Tenant Screening - A Few Red Flags

When looking at a rental application there are 3 important things to look at.  Income, Tenancy and Credit.  Its very important to always be 100% compliant with fair housing regulations, but its also very important to do your due diligence when looking at a rental application. 

Proof of Income:

We require 3 times the monthly rent for Income (Net).  So if a property rents for $700 a month we need to see $2100 in take home pay. Here are a few ways that we make sure that potential renters will bring in the money that they say they do and use it to pay rent. 

1. If a applicant can't provide proof of their income because they say "I get paid under the table".  This is definitely a cause for concern. We only accept pay stubs, 1099's, W2's, and Government assistance.  We don't accept temporary or unreliable income like unemployment, child support, written letters, or "under the table" type arrangements.  

2. Handwritten paycheck stubs or 1099's can be easily fabricated.  Often times, we will require additional proof of income like bank statements or rental payment receipts. 

3. Check the address on the proof on income.  If the address listed on the pay stubs, ssi paper work, or tax returns has a different address then what they have listed on there rental application then you need to take that into consideration when you do the tenancy verification. 

Tenancy Verification: 

We need to see at least one year of solid payment history.   Calling the previous landlord to verify that they paid on time is common practice among landlords but here are a few tricks that we have learned over the years to help find the best possible tenants. 

1. Check the tax records of the prospectives tenant's current address to see if the landlord's name is the same as what they put on their rental application.  If the names don't match up then you can investigate further to see if the story makes sense.  When you call to verify their payment history you can ask the landlord if they own the house or if they manage it.  If they say they own it and the tax records tell a different story, then they probably aren't telling the truth. 

2. For us its always a red flag hen you can't verify someones tenancy because they have been "staying with a family member".  Be very careful with tenants that don't have a neutral, 3rd party landlord that will vouch for them.   

3. Do a quick google search on the prospective tenant, see what you can find. If you can, find them on Facebook and see if they are "friends" with (who they say is) their landlord. 

Credit History:

We pull credit on every single applicant looking for a new home. We can't except anyone with an eviction, judgement or collection from a landlord or property management company with in the past 5 years. We use a credit pulling service called National Tenant Network that is specifically for property managers. Here are a few things to think about when looking at a credit report. 

1. We don't take into consideration medical bills.  Medical collections and judgements are very common and are not necessarily a sign of a bad tenant.  Outstanding student loans are another example of an acceptable blemish on a tenant's credit report. We also don't look at the credit score. Medical bills and student loan debt can negatively impact the credit score.  Also, being debt free can negatively impact a credit score, and that certainly doesn't make someone a bad tenant.   

2. Having a lot of recent (within 6 months to a year) collections is a red flag for us. It means they are potentially getting themselves into a situation that they can't recover from.  We often find that people that have recent car collections and credit card default are also going through an eviction and need to move. 

3. Unpaid utility bills are a huge red flag. Utility companies have a monopoly in most markets. This means that if you have an unpaid gas bill you can't get the gas turned on.  You can't use another gas company because they don't exist. If an individual doesn't pay their utility bills then they probably won't always pay the rent either.

Each rental application needs to be looked at on a case by case basis. Don't be afraid to get creative and think of different ways to secure your investment. Using good judgement and looking at all aspects of the application is crucial to finding good tenants.