Real Estate Agent · Dallas, TX · Member since 2020 · 7 posts · 5 votes
Hey BP,
I’m reading Managing Rental Properties by Brandon Turner and have a question about pre-screening and rejecting tenants. In this section of the book, Brandon lays out 7 types of tenants you don’t want to rent to because they’re likely to cause issues.
Let’s assume that a prospective tenant meets all of your pre-screening criteria, but you find that they are one of these types of “trouble tenants” during the showing. Are you able to reject the tenant based on your in-person assessment of them? If so, what do you use as your rejection reason on their adverse action letter?
I haven't read the book you are referring to, but in general if you don't like someone for a legit reason (eg you get a bad feeling) simply tell them you found another tenant. You can't discriminate based on race, gender, etc, but you can turn an applicant down based on attitude.
Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
4y
Realistically, if you have screening criteria and someone passes all the criteria, you open yourself up to legal action if you do not rent to them. That said, is your criteria comprehensive?
If you are only looking at criminal record and credit report, your criteria may be insufficient. For example, your criteria could include a good reference from a prior landlord. We've received too many fake W2s so require bank statements to show they match the W2. We look at court case filings for evictions because they may not show up in the credit report, particularly if they are new.
In short, you can have a broader set of criteria as long as your criteria do not violate Fair Housing or other laws. While it would be foolish, you could rent only to people that are wearing a hat.
Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes
4y
Aloha,
I am not familiar with the book you mention, so an answer really depends on what you have done up to the point of rejecting them. First and foremost, whatever you are doing, you must keep the Federal AND State Fair Housing laws in mind: Treat everyone the same, using the same standards.
For my application process, I have a standard denial letter that I send to every applicant that has been fully processed, but denied. There are a number of checkboxes that I can select, such as "Insufficient Income", "Employment time too short", "Collections, pending suits, or other public records", "Requested additional documentation not provided", etc. I simply check all boxes that are applicable, and send it out. The denial letter includes statements regarding what the FICO score was based on and what reporting agency provided the score; also where the applicant can search online for the (local) court records that were retrieved as part of the process. These notices are required by the Fair Credit Reporting Act, and the applicant can obtain a free copy of their reports from the reporting agencies. A copy of the denial letter is attached to their application and all supporting documents, credit and other reports, and filed until destroyed in 7 years. (The file is kept because it, and all of the others on file, can be used as defense of any discrimination case that arises.)
I haven't read the book you are referring to, but in general if you don't like someone for a legit reason (eg you get a bad feeling) simply tell them you found another tenant. You can't discriminate based on race, gender, etc, but you can turn an applicant down based on attitude.
Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
4y
You are not required (by the fair credit reporting act) to send an adverse action letter unless you pull a credit report. For this reason and others I don't pull credit until I have already completed all other screening steps and I am ready to offer the unit contingent on a good background/credit report from transunion.
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
4y
Try to avoid sending that 'adverse action' letter, and if you have to, choose your wording carefully. It is easy to just say that someone else in the long line of potential tenants got it first, they don't know each applicant's timeline.
You do owe it to yourself to be choosy....what if someone passes your background checks but has gang tattoos? Or just talks inappropriately during your walkthrough? Or just gives you a 'funny feeling'?
Let’s assume that a prospective tenant meets all of your pre-screening criteria, but you find that they are one of these types of “trouble tenants” during the showing. Are you able to reject the tenant based on your in-person assessment of them? If so, what do you use as your rejection reason on their adverse action letter?
If they are a "trouble tenant" that meets your screening criteria, then your criteria is not comprehensive enough.
Expand your screening criteria. Ours includes the applicant's character: "Applicant should be a courteous person who is generally clean and well kept in appearance, and demonstrates honesty, reliability, and follow through during the application process."
Your criteria should be provided to each applicant in written form, should not discriminate against a protected class, and should be applied equally to all applicants. That will keep you out of trouble. As others have said, you do not have to send an adverse action letter unless you run a credit check, and you should not do that unless they meet all other criteria.
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
4y
A majority of part time investors are not on BP and have never read a book on investing. They meet the prospective resident(s) at the property, run their checks on the first or what they feel is the best fit, collect a deposit, and sign the lease. They've never heard of fair housing for mom and pop landlords and don't care, particularly in red states.