I screen hundreds of renters every year for an apartment complex in an Homeowners Association (HOA). I see lots of background checks; our HOA is 95%+ a rental complex. I approve tenants — hundreds of them every year — without ever seeing or meeting them. I do not even call them. Of course after I give the initial HOA approval, the landlord can still reject them, but few do. And the wrath of the heavy handed HOA comes down hard on landlords who take a tenant who is not approved to the point that some investors have even lost their investment property.
Are you still stuck on seeing and meeting renters?
Give it up — it is not necessary. I cleaned up a 120-unit apartment complex by creating criteria that keeps 99% of bad tenants out without ever even seeing a tenant. I took a complex that went from being the worst complex in the city in terms of police calls to being well below average in number of police calls. I have more about that adventure (and my acquisition of a bullet proof vest) on my own blog.
If you are self-managing a rental, it’s almost a given you will have to meet the applicant at some point. I do showings myself and meet most of my own renters. But I have also rented to several that I have never met that saw my property online. In 2014 alone, I have rented to three renters whom I only met upon giving them the keys. I typically have one or two that move into my rentals from out of state. All have been stellar.
Do you reject out of state renters because you cannot get the chance to meet them? Do you allow your property manager to accept a tenant without you ever looking at the tenant’s background and giving an initial approval or rejection?
If you are using a property manager and you have any say over any tenant, you need tenant screening criteria. If the PM is making all the decisions, they should have a basis for how they select tenants in writing. If not, they do not know how to screen tenants and you should run away from them.
The Risk Is on the Tenant
It is a huge risk for a tenant to rent a place sight unseen; it is not a huge risk for the landlord. The tenant sends money to some unknown landlord for an application and a large holding fee. I charge $40 per adult for the application, and I require $1,000 to hold the unit. My applicants generally send the money through PayPal. I use a holding fee agreement so I obligate the renter to rent, but I am not obligated to sign the lease. Do not underestimate the amount of scammers that are out there. The renter is making a huge gamble, but sometimes they have little choice. I have even see my own places advertised by other people.
Smart landlords never obligate themselves until the latest possible moment. Signing a lease too far out front means you have to evict if the tenants never show up. After all, you have a live lease in effect for an empty unit, and the tenant can come back months later and move in. You may have the place re-rented by then and have a serious pickle on your hands. So I sign the lease when they arrive, and I give up the keys. Never obligate yourself until you have to or you could be on the hook for a motel bill.
Give Up the False Excuses
Some landlords are hung up on always meeting a tenant before they agree to give up their ‘baby’ to an unknown stranger. If for some reason they do not like the person, they will decline them and use the excuse of “they felt uneasy” or it was “too awkward” or some other lame reason they have because they do not know what to look for in a great tenant.
Great tenants have certain attributes that non-great tenants do not. They have great credit scores, then have clean criminal records, they have careers, not jobs. And they have never been evicted.
Have a Plan — and Work the Plan
Before you even start to show a place, you should be ready for someone to ask you, “What are your rental criteria to move in?” Figure it out. If you do not have criteria and you are showing a place, you are in danger of violating Fair Housing laws and excluding great tenants. You are probably one of those landlords that go by the previous landlord references and get burned.
There is no 100% sure way of getting a great tenant or preventing a great tenant from going bad due to outside influences such as a lost job, but there are ways to put the odds in your favor. Much the way you split a pair of aces in a Blackjack game, there is a reason no one advises to split a pair of fives — it is VERY high risk. Why make your landlord experience riskier?
Have a set credit score that you are looking for. With the average renter having a 650 FICO score, you should have an idea what you want. You should know what classification your rental is and what kind of clients want to live there. You are not likely going to get a lawyer or doctor to live in a rooming house.
Know what the average household income is in your area; you should know if you want above or below average income. A criminal record will impact tenant behavior, but not necessarily tenant rent collections. But you should know the type of person you want to associate with and do business with based upon their paper background. The same is true with past landlord references. No matter what good things the previous landlord says, if it is not reflected in the credit score and income, you are taking a large gamble.
Match Your Plan with Your Property
The condition of your property will also play into the mix, but it affects the price of your rental, not tenant quality. Having a low quality apartment and attempting to get great tenants is tough, but not impossible. You have to focus on price. The other option is a low quality tenant in a low quality apartment. If you are doing that, tenant criteria are less relevant, and you need to focus on your eviction speed and fast rental turns. You need to minimize maintenance costs, minimize vacancy between tenants and maximize rents.
Once you have set criteria, a tenant either passes or they do not. There may be some things that make you uneasy about the tenant, as in they just barely pass the criteria on multiple items. It’s OK — you can decline the tenant. Have a criteria that you can follow for everyone and know there will be some borderline cases that you should pass on.
If you get a tenant that passes the criteria with flying colors, you do not need to meet the tenant. They pass, plain and simple. They will want to see the apartment, and you should show it, have a PM show it, have a current renter show it, but whether or not they pass will be decided based on the paper trail that your applicant has already laid out for the world to see.
When you start to understand the characteristics of what a great tenant looks like on paper, rather than in person, it will put you on the road to your success.
What is your approach to tenant screening? Do you have preset criteria? If you have a PM, do they select your tenants, and what criteria do they use?
Let us know in the comments!