, noncollectable debts, and drama, which kills returns.

Determine A Rental Plan

Are we going for a month to month rental? Fixed Term? There's pros and cons to both.

Fixed Term:

For my duplex in Sacramento I use fixed term lease because it provides me with protection if the tenant decides to break the lease early (Please Note: If they decide to break the lease in the middle of the lease term, you are obligated to try to find a new tenant). Also, my fixed term leases end in the summer which is the best time of the year to find tenants. Finally, tenants enjoy the security knowing I can't raise their rent until the lease ends.

Month to Month:

While at my residence, I use a month to month lease for my tenants. When you have roommates, roomies tend to be transitory and you also want to be able to evict problem children quickly.

What Type Of Tenant Do We Want?

Someone who pays their rent on time, doesn't destroy my property but takes pride in it, stays in the property forever, and doesn't bug me. I don't like transient tenants because they create more work for me and add to vacancies which can KILL returns.

Consistency is Key

If you treat each applicant differently you are violating the Civil Rights Act and Of course you might negotiate with people, however, you're better off sticking with your rental plan in advance to protect yourself.

Base Line Requirements Should Be Listed In Your Advertisement

It's important to include your rental requirements in your rental advertisement.

Due to fair housing rules, you must be consistent with your rental requirements for each applicant. By having your requirements made public you increase transparency, which will protect you from legal issues.

I'm sure most of you don't want to be bunk buddies with Maddof so your ad should not mention age, sex, race, religion, disability, or adults only (unless you have senior housing). However! Being a pig is not a protected class. :)

Here's a sample of my criteria:

• A favorable credit history. (I'll explain later, sit tight friends)

• Your gross monthly income must equal approximately two times or more the monthly rent. (The Bay Area is an expensive place to live, while I require 3 times in Sacramento, I'm willing to go with two times rent (so long as they don't have major outstanding debt) for the rooms I rent in the Bay Area because things are so expensive.)

• Be employed and be able to furnish acceptable proof of the required income.

• Good references, housekeeping, and property maintenance from your previous Landlords.

• Compensating Factors can include additional requirements such as double deposit or rent paid in advance for applicants who fall short of above criteria.

Never ask about the person's immigration status, or you could go to the slammy. (California Civil Code 1940.3)

Applicant Sees Your Advertisement And Reaches Out

Proceed with a phone call. Make sure to keep notes of all your phone calls, this will come in handy if disputes arise.

During the phone call I ask the following questions:

• Where are you currently living?

• Why do you plan to move?

• How many people will be living in the residence?

• Are you both employed? Do you meet the income requirement stated in the advertisement?

• How long do you plan to stay in the place you will be renting?

• Do you have any pets?

Send The Rental Application Via Email

If the tenants are serious, and they will be willing to fill out an application. Everyone the age 18 or older who wants to live in the property should fill out the written application.

I try not to waste my time with people who are tire kickers. In another post I will show you how I create my advertisements so applicants can get a feel for your property without physically previewing it (That's if anyone read this post, if you read this post reply to this email stating Purple Monkey Dishwasher Soap).

Once the application is completed, I call the references. 

As far as references, if the previous property manager mentions late rent payments, eviction, noise complaints, or legal issues, I definitely pass on the tenant.

Criminal records, I always pass on this. Some Landlords show leniency but I don't want to put any of my tenants at risk nor myself if this tenant commits a crime against other tenants or myself (I'm a lover not a fighter).

Megan's law database can be used to check the background of a potential applicant, but mind you the database's info can be stale.

If the references check out, I schedule a walk through.

Post Walk Through & Background Check

Assuming the people liked the place and want to move forward. I will go to biggerpockets.mysmartmove.com. This site is managed by the credit bureau Transunion.

What I like about the site:

• I can charge tenants directly for their background checks so I don't have to pay up front or ask the tenants for reimbursement.

• The site will give you a criminal and credit check which is worth it's weight in gold. If the credit score is below the median for your zip code, I will walk, unless it was for good reason.

• You don't physically own the credit reports, so it minimizes your chances of running afoul with the federal FACT ACT.

• REMEMBER: Only run a credit check in order to valuate a potential tenant, if you're doing this to stalk someone you could go to the slammy.

Once approved, I notify the tenants and collect first and last month's rent plus deposit.

Applicants Who Don't Make The Cut

I don't like rejecting anyone because then it sends a bad message.

Instead I contact the tenants and let them know what's preventing them from being able to move into my unit. I then tell them what the stumbling blocks are, what they can do in the future to fix this and once they have fixed this, please give me a call.

I've never had anyone call me back, but a phone call that was adversarial, became quite jovial.

Last But Not Least! Create A Tenant Screening Checklist And Follow It!

I created a google spreadsheet with the following columns:

• Name Of Applicant
• Pre-Screen Phone Call 
• Applicant's Email Address
• Call References (Property Managers And Work)
• Walk Through Date
• Background Check
• Notes On Decision

By following a consistent process it protects you from legal complications and strengthens your screening system. This might sound like a lot of work, but I much rather invest time screening applicants than spending time evicting people.

Anyways, what's your tenant screening system? What do you think I can do to improve my system?