Is My Tenant Screening Criteria To High?

Question

Good morning Bigger Pockets community.

I wanted to get your perspectives about my criteria's I am currently using trying to rent out a 3 bed row home in a "C" (blue collared) neighborhood. Every day for the past month and a half I have been receiving feed back from potential tenants that are interested in the home BUT once I provide them with the "standard minimum requirements" and the "initial costs", security deposit and 1st month rent, I don't hear anything back? Am I missing something? Below are the standards and costs I am currently using.

Standard Minimum Requirements:-The tenant or tenants combined must earn 3x's or greater the monthly rent from document-able income sources.-Tenant(s) cannot have prior evictions or felonies.( Conviction of a crime that is a threat to people, property, manufacturing or distribution of a controlled substance.)

-Tenant(s) must have a credit score of 580 or higher.-Tenant(s) must have good references from past landlords.

Initial Costs at Lease Signing:

- Security Deposit (1 1/2) of monthly rent.

- 1st Month's rent due at lease signing. (Please note this home is renting $100.00 below neighborhood median.)I thank you in advance for all your assistance.

James Wise · Answer

Screening criteria looks pretty good to me. One thing to note about your security deposit amount being more than 1 month's rent. In some markets this is cool, in others it is illegal and in others like mine (Cleveland, Ohio) you must pay the tenant interest on any amount held above 1 month's rent. So I would check in with your local housing court for clarification on what the rules are in your area.

Nathan Gesner · Answer

Your criteria is fine. It's not unusual to get a bunch of lookers that never follow through. That happens at every price point.

You could consider a graduated deposit, which is what I do. I have a scoring system. Tenants with the highest score pay a deposit equal to one month of rent. Mediocre tenants pay 1.5x and a higher-risk tenant pays 2x. Under a certain score is disqualified and can't rent from me at all.

Joseph R. Smith · Answer

I Really really like your criteria. The security deposit may be a little high is all.  My experience is with class C properties. My opinion is that with class C properties, I think we must make certain adjustments outside a strict set of rules. Some examples: A) I like evaluating the person in meeting. I figure it like this: Why are people willing to rent in these areas, where our free cash flow is so high?-because either their credit is shot, or because they never had the discipline to save up $5,000 for a 5% down payment in their lives, or both. Thus credit checks are a bit overrated to me. These are the folks who will receive a $4500 tax refund, then spend it within a week in the electronics section at WalMart. More over, I'm careful about new renters around tax season for that very reason. B) We can generally start the eviction process by the 10th of the month. The logic is, if this person could not come up wth $x in 40 days, then why should I believe they can come up with $2x in 20 more days. But, there are many cases where, depending on the person, I have said, 'hold onto the rent money and fix your car, then catch up with me next payday. Why-because depending on the person or on a case by case basis, they may need their car to get to work to pay me rent. C) Credit scores are overated to me also. Is that 490 credit score $150,000 in school loans from a just graduated engineer whose parents just kicked him out at age 31, or from someones mother's $750,000 cancer treatment bills; Or is it all just multiple negatives and stupid overspending of plastic. See those are two separate scenarios. D) Same with criminal backgrounds. I personally don't care in some of the areas I've landlorded in if the person is a quiter type of drug user or even very petty dealer. So long as its in my lease agreement that I do not allow or condone any illegal activities. With criminal backgrounds-I just keep an eye out for anything "Wierd"-as in particularly offenses against children or etc I implement a zero tolerance strict policy. We have to remain flexible and human in dealing with class C and D properties. Just my opinions. But again, love your criteria.

Ola Dantis · Answer

@Michael J.

What I do is have conversations with tenant leads when some of our listings are taking too long to rent.

Just ask your next lead,

is this rent amount ok for you based on the other places you've seen?

OR

is the deposit what you'll consider standard?

Asking these open-ended questions can also help you unveil why the property isn't renting and you can perhaps start making some changes to get the thing rented.

Coleman Nelson · Answer

@Michael J. Most of this is market dependent. I can tell you what is working for us in the Midwest but it may not necessarily work where you are. So take this for what it is worth. Our minimum requirements are:

-Gross monthly income 3x the rent-Credit score of 550-No violent felonies ever or non-violent felonies in the past 7 years-No evictions in past 7 years

Our security deposit is equal to one month’s rent. Sometimes we will reduce the deposit for a special when units are harder to lease.

I recommend trying to get feedback if possible to know why they are choosing not to apply. If you have strong minimum requirements, the likelihood of them damaging the property and you needing such a large deposit is lower. In our market you don’t see deposits over 1 months rent, but if that is common in your market then that may not be the issue. We collect the security deposit at lease signing, and the first month's rent at the time of move in. One of our biggest issues is that people don't have a lot of savings, so moving in is expensive and them being able to pay the deposit now and the rent in two weeks when they move in and get another paycheck helps out with that. Is there a reason your rent is $100 below the median? That's fine if that is the market rate for your property. I just want to make sure you're not renting it $100 below what you should be able to get for the property.

I would hold firm on your income requirement, and I’d say the credit requirement is market/property specific too. Good luck!

Bjorn Ahlblad · Answer

@Michael J. The whole idea with having minimum requirements is to weed out candidates you don't want. Yours is doing that. Some ad sources seem to work better in certain areas. Network with local LL at an investor meeting and find out what is working for them.

For example we use Zillow (Trulia, Hotpads) and Apartments.com. We get a ton of inquiries from Zillow-many who do not qualify, and fewer inquiries from Apatment.com; but better candidates, so we like using both.

Find out what works best in your area. Stick with it!

John Thedford · Answer

Your qualifications list is fine. If it has been on the market for 1.5 months your rent may be high. It also may be more difficult to rent this time of the year.

David Gantcher · Answer

Richard’s your comment on “bad habits” is spot on, by the way. Think of income/credit as the outputs, habits as the inputs. I may have a 720 credit score, but if I’m a horrible tenant, it doesn’t matter if the habits that produced the 720 are no longer there.

With credit, the type of derogatory is much more important than the overall amount. Medical debt dropping someone’s score by 80 points is much different than two late rent payments in the last 18 months. The former was bad luck; the latter is a pattern. Most landlords only care about the score, though.

Rental history is where I’m focusing the most now. If a previous landlord would rent to the tenant again without hesitation, I think they’re worth much more to me than the credit score or income ratio. The problem is, most landlords provide vague answers because they just want the tenant out. I’m starting to ask “Would you rent to them again?” as a direct question. That usually gives you a real answer.

Richard F. · Answer

The criteria of X times monthly rent for minimum income, or a longer view ration, is still only one relatively minor factor in the Big Picture. Lots of PM's put a lot of weight on Credit Scores...which are also nearly useless by themselves. Money, or access to money, alone is not sufficient investigation. You have to review everything you can dig up on every adult that will be occupying the premises, looking for Bad Habits, and missing pieces of the puzzle that you need to get answers for. This is the one task that will save you more headaches, more money, and more time than anything else you can do. So spend the time, do the research, and examine the all of the data. Also, you need to be crystal clear on local LL/Tenant laws, many of which limit what you can charge as Security Deposit, AND limit the amount of other funds you can collect prior to move in (for example, "pre-payment" of additional month(s) rent, or other "fees" etc.)

David Gantcher · Answer

3x income is the floor, not the ceiling. The number that actually matters is the rent-to-income  ratio over time — not just what they make this month. A gig worker making $8k/month looks great  on paper in January and terrible in March. I'd rather have someone at 3.2x with 12 months of  consistent deposits than someone at 4x who had one great quarter. Consistency of income is  underrated as a screening criterion.

Is My Tenant Screening Criteria To High?

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