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Screening tenants is probably one of the most important topics for buy and hold investors who self-manage their portfolios. It really does not matter if you have 5 or 50 units. Screening tenants and choosing the best qualified tenants from the beginning is critically important to the long term success of your rental units and portfolio.
I do have a confession to make: When my husband Matt and I began investing in property many years ago, we were simply so excited to be real estate investors and have ANYONE interested in our properties. As a result, we accepted anyone who wanted to rent from us. If they were breathing, interested, filled out a simple application and had a job, we accepted them. Unfortunately due to our lack of knowledge, we experienced more of a “revolving door” early on with tenants.
Well, if you don’t learn in this business, you can’t stay in this business!
Ten year later, we are still not perfect; however, we have learned a lot and have made improvements. Over the last several weeks, I have been training our new in-house “property manager,” and we have been busy screening a lot of applications for our units. Therefore, I thought it would be helpful to share the best strategies we take to ensure we bring strong tenants into our units. I hope this list is helpful for both the newbie and seasoned vet as you strengthen your screening process!
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12 Tips I’ve Learned From Screening Close to 500 Prospective Tenants
1. Have written “rental standards” that you use consistently.
I can’t stress this one enough. Although I am not a lawyer (and not even close to being a lawyer), I am pretty sure this is a requirement by law. I am pretty sure you have to have written rental standards in case anyone ever takes you to court for discrimination. We have a written list of 30 standards that cover the following topics that every single prospective tenant is measured against: income, credit history, rent history, applications, co-signer.
2. Use a scoring system that measures each prospective tenant on the same exact criteria.
I am a big fan of making decisions like this more objective. You become more objective as a result of having a consistent scoring method that is based on your written rental standards. In a nutshell, we took our rental standards (discussed above) and created a uniform scoring evaluation process where prospective tenants score into three groups (deny, accept, and above standards). This has been tremendous for us, as it has helped us remain consistent.
3. Use a strong and detailed rental application.
Most landlords use some type of application. However, I have seen a lot of landlords not always include the following (that in my humble opinion are incredibly important):
- Ask for permission on your application to contact previous and current landlords (a very important detail you don’t want to miss!)
- Always get written proof of the following:
- Driver’s license or picture ID
- Voided personal check (to verify bank)
- Two weeks of most current pay stubs of each income source listed
- If prospective tenant is self-employed, you should ask for the most current Schedule C tax return and proof of current income
- Child support, alimony, pension check or other sources of income
- Proof of car insurance
4. Call previous and current landlords.
I can tell you from experience that previous landlords are MUCH more important than the current landlords. The reason being that current landlords might be telling you what you want to hear (the prospective tenant is wonderful) just to get rid of them!
5. Call to verify employment.
Sometimes it is hard to get through to employers. Some don’t want to talk to you. However, here are the sample questions we use when speaking with employers:
- Is this person employed here?
- How long have they been employed by your company?
- Can you verify the income they have listed?
- What are the expectations for future employment?
6. Ask for bills if they don’t have a credit score.
If prospective tenant does not have credit score, ask for a few bills that show that they are current and that they pay on time. The bills we have asked for include electric and gas bills, cell phone bills, cable bills, etc.
7. If the prospect does not have previous/current landlords, ask for three references.
I have to tell you, this is a new part of our process we have been implementing. It has been super helpful, and I would highly recommend you ask for references!
Here are the sample questions we use:
- How do you know this person?
- Tell me about your interaction with them.
- Share with me a few words to describe them.
- Were they reliable and trustworthy?
- If a neighbor, were they good neighbors? Quiet? Respectful of their neighbors? Did they keep their property clean?
8. Use a third party screening system that runs credit, criminal, eviction and credit checks.
I can’t stress the importance of this step. There are so many helpful screening systems out there. We have used various companies over the years. The one we use now and are very happy with is ScreeningReports.com. Any report system you use, make sure you get a credit score, criminal background (both on a local, county, state and national level), sex offender information, eviction history, and collections and public records. It helps that they have a customer service arm. We have had to call with questions on many screening reports, and the company is always there to answer our questions.
9. Absolutely require an application fee (cash or money order; NEVER a check).
Whoever is doing the showings for you, make sure they are telling these prospective tenants there are no guarantees that their application will be accepted, and the application fee is NON refundable. We charge a $35 application fee per person for EVERYONE above the age of 18. I would highly recommend you run the credit and criminal background on all adults, even if the lease is only going in one person’s name.
10. Call the new tenant a week after move-in to check in with them.
This is a simple step that most landlords forget to do. It is important to check in with the tenant and make sure they know you are there for them and happy to assist to make their tenancy as good as possible. Also, you can use this follow up to ensure they have transferred the utilities in their name!
11. Once you accept a tenant, require them to put down at least one month’s rent (immediately).
This is a HUGE point. You do not want to stop marketing the unit until you have a deposit from the prospective tenant. Remember, without any skin in the game, prospective tenants will have no problem walking from the unit and finding somewhere else to live. We had this happen recently even though we know better. Don’t stop marketing until you have money in your hand!
12. Look for stability in a person’s job and stability in where they lived previously.
This one might seem obvious; however, I have found this to be increasingly important over the years. In our rental criteria, we score a prospective tenant much higher based on longevity of employment and previous residency.
I hope these suggestions have been helpful to you.
I would love to hear from all of the newbie and seasoned landlords. What are your secrets? What are the best strategies and steps you employ to screen for the best tenants?
Let’s get a conversation going in the comments section!