Tenant Screening - What's Your Process?

12 Replies

Hi all - finally hit the ground running and closed on my second (first real investment property) property on Friday, and have been trying to get a tenant into one of the units (other unit is occupied) ASAP.

Here is my process, and I'm sure ready for some advice and/or tweaks you would recommend. The property is in a C/B area -- its very blue collar but also would attract likely more tenants with cash/bad credit versus tenants with cash/good credit.

1.  Placed ad on Craigslist

2.  Received e-mails from prospects, responded with minimum income requirements, our required deposit, and that we will execute full background check/check references.

3.  (Assuming agreement with #2) show property, with paper application on site.

4.  If they pass rudimentary check on paper application, initiate them with my 3rd party (TransUnion SmartMove) for full background check.

I think doing #2 is saving me from showing the property, unnecessarily, to people who would not qualify. Do you all agree? I've had 15 e-mails in 48 hours, but have only had one person make it to actually visiting and putting in an application.

I'm a BIG guy on having the right processes, so I'm curious to see if others are doing things differently, or if there should be changes to my process. What I want to avoid, which is what I dealt with with my first property, is showing it to everyone who wanted to see it, getting a ton of applications, but then not having any actual interest from there.

Hi Joe, 

That is close to the identical process that I ran with my first rental. I would also suggest placing a rental listing on Trulia/Homepad/Zillow as well as Facebook. That will give you more exposure (however, in my last experience, you get more tire kickers with Trulia/Homepad/Zillow). 

None-the-less, even with that process, I found that I was spending more time than I wanted to. I think there are some great opportunities to automate the communication with prospective applicants and the scheduling of the showings. I actually recently wrote a Member's Blog post about this same topic: https://www.biggerpockets.com/blogs/11096/76009-4-...

That is pretty similar to what I do as well. You can set up templates in most email systems that save time replying with the same info. I also only do showings at specific times to cut down on no-shows. Usually I list on Zillow on Thursday, have a showing Saturday and Sunday at different times and by then I have over 20 people who have come to look and submit applications. If people want I will email them the application so they can bring it filled out. 

@Josiah Kay thanks for your input! I'm a big process guy myself as my background is IT operations, so I will look into MS Flow. I already checked out the website and I love the idea of its automated functionality. Thanks for turning me onto it! I also placed my rental on Zillow and I hope that improves the exposure/applications.

@Peter M. thanks for that info, I really like the idea of e-mailing the application so they fill it out ahead of time. Do you find that good tenants are the ones who follow up frequently, do what they say they want to do, etc.? I have a prospective tenant who keeps telling me they need to move ASAP, so I sent them an application link and they're dragging their feet. Little things like that make me wonder if I ask them to keep the place clean, or if they are late on their payment, will they drag their feet too?

And questions for both of you -- do you charge people an application fee? And do you use TransUnion SmartHome or any other screening? I'm trying to strike the right balance of someone not wasting time but also not overcharging for an application -> if I charge $25 for the application and TUSH charges $40 for the background screening, i could see an applicant shying away from that kind of entry "fee" or being genuinely upset if they aren't chosen from the get-go.

I use smartmove as well and if they are actually motivated they will turn in the complete application and go online and do the smartmove application. I only process one application at a time that way people aren't paying for a credit report and I never make it to their application. That way the onus is on the tenant. If they really want it that bad they will fill out both, pay the money, and wait to hear. I give them 24hrs from when they receive the smartmove email before I move onto the next applicant. I don't charge a fee on top of what they pay to smartmove-less bookkeeping for me, less income to report on, and the tenant doesn't feel like you are just keeping their money as long as you explain that the money goes to smartmove and not you. 

I don't charge an application fee on top of the fee that is charged by SmartMove. This is for two reasons. First (and most important), my state is pretty restrictive on the application fees. Second, I just wouldn't want the hassle of collecting this fee and then dealing with people who think I am trying to take advantage of them and pocket the fee.

Here's my process:

It all starts with online ads, within which are several questions I request be answered in their response to my ad. Here they are:

1.) Your first and last name, email address and phone number
2.) Total number of people that would occupy the apartment
3.) Proposed pets (size/breeds)
4.) Monthly pre-tax income for household
5.) Date you wish to move in

6.) Do you currently have enough funds to pay first month’s rent, last month’s rent, and a security deposit?

Next, here's a canned email response I use for everyone who answers my ad with the aforementioned questions answered. If they don't answer my questions, I know they have not read the ad and are just clicking and "tire kicking" or they lack the intellectual focus for me to have any business relationship with them. Anyhoo - here is the email response:

Thank you for your interest. We have a minimum income requirement to qualify for this unit (3 times monthly rent); based on your email, it appears you meet those qualifications.

Regarding pets, we allow cats and most dog breeds except for the following:

  • -any breeds/mixes known under common parlance as “Pit Bull”
  • -Rottweiler
  • -Doberman Pinscher
  • -German Shepherd
  • -Alaskan Malamute a.k.a “Husky”
  • -Chow Chow
  • -Great Dane
  • -St. Bernard
  • -Akita
  • -Wolf hybrids

Unfortunately, these are prohibited for insurance reasons. We require a one-time nonrefundable pet fee of $200 (per pet) that is good for your entire length of residency. We do not charge any “pet rent” beyond this initial fee. We typically like to meet your pets at some point in the process, too.

Our tenants’ safety and the peaceful enjoyment of their home is important to us, so we do a credit/criminal background check on all applicants aged 18+. Big concerns are bankruptcies/repossessions/evictions and crimes against people/property. If you don't foresee any major stumbling blocks (or, if you do, and would like to discuss confidentially - we can certainly do that), I'd be happy to set up a showing for you. Let me know what you think.

As a matter of information, smoking is prohibited inside our rental units.

If you decide that the apartment would meet your needs and wish to proceed with the application process, a “deposit to hold” binder equal to a month’s rent would need to be collected at that time. This holds the unit for 5 to 7 days until the lease signing, and once the rental agreement is signed this becomes the first month's rent. At the lease signing, you will need to put down another $1650, which will be the security deposit ($825) and last month's rent ($825). So, the total move-in costs (not including pet fees, if applicable) would be $2475, all paid prior to lease signing.

Also, we would need copies of the two most recent pay stubs and photo ID for all applicants aged 18+ (I can scan at the showing) to begin the verification process, which only takes a few days.

Since choosing a place to live is a very personal decision, please feel free to do a “drive by” of the property, located at 123 Main St, so you can get a “feel” for the neighborhood. (I will ask that, out of respect for our current tenants’ security and privacy, to please wait until your showing appointment before walking the property.)

If everything above is agreeable to you, let me know your availability and I'd be happy to take you through the apartment.

Thank you, and I look forward to meeting you at the showing!

Note how I reiterate the qualifying criteria as well as itemizing what the move-in costs will be. I also suggest a drive-by so they are not unpleasantly surprised by the neighborhood when they to the showing, and just keep on driving by anonymously as I wait outside. This email gives people yet another opportunity to self-select out of the application process based on my expectations and criteria before an actual showing in scheduled.

If they do request a showing, I send them this email:

Hi Sally,

How about Thursday at 7 pm? If that works for you, please reply to this email to confirm and I will add you to my showing appointment book.

Also, as a means of courtesy to both our busy schedules, please confirm via text or phone call at least 2 hours prior on the day of the showing to my cell phone (area code and number).

I’ve also attached our rental application. I will have hard copies at the showing, but if you print and fill them out prior to the showing, this would save us both some time should you want to expedite your application in the process.

I look forward to meeting you on Thursday!

If they have not confirmed an hour prior to their appointment, I send this text to their phone (which was required as part of their contact information I required in the response to my ad):

As I had requested in my email, you have not yet confirmed your apartment showing for this evening, scheduled for 7:00pm. If I don’t hear from you in the next 10 minutes, I will assume you aren’t attending and I will move on to my next appointment.

Using this system as dramatically reduced any wasted time I used to endure as part of the showing process as well as giving me data about their timeliness/responsiveness/respect for others' time.

At the showing, I collect their completed application (sent via PDF prior or filled out on premises), scan their photo ID and last 2 pay stubs.

Then, I do some digging around online (social media, court records, Google) and if it looks like they are representing themselves to me accurately, I contact them to set up a "contract to hold" meeting - usually the day after the showing since qualified applicants need to be "closed" ASAP.  (During this whole time I continue to market/show the unit.  I continue to funnel people into my process until a lease is signed.)  Note that I do not put a lot of time into due diligence until the "contract to hold" meeting, when they put some skin in the game.

At the "contract to hold" meeting, I collect an amount equal to one month's rent.  I ONLY accept cash or a check drawn on a local bank (so I can walk it in and get cash that same day).  We sign an agreement that commits their non-refundable payment for a brief period (usually 5 days), during which time I call landlords, employers, and run background checks.  If there is anything untoward, I have a 7 day right of rescission and I give the money back.  I absorb the background check fee as it is a small price to pay for dodging the bullet.

Once background checks are complete, we meet again for a lease signing, at which point I collect the rest of the move-in fees.  I only give them a short time (about 5 days) to meet for the lease signing before they lose their exclusive rights to the unit, so this prevents someone from dragging their feet after they've signed the contract to hold.

Once the lease is signed, I take down the ads and send out emails to people in mid-marketing flow letting them know that the apartment has been rented but I will reach out if something falls through.

Anyways, you wanted a system.  This is mine.

@Wesley W. I read through your process a few times and I've got to say, very impressive. It looks very similar to what I am doing, although the deposit "contract to hold" is something that I haven't considered -- to me it looks like a man scorned; did someone agree to sign a lease and back out, and that's why you've got that in?

@Joe P.

Fun you should ask, I'm in the process of filling a rental right now.

I do something similar to @Wesley W.  

1. Place ads on Craigslist and Zillow. The first half of the ad describes the property an explains the pictures, the second half lists our basic criteria ( 3x gross income, 600 credit score, only dogs under 30lbs, no recent evictions)

2. I have a phone number per property with a voicemail that says something like 

"Thanks for your interest in 123 Main St, a three bedroom 2 bath home renting for $13000/mo. Just a reminder, we require a verifiable income of 3x rent and a min 600 credit score. Also first months rent and security deposit are due before move in. If you'd like more info, please lave your name, email, and we will get back to you within 24 hrs."

Then I set that number to 'do not disturb' and check it twice a day.

 If they use the zillow email feature, I text that to them.

 I find text to be much faster than email, at least in my market. This has help weed out a lot of tire tickers who haven't bothered to read the ad. The number of missed calls that don't leave a message has doubled and I gotten the "how many bedrooms and what's the rent" messages, since I started doing this. 

3. I set up a time to talk on the phone and run them through text and run through my phone screening checklist and verbally let them know when the open house is. I personally like talking on the phone before I meet them, it gives me an idea of what to expect at the open house.

4. I ask for the same text 2 hrs before a showing. For every 10 people that make contact about one makes it to the showing, maybe two. 

5. For anyone that is interested after the showing, I send them our online application/background screening (rentolutions). If they are  confident they will pass the background/credit check and can provide verifiable income, I will take a deposit to hold. I will hold the property for 7 days for them and use the same rules as Wesley for firsts month's rent. 

6. Review the applications, CALL REFERENCES, and pick the best candidate. 

7. Let accepted applicant know the requirements to move in (Utilities in their name before move in date, signing the lease...) and collect the deposit to hold. 

8. Set a date for move in and establish a time  (not the day they are moving their stuff in) to give them their new tenant orientation, which walks them through the details of the lease that they will need to know. We have a packet that takes all the lease terms and puts them in plain English. Things like, if there is a fire, don't call us call 911, if you don't pay by the 5th you will get this notice, if you don't pay after that this is what happens, maintenance and repair responsibilities, and a review of the dos and donts.... 

9. Collect Rent

Originally posted by @Joe P. :

@Wesley W. I read through your process a few times and I've got to say, very impressive. It looks very similar to what I am doing, although the deposit "contract to hold" is something that I haven't considered -- to me it looks like a man scorned; did someone agree to sign a lease and back out, and that's why you've got that in?

 Hey Joe.  A contract to hold is not that uncommon, at least in my experience.  It basically commits the tenant to the unit before I start spending time and money vetting them.  I'm not sure how you would proceed with an applicant without them having skin in the game?  Do you collect a deposit which is refundable to the tenant if they change their mind after you've begun your screening and due diligence?  I'm curious what you do.

Originally posted by @Wesley W. :
Originally posted by @Joe Papp:

@Wesley W. I read through your process a few times and I've got to say, very impressive. It looks very similar to what I am doing, although the deposit "contract to hold" is something that I haven't considered -- to me it looks like a man scorned; did someone agree to sign a lease and back out, and that's why you've got that in?

 Hey Joe.  A contract to hold is not that uncommon, at least in my experience.  It basically commits the tenant to the unit before I start spending time and money vetting them.  I'm not sure how you would proceed with an applicant without them having skin in the game?  Do you collect a deposit which is refundable to the tenant if they change their mind after you've begun your screening and due diligence?  I'm curious what you do.

 
Well given I am just starting with my second ever rental, I have been having tenants put in an application with me, and then I sent them a link to the $40 TransUnion SmartMove portal for a background check. If they go through with that, I figure at that point they're ready to proceed or else wouldn't put any money in.

Put it this way, personally, I'm not going to pay for someone to do a background check on me to rent their place unless I'm serious about proceeding. I certainly feel better about paying a company $40 to do a check on me versus say, $900 in rent money, before signing anything. Not knocking your procedure, just asking about it since I haven't heard of it yet.

The deposit that I'm looking for is first/last/security via cashier's check upon signing the lease. No check, no lease.

@Joe P. I think you may find that many more people will flake over $40 than $900.  You may be surprised as to how many.  As I said in an earlier post, the good applicants can cherry pick the best places and are always looking for something better (because they can). 

Just like when looking for colleges, many of us had a "safety school" that we paid an application for just in case our more desirable school didn't pan out.  It's cheap insurance for the applicant (both college and rental, in this case). 

I'll be curious to see if you evolve your process at some point.