Basic tenant screening ... and why its likely overated

32 Replies

I think its pretty safe to say that most people have their own opinion on the level of screening that tenants require in their market. Most people would run a credit check and possibly a background check.

Personally, I don't do any of these. I know several other B&H investors in Hawaii that share the same philosophy. And guess what, all of the stories that I read on here about evictions (which seem to be relatively common), have happened anyway regardless of screening parameters.

Given this, I was thinking of doing a basic screening process anyways for the next rental, just for fun.
If you guys had $25 to spend on screening a potential tenant, how would you spend it?
Is it perfectly fine to charge an application fee, if not planning to use said fee to pay for screening?

For the record, I have no charged for application fees in the past. Nor have I done credit or background checks.

I think getting to know a person and social judgment is underrated. Plus, if you are doing rentals with $1500-3000/month/unit income, I think formal screening as mentioned above becomes less important. If someone is dealing drugs to make that income, I would likely know after speaking with the tenant/family.

So you are saying that you should never screen a possible tenant?

Seems crazy to me....

I always screen regardless of who or where my rental is located. Ya you may get lucky and get a good tenant by going with your gut feeling about them or you could get yourself into big trouble. Some guy says he makes good money and will take care of the place and next thing you know hes 2 months late on rent and you have to evict him and the house is tore apart. If you would have ran a screen you would known he went bankrupt last month. Just a hypothetical example.

Also why would you take money for an application fee if your not using it to screen them? Your saying you would just pocket the money if you decide they aren't worthy? Seems like a shady situation to me.

I have a "very" simple screening tecneque

*salary 3x rent with pay stubs

*copy of drivers license for all over 18

*background/credit check clean with no eviction (paid for by the tenant) other wise application process is free

*security deposit due at lease signing

*direct deposit

*detailed 14 page lease, that I discuss in detail

California is a VERY tenant friendly state, so it is very important that one screens. I have found these simple steps can be completed in as little a couple of hours. So a interest tenant is deterred but it helps weed out problem children.

Originally posted by @Elizabeth Colegrove:

I have a "very" simple screening tecneque

*salary 3x rent with pay stubs

*copy of drivers license for all over 18

*background/credit check clean with no eviction (paid for by the tenant) other wise application process is free

*security deposit due at lease signing

*direct deposit

*detailed 14 page lease, that I discuss in detail

California is a VERY tenant friendly state, so it is very important that one screens. I have found these simple steps can be completed in as little a couple of hours. So a interest tenant is deterred but it helps weed out problem children.

Do you give the tenant suggestions on which sources to use for the background and credit checks?

Do you give the tenant suggestions on which sources to use for the background and credit checks?

 They are required to use mine! I require very little and no application fee. So I require them to use my system at 15 a personal. This allows me to guarantee the validity of the report!

Originally posted by @Elizabeth Colegrove:

Do you give the tenant suggestions on which sources to use for the background and credit checks?

 They are required to use mine! I require very little and no application fee. So I require them to use my system at 15 a personal. This allows me to guarantee the validity of the report!

 Thats what I was getting at Elizabeth, if you had any suggestions for an inexpensive but reliable credit and background check you would recommend.

I use mine through Buildium although I will switch when I can find something better because they are expensive for what I use them for!

I have heard good things about smart move and cozy although I have never used them. Make sure cozy has a background report. I don't think it does, if so don't use them. You want a background check too! The last thing you need is tenants with evictions!

I believe in the resource tabs BP has some links!

i'll try to check that out, thanks!

I have never heard of someone say "dang, I wish I did a background/credit check, then I wouldn't have to do this eviction!" Which tells me that people are doing evictions on people that passed thier screening process.

      My rentals are in Nevada and Yuba counties in CA, where many people have lots of cash, but no clearly documented income.  Many rental companies shun these people.  I routinely get rents that are significantly over market, and have near zero vacancies.  My prop management company knows what to look for -- and the correlation between documentable income, and the consistency of rent being paid on time, is an anomaly out here.

   Anyways just saying, there are niche tenants out there that are clean, responsible, and pay way over market rate because they don't qualify traditionally.....but are among the most reliable, least likely to complain, and least likely to damage a place.

  But my markets are niche, huge cash economy, and B or better neighborhoods.

Originally posted by @Andrey Y. :

i'll try to check that out, thanks!

I have never heard of someone say "dang, I wish I did a background/credit check, then I wouldn't have to do this eviction!" Which tells me that people are doing evictions on people that passed thier screening process.

I have heard this a lot. I have never heard anyone say "I wish I wouldn't have checked their background." The horror stories I read/hear are almost always from people who DIDN'T do the background check. It is your investment, why wouldn't you want to protect it as much as possible?

I think you are fortunate to not have come up against a "professional tenant" or an accomplished liar. I wish you luck with your rentals, if you aren't screening, you are going to need it.

Mindy Jensen, Real Estate Agent in CO (#FA100049656)

I don't rent to someone unless I like them...  I figure this makes emergency maintenance more tolerable.

I like to use mysmartmove.com. They give you credit report, background, eviction, and a lease recommendation. Very simple and easy to use. You get the option to make tenant pay them directly, or you can pay it with your account if tenant pays you cash. All you need is their email and it sends them a nice formal request. If you decline them you enter in info why and its sends a formal letter. You can also set immediate decline parameters. All in all pretty good site. No affiliation with them outside of being a happy customer. Hope this helps.

We very carefully screen our owner finance buyers - jobs, documented income, 5k down, background check. We prefer owner finance as they maintain the house, and you usually have a higher quality person in there than a typical renter. 

That is an interesting business model, It is actually one that I think I followed when I first began investing. My partner and I owned over 30 homes and a 52 unit apartment building. I can tell you from the way we were running it was about as close to "landlord suicide" as one can get. We were not only doing what your post suggested but we were actually advertising "Bad credit OK!".. Guess what we got????? Yep about 3 month long tenants and about a 30% eviction rate... and the worst part was we could not figure out why this was happening.. Then we realized WE were the problem.

Looking back on that business model it was amazing what we didn't know and how many laws we probably could have been called into question. It is like getting in your car putting on a blindfold and then putting it in drive and expecting to arrive at your destination with no scratches on your car. Eventually you will crash and eventually you will get hurt by this business model. 

I do not know the laws in HI but I can say in general that if you put someone who is a child molestor in your property and do not do certain things you can be called into answer why you did not do a screening, Atleast as a PM, not sure if its your property and you own it, but if they go commit a crime and the lawsuits get filed you can be wrapped up in that, whether you did something wrong or not in your mind.

We have realized that 90% of our problems with tenants go away with a proper screening, we basically evict them before they move in, we are very very strict and because of that we have a less then 2% eviction rate with over 400 homes. It all starts with who you put in the property and establishing the rules in the beginning is my opinion.

Not saying you need to be super strict but I would suggest having some type of process in place and documented, if you do not you can get into a fair housing and discrimination issue as to why to accepted one person and took another, also if you turn down a tenant are you sending them a denial letter?

Again this is just my personal experience and my opinon, like you said everyone has a different way of doing things but if I kept on my original model I would surely be bankrupt and lost all my homes by now.

Originally posted by @Andrey Y. :

...

I have never heard of someone say "dang, I wish I did a background/credit check, then I wouldn't have to do this eviction!" Which tells me that people are doing evictions on people that passed thier screening process.

I'll disagree with you on that, and use a real life example. I have a good tenant who has been renting from me for a number of years, whose name matched to eviction records in another state - where he happened to reside for a number of years coincident with the dates in those evictions. This was found at the time of screening all those years back. Now after researching the court records, those eviction records had no other identifying info other than the name of the deadbeat and the address. So I researched the property address to locate the owner, and I contacted that owner asking about the name if this deadbeat. This landlord described the deadbeat as "the tenant from hell" and suggested to avoid renting to him. I said I wanted to be certain we had the same person, because there can be multiple individuals with identical names, so did he have anything in the application that would be unique like SSN. This landlord said no, but he could identify him from a photo. I emailed the photo and it was not a match. But get this - during our conversation, this landlord did not realize that the evictions and background could be checked - he had never heard of that and asked me about how u got that info. I gave him the name of the screening service I used at that time (NTN). And he asked if those checks might have saved him from the eviction, and I said probably because there was another eviction with same name dated before his. 

Originally posted by @Steve Rozenberg :

... we were actually advertising "Bad credit OK!".. Guess what we got????? Yep about 3 month long tenants and about a 30% eviction rate... and the worst part was we could not figure out why this was happening.. Then we realized WE were the problem.

...

Again this is just my personal experience and my opinon, like you said everyone has a different way of doing things but if I kept on my original model I would surely be bankrupt and lost all my homes by now.

Don't blame yourself so much on that Steve, after there are plenty of guru seminars that preach to run ads with that exact same wording - I'm guesding you were just trying to do what they told you. Of course, they never told you that their ideas don't work so well in the long run :)

Originally posted by @Steve Babiak :
Originally posted by @Steve Rozenberg:

... we were actually advertising "Bad credit OK!".. Guess what we got????? Yep about 3 month long tenants and about a 30% eviction rate... and the worst part was we could not figure out why this was happening.. Then we realized WE were the problem.

...

Again this is just my personal experience and my opinon, like you said everyone has a different way of doing things but if I kept on my original model I would surely be bankrupt and lost all my homes by now.

Don't blame yourself so much on that Steve, after there are plenty of guru seminars that preach to run ads with that exact same wording - I'm guesding you were just trying to do what they told you. Of course, they never told you that their ideas don't work so well in the long run :)

 My eviction rate is 0%, vacancy rate 1%, and tenants want to stay longer, with my "landlord suicide" model ;) I think

@Bob Bowling doing this same model for 40 years has had a grand total of 1 eviction. Must be a market thing. Take that for what its worth.

I've had way too many applicants that seem extremely nice at the showing and fill out full applications and even show pay stubs, but when I run background and credit checks, I find evictions and judgments, using friends or family as their landlord referral, etc.  I never assume I am a good judge of character, and no matter how nice or professional someone appears to be, that doesn't mean they are responsible with their finances.   I've used Transunion's Smartmove recently and like it as the applicant pays them directly so I don't have to get involved with fees.  You do have to have your own application as it won't give you their pertinent info in case you need it for filing eviction. 

@Steve Babiak  

This is a known issue with eviction records, criminal records, etc. The states have removed a lot of the identifiers (last 4 of SSN, date of birth) from the records, for privacy reasons. So now you have just name matches and maybe zip/state matches at best. Makes it real easy to get sued and get the wrong data. Ideally you use a screening company that does the post-verification for you, or you're aware of it and do it yourself, like you did.

@Andrey Y.  

 You're lucky, I guess. As a property owner/manager you want to make sure your tenant can pay the rent and won't cause trouble, among many other concerns that Steve Rosenberg alluded to. You need to be able to verify that in some way. Could it be that either you're a statistical anomaly OR Hawaii is more of a small town type market? (That could be my NY bias creeping in).

In any event @Elizabeth Colegrove hit the nail on the head (although she knows I am not a huge fan of the buildium/mysmartmove process, heh). You need to put them through the "ringer" on the front end, make sure they are who they say they are, have the money, and aren't known to cause problems. Especially in the more tenant friendly states it's a MUST, otherwise you're stuck with them forever. Also the process itself discourages a lot of the people you don't want in the first place.

@John D.   - Is it cash like under the table cash, or cash like 1099/not a steady job/biz owner type cash? Are they "unbankable" or just not salaried? I'm just curious because if it's the second type (just no w2), they're are a ton of ways to verify that income/cash, but if it's under the table, how do you know it's going to keep coming in? 

Originally posted by @Steve Rozenberg :

You can be right for 40 years.. But you only have to wrong once to be sued and lose everything. 

Steve, you hit the nail right on the head! And landlords who own the fewest units are the most vulnerable to total destruction, especially in "tenant friendly" (let's not be too harsh and call them "anti-landlord") states. I know nothing of Hawaii landlord-tenant laws, but my strong hunch is that Hawaii is very likely one of those "tenant friendly" states.

Landlords with dozens or hundreds of units and distributed risk have a somewhat better chance of not being totally knocked out of the game by a tenant or two from hell. But someone with a few units, such as an owner-occupant of a multi-family will pay a dear price for not doing their homework before turning over the keys.

Reminds me of the cartoon with Wile E. Coyote standing on the railroad track and pulling down a window shade to protect himself from the oncoming train.

Here's another consideration. Did you know that tenants performing illegal activities in your units can subject you to forfeiture? Depending on the circumstance, in some cases it can be seize the property first, ask questions later. Do you really want to put that expensive asset of yours at risk just because the tenant applicants seemed like such nice people?

Not to beat a dead horse, but think of it another way. How much is the property worth? Say $500,000? Maybe the price of a 2015 Rolls Royce Phantom? How much screening would you do before your turned over the keys to your new Rolls Royce Phantom to a total stranger to rent?

http://www.myrental.com

I tell tenants I require a 600+ credit score in addition to all the other standard BP requirements.  I also explain that my wife and I are looking for someone who will take care of place, respect our privacy, and in return we will promptly respond to repairs. The fink check is my gut feeling.  It never lets me down.  I also apply the application fee to the first months rent.  If you lower your standards... You will regret it.  I'll let a property sit for a while to find the right person.  It makes for a drama free experience.

What I learned , unfortunately, is that evictions only show up, if the people were actually evicted through the marshall. If they went to mediation (as the Atlanta courts require, before you're allowed in front of the judge) and there's an agreement and they leave by the agreement - that will not show up under evictions through my smartmove , and probably others.

So, I think a lot of tenants have figured that out and will do the mediation and then there will be no eviction on their record. 

But I would like to avoid those people as well.

Originally posted by @Michaela G. :

What I learned , unfortunately, is that evictions only show up, if the people were actually evicted through the marshall. If they went to mediation (as the Atlanta courts require, before you're allowed in front of the judge) and there's an agreement and they leave by the agreement - that will not show up under evictions through my smartmove , and probably others.

So, I think a lot of tenants have figured that out and will do the mediation and then there will be no eviction on their record. 

But I would like to avoid those people as well.

 Good point, Michaela. Does anyone have a solution? This sort of verifies some of my points, namely the law of averages and the fact that people overestimate the control they have over events largely beyond their control.

@Michaela G.  - that is something you decipher from their "rental history". But let's say you were given only a partial or incomplete rental history on the rental application. Then you look closely at their credit report, because a detailed credit report will show the addresses from which they made any previous credit applications - in other words, it should resemble their true rental history. So you then look up ownership of all those addresses, and you contact those other owners to get their assessment of the applicants you are considering. Given that they are former landlords of the applicant, they will probably be more than willing to give you the truth about the applicants. 

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