Critique my tenant screening process.

20 Replies

After 6 years of hiring a property manager I am in the process of bringing my 26 single family rentals into "in house" management which is going to be me until I hire someone to work part time. I am using Tenantcloud to market/screen/manage/rent. After renting 6 properties, here is what I have been doing...

My minimum rental criteria that I post in the description is 3x rent, no evictions, 550 minimum credit score - though I am thinking of getting rid of minimum credit score because I have had applicants with 50K in the bank and a 500 credit score. I feel income and cash reserves should make credit score irrelevant in certain situations? 

As people email me to schedule showings - I reply with this email -

Thank you for your interest in this property –

Can you please reply to the pre-qualification questions below. If all looks good we can schedule a showing any day.

  • 1.What is the combined annual income (all applicants) that can be verified?
  • 2.What is your approximate credit score?
  • 3.When are you looking to move in?

If they appear qualified I let them schedule a showing any day. Here is the lazy part on me that I plan to hire out some day because I assume its not great practice. After they schedule a showing I ask them to text my phone an hour before to confirm. Then when they text to confirm I tell them "I am running late and the lock box is on the back door text me when you lock up and let me know if you have follow up questions."

This has been working very well but I am starting to create a training manual for the person I end up hiring so I am trying to fine tune everything.

My goal is to hire someone hourly like a virtual assistant to do administrative work like posting/invoicing water.sewer bills and lease renewals. Tenantcloud does all the invoicing and rent collections so there wont be much else. The only other thing I need to hire out is someone to do the tenant screening so that all I have to do is get the "new application received" message on TenantCloud and not deal with all the emails and showings.

Please let me know where I can improve.

I encourage self-managing where appropriate, but I would not suggest giving unsupervised access of an unoccupied rental unit to a potential tenant under any normal circumstances. If your time is limited, have scheduled open houses for your rentals where you can show to multiple applicants at once.

Originally posted by @Hubert Kim :

I encourage self-managing where appropriate, but I would not suggest giving unsupervised access of an unoccupied rental unit to a potential tenant under any normal circumstances. If your time is limited, have scheduled open houses for your rentals where you can show to multiple applicants at once.

Your right - I am busy and thats why I have been doing it. I am probably in the minority but for me, it's simply a risk/reward analysis. My time is too valuable to waste going around showing the units. Also, nearly all my properties are completely redone at get $1300-$1500 for rent. So not only am I pre-screening the showings, but the type of person looking at these properties is not the same kind of people that look at $800/month and they are in B type neighborhoods.

I suppose this could backfire someday but I think the amount of time and money I save will quickly surpass the highly unlikely event that someone will damage/vandalize/steal from the property.

At some point I might hire this out but for now it seems to be working.

@Adam Craig

Self showing is a valid technique. However, we're in different times where people have less and less respect for private property and Landlords. I'm starting to see professional managers around the country get scammed by people setting up a showing, entering the home, changing the locks, and setting up shop. In some states, it can take 2-3 months to get them out and by the time you do, they've stolen copper pipes, appliances, fixtures, etc. I am in a very low-crime part of the country and stopped doing self showings. As criminals become more familiar with this, these crimes will only increase in frequency.

550 is a low credit score and I wouldn't accept it without risk mitigation. The credit score is not perfect but it is one of the best indicators of one's ability to handle their financial obligations, which is why all the lenders rely on it so heavily. You should learn from them.

We set standards to reduce our risk. If I require a credit score of 750, that would dramatically reduce my risk but it's still no guarantee that they'll be great tenants. It just reduces the risk of a bad tenant.

If my standard is a credit score of 650 and an applicant comes along with a 550, does that mean they are an automatic denial? No. It means they are higher risk so I have to see if there are other ways to mitigate that risk. If they had $50k, in the bank, I could waive my credit score requirement in exchange for the payment of the entire year's rent in advance of occupying. After receiving the payment, I no longer have a risk of them not paying and the problem is solved.

This is the same for all standards. I don't accept felons...but sometimes I do depending on the type of crime, how long it's been since they finished their sentence, work history, Landlord references, etc. I don't accept sex offenders because there is a high risk of them committing another crime...but I may accept them if they are renting a single-family home on three acres outside of town. Develop your standards but understand WHY those standards exist and WHEN or HOW you can deviate from them.

If you hire an assistant, the simplest method I've found is to screen with a scoring sheet. I rank people 1-30 based on 10 different factors of the screening. Length of employment, rent:income ratio, debt:income ratio, credit score, late rent payments, lease violations, etc. If they have 2+ years with their current employer they earn three points. If they have less than 6 months with their employer, they earn zero points. I do that with all 10 criteria and give them a total score. 26 - 30 equals a good prospect and I charge them a deposit equal to one month of rent. 16-20 is a high-risk tenant and they have to pay a deposit equal to two months rent. 15 and under is a fail. Make sense?

The beauty of this system is that it requires very little thought. Your assistant collects the data, marks the score sheet, and assigns them a score. If they are a higher-risk score, you charge them more to mitigate the risk. Many of them will walk away but many of them will pay the extra fees. Since instituting this policy, we've dramatically reduced the number of tenants that left owing money.

@Adam Craig In general tenants do not read the ads, they just look at the pictures and the monthly rent amounts. Because of this we find it more effective to list all of the minimum requirements for the rental during our initial correspondence even if they are outlined in the post. 

What your is doing as far as screening looks good. I have been saying reasonable credit score so that it doesn't lock me for reasons you mentioned such as cash reserves, guaranteed income (section 8, trust income, SSI etc).

I send a letter to all inquires explaining about my vacancy and my tenant requirements.

I schedule the first showing ~5 days out, and pack other showings 15 minutes apart at that same time.  I inconvenience my existing tenant for only an hour, and I only show pre-screened tenants. 

All my problem tenants had a sub-610 credit score, so I use 625 as a minimum.  For all occupants, even the 18 year old kid.  I likely have had good tenants with lower scores, but rarely.

I have had sub-500 people living with 750+ scores.   Domestic violence.  575 living with 680, drugs.  Numerous other examples.  Murderers, robbers, etc.

You landlords that rent to lower score people, you can have them.

Originally posted by @Eric D. :
All my problem tenants had a sub-610 credit score.

Hey Eric! Long time no talk. I completely agree with the credit score requirement. Too bad City of Mpls wants to implement 500 minimum score requirement on landlords...

This process works well for us as the initial screening process: we send a text message with the following after initial conversation:

1. Email address *

2. Why are you moving?

3. When do you plan on moving in?

4. What is your monthly income?

5. How many people will be residing with you?

6. Do you consent to a background and credit check

7. Have you ever been evicted?

8. Do you have any pets?

9. Do you have any questions?

10. Will you have the first month rent and deposit?

11. What is your name?

If they take the time to respond, then we can schedule a viewing where they bring the application filled out. We will schedule everyone in about 5minute intervals on the same day of the viewing...in time lapse of an hour.

These steps allow us to effectively 1) screen 2) use of our time 3) book the units to keep on focusing on other parts of the business.

Hope it helps....

Here is the exact pre-screen letter I send out to all my inquires.  I try and be informative, not just a gate keeper.  I do not use a 3x the rent, I use the actual number, based on my current rent.

Thank you for inquiring on address here.

This unit will be available August 1st, 2019.

This is a three bedroom, one bath unit. It is a non-smoking building. It has a washer and dryer in the apartment and central air conditioning. There is a tandem garage, one car parks in front of the other. There one flight of stairs to get into the unit. After that, it is all one level. There is an apartment above you.

I will be looking for tenants with a 625+ credit score, and a solid household income of at least ~$51,000 per year. If you are marginal on both of these items, I will generally decline you. Your criminal and rental history must be clean. If you have had a foreclosure, I can work with you a bit on this.

I have a Real Estate license, so if you are preparing to buy a home, this is a perfect fit. If you purchase a home through me, I can make sure the lease transition is easy, and also give you up to $500 back at closing to help with your moving expenses or anything you want.

Pets are allowed, however no Akita, Chow, Pit-bull, Rottweiler, or any cross breed with wolf are allowed. A $25 fee per pet is a general rule of thumb.

If you do not support law enforcement, or our military, please look elsewhere for your housing needs.

I have tenants in the unit, so I need to give advance notice for showing. I generally show the unit on weekends between 11 AM and 4 PM and sometimes during the week between 6 PM and 7 PM. You will need to schedule an appointment first, and then confirm the appointment ~30 minutes before you arrive via text or call. If you do not confirm the appointment, it will be canceled.

I do not take Section 8. If you have had an eviction, or you have had recent criminal activity including DUIs, I generally will pass on you. If you are not a legal resident of the USA, I will not be able to rent to you, as I cannot perform a valid background check.

The rent price includes water, sewer, garbage, lawn maintenance and snow removal. It does not include gas or electric, which runs ~$125 per month. The deposit is $1,500.

If you are still interested and want to look at the apartment, please let me know. If a showing makes sense, a Google calendar invite will be sent for you to accept. You will have to make sure your calendar is on Central Standard Time (CST).

Additional Pictures with link to a virtual tour

Zillow Link Here

Virtual Tour

Homemade YouTube Link Here

Eric

Phone

Something to keep in mind with credit score: it's a direct correlation of how likely someone is to pay their bills on time and in full. Cash in the bank ≠ a good tenant. To be fair, a bad credit score does not always equate to a bad tenant, but generally a bad credit score should cause you to at least raise eyebrows. Also to be fair, a good credit score does not always equate to a good tenant. 

Down here we do self showings. The system that we use requires a debit/credit card, a picture of the front and back of their license and answering some pre-qual questions. We've been doing this for several years without any major incidents. If you're wanting to stop self-showings, open houses are a good alternative as mentioned. 

@Adam Craig

The showing:

Sooner or later, you're going to do the "I'm running late" self-showing bit to one too many tenants and it's going to get out that you routinely lie to each of them during your first (and perhaps only) scheduled face-to-face meeting. I agree that self-showing might be a valid technique, but lying about it, especially with any sort of dismissive justification for it that "my time is too valuable to waste," is not exactly going to endear you to your tenants.

Now I understand that my experience in the slums and ghettoes of C/D landlording has prepared me to deal with a different sort of clientele than the ones you are talking about, but people are people. They want to meet their landlord/property manager. They want to know who they're going to be dealing with. They don't like to be dismissed to tricked or manipulated.

I think you're worried about the wrong event -- that someone will damage or vandalize the property during the self-showing isn't the danger. That someone will care a lot less about the condition of the unit through the lease period because the landlord starts the relationship off with a lie, that's the problem.

Thank thank you everyone for the insight lots of good notes taken and I'm going to make some changes accordingly.

Maybe it's because I'm also a Realtor but there is no way in heck that I would let anyone in one of my properties WITHOUT being accompanied by an agent or myself. Why? Aside from checking their finances to determine whether or not they can afford the rental, I want to meet them in person because they will be living in my property. First impressions matter to me immensely.

Originally posted by @Alex Smith :

Something to keep in mind with credit score: it's a direct correlation of how likely someone is to pay their bills on time and in full. Cash in the bank ≠ a good tenant. To be fair, a bad credit score does not always equate to a bad tenant, but generally a bad credit score should cause you to at least raise eyebrows. Also to be fair, a good credit score does not always equate to a good tenant. 

Down here we do self showings. The system that we use requires a debit/credit card, a picture of the front and back of their license and answering some pre-qual questions. We've been doing this for several years without any major incidents. If you're wanting to stop self-showings, open houses are a good alternative as mentioned. 

If someone told me that I would have 10 identical groups of applicants applying, and only one group of the bunch was bad, I would tell them to reject all 10 groups and keep fishing.  All my bad tenants have had low scores, and a significant number of my lower score tenants have been bad.  Far too much risk, especially in a 4-plex, where I could lose other tenants.

I screen tenants for a large complex as part of my HOA President duties, and the credit score thing has resolved police incidents by 99%.

I always show a property with existing tenants in them, so I would never do a self-showing.  It seems like too much of a scam anyway, if I was the incoming tenant  I would think an existing tenant would also balk at it.  I am not afraid to rent to tenants that I have never met, based on their paper background.  I just do not want a stranger walking though my house unsupervised, and my tenants would not want at either.  

I am also there to answer questions, and to 'sell' my place.  I get a chance to see the condition of the apartment and start planning the turn.

Originally posted by @Brent Crosby:

@Adam Craig you definitely want to call references. Has saved me many times.

I use a service that call the past landlord references.  There is no way a landlord can do it as effectively as a service.  They call the previous property owners as listed on the credit report, and rely less on the applicants information.  I rarely take much faith in the information, unless it is bad.  Not the current landlord, and not the one that is several landlords ago.

I have called in the past, and have found relatives listed as a reference in stead of an actual landlord.  And always told "Great tenant, always paid on time."  Even though the actual owner was evicting them.

I have developed more of a science to screening tenants based on statistics and my experience. I screen hundred of tenants every year, and I get to see the results of the tenants that make it through the process. I know and understand credit score distributions, mortgage default rates by credit score, average tenants credit scores, etc.

I want to know what are my odds of a bad tenant, and how much is that likely to cost me.  It is a calculated number.  If 15% of your tenants will be bad, they have a $xx damage deposit, they last on average 6 months, and it costs $xx to get it re-rented and paying rent again, that is a simple formula to figure out.

If the average landlord has a high-school diploma in regards to tenant screening, I have a PhD...