There’s no way around it: the success and profitability of your properties are directly related to getting quality tenants. And the key to getting quality tenants is proper tenant screening.
Tenant screening is the only way to ensure the people who rent your properties are responsible and pay their rent on time. But knowing how to screen tenants — how to find the good ones, eliminate the bad ones, and get the right people in the door — can be tricky.
Good Tenants vs. Bad Tenants
Before we jump into how to screen tenants, let’s look at what differentiates a good tenant from a bad tenant.
Having good tenants in your properties will make the process of owning and managing your properties easy and pleasant. But a bad tenant can mean serious trouble for your properties. They’re not only a hassle to deal with, but they can end up costing you a significant amount of money.
Tenant screening helps you to separate the good tenants from the bad. Then you’ll be able to choose the responsible, dependable people who will take care of your property — and their rent!
How to Screen Tenants
Since tenant screening is such a crucial part of getting the right tenants into your property, it’s important to understand how to do it properly.
Set Your Standards up Front
Before you start reviewing tenants, know what standards you’re looking for in a renter. For example, you might decide you won’t look at any applicants with a credit score lower than 700 or you won’t consider any tenants with a criminal record.
Having those standards in place before you start reviewing applications and interviewing applicants will allow you to immediately eliminate tenants that don’t fit your criteria, which will save you time and energy.
Create a Standard Application Process
Also, before you start reviewing applicants, set a standard application process. Creating a uniform process all potential tenants must follow allows you to stay organized and better compare potential tenants (since you’re collecting the same information from each applicant).
Your application should include the following:
Information for a Background Check
You’ll want to run a thorough background check on each potential tenant, which includes criminal history, credit history, and employment history.
Copies of Government-Issued IDs
Ask for copies of government-issued IDs, like a passport, license, or social security card, to verify their identity.
Proof of Income
Collect proof of income, like pay stubs, to help you verify income and ensure your potential tenant can afford to live in your property.
Just make sure the numbers provided are for professional property management companies; potential tenants have been known to list families and friends as renter references.
Once you’ve collected all the information you need, you can start pre-screening candidates.
Before you run credit, check employment, or call references, pre-screen your applicants with a few simple questions. It’s not complicated — it’s intentional.
Pre-Screen Tenants With These 3 Questions
Before you run credit, check employment, or call references, pre-screen your applicants with a few simple questions. It’s not complicated — it’s intentional. We don’t want to get too far into the process and realize there was a problem we could have caught sooner. So, before you move forward, give them a call and ask three main questions.
1. When are you looking to move?
If someone is looking to move more than 30-45 days from now, the property may not work for them. We don’t hold a house vacant for more than three weeks. So, if the house is vacant now, we need someone who can fill it within the month. If they need something later, we recommend they check back in with us when they’re in the 30-day window.
2. Do you have any pets?
If there’s a no-pet policy on the property, or if they have an aggressive breed, they won’t be approved because of the animal. We don’t want the applicants to waste money on the application fee only to be denied.
3. Do you know of anything on credit history or background keeping you from being approved?
This may seem like an odd question, but it saves us time and saves them the application fee. We tell people, “We’re very familiar with the tenant-screening process. If there’s anything on the report, they’ll find it.” Then they have the chance to be honest with you. If they conveniently leave anything out, that’s a red flag.
Send Qualifying Conditions
If everything seems to check out in the pre-screening, we email them qualifying conditions. These documents reiterate the things we asked them on the phone and set the expectations for the application and screening process. Specifically, we send the Terms and Conditions and Guidelines of Qualifying Criteria.
These documents detail what we’re looking for regarding income, employment history, rental history, and criminal record to be considered for the property. Plus, it lets them know about rental insurance requirements and gives them a checklist of the items they’ll need for us to process their application.
They’ll also see the status of the property in these documents, including its condition and market status. Just because someone applied for the property, doesn’t mean it’s off the market. Multiple people may apply. In this situation, over-communicate to all parties. Owners will choose the applicant who looks best on paper. Someone with a great credit score may still get denied. So make sure everyone is aware and agrees to move forward. They may prefer to apply for a house without the competition.
Is Your Screening Process Legal?
Before processing applications and interviewing candidates, make sure the entire tenant-screening process adheres to all applicable laws. Some things to look out for include:
Tenants Must Fill Out the Entire Application
In order to be considered in compliance with Fair Housing laws, tenants must fill out the ENTIRE application and not leave any blank spaces. This applies to both paper and online applications.
Know What to Ask (And What Not to Ask)
You cannot ask tenants any questions based on what are considered protected classes, which include race, religion, gender, sexual orientation, and marital and familial status.
You also can’t ask tenants if they’ve ever been arrested. You can ask them if they’ve ever been convicted of a crime, but questioning their arrest record is off limits.
Before you start drafting your application and interview questions, make sure that everything you request is in compliance with the laws in your state.
How to Run Background, Credit, and Reference Checks
If they’re still interested in the property, it’s time to run the tenant background check. We use Nationwide Criminal Search. Whatever service you chose, make sure it's a nationwide search. Some companies advertise a really low price because it only includes a state search. But if you are not running a nationwide search, you’re missing a lot of information.
If that clears, it’s time for a credit check. There are a lot of resources where you can easily run someone’s credit — you just have to do it. DIY landlords, take the time and spend the money to check their credit. The main goal of a credit check is to get a picture of the applicant’s financial health. If they have a poor credit rating, they could have a history of late payments — and you don’t want monthly rent checks to be a gamble.
So crunch the numbers. Figure out their debt-to-income ratio. Specifically, look at the total number of trade lines (or revolving credit) to see who they owe monthly. If they owe 30 people monthly, are they paying them all on time?
As part of our terms and conditions, if someone owes a previous landlord money, we will not move forward with the application until that balance is paid.
If they have any late payment (payments over 30 days late), you’ll see what they owe. And, if they owe any previous landlords, you can see that too. As part of our terms and conditions, if someone owes a previous landlord money, we will not move forward with the application until that balance is paid.
Then look at the last two years of employment and rental history. When we call employers, we’re verifying their income and other information they've provided. We want to know how long they have worked there and verify their regular income. The goal is to confirm that their information is correct and current.
Finally, call previous landlords to verify their rental history. Make sure the person lives there and ask if they pay their rent on time or have any lease violations. Most good tenants can show where they’ve been living for the past few years. So, if you can’t verify at least two years of solid rental history, you need to find out more about their situation.
If we hear about a lease violation, we’ll know to dig deeper into the situation. Maybe they had a pet that destroyed the property, but there is no pet mentioned on the application. Then we’ll know we need to figure out the situation before we proceed with approval.
Common Mistakes When Screening Tenants
Although tenant screening is the best way for a property manager to ensure they are renting to someone reliable, it's also an easy process to botch. Here are a few common mistakes homeowners can make as they're learning how to thoroughly screen applicants.
1. Not Trusting the Screening Information
Just as proper tenant screening helps to identify ideal candidates, it can also help identify the people you DON’T want to rent to.
During the tenant-screening process, red flags will emerge that will let you know a person is not an ideal renter. Some of those flags include:
As a rule, past behavior tends to be a predictor of future behavior. So if a potential tenant has a history of stealing, not paying their rent on time, violent behavior, or not being able to hold a job, chances are that behavior will continue in the future. And the last thing you want is for that behavior to continue on your property.
2. Leasing to Friends and Family
Renting to friends and family is a popular practice and, when done correctly, can be a win-win situation. But if it’s not handled the right way, it can be a recipe for disaster.
Before you decide to rent to a friend or family member, it’s important to:
- Properly screen them to ensure they’re an ideal tenant,
- Set proper boundaries and expectations about the rental agreement, and
- Be prepared for potential issues in the relationship, should anything go wrong with the rental situation.
If you follow these steps and your friend or family member understands that the rental agreement is a business arrangement, having someone you know and trust in one of your properties can be a great situation.
However, mixing family or friends and business doesn’t always work. What happens if they lose their job or damage your property? The pre-existing relationship can add an extra layer of complexity to dealing with potential tenant issues.
You also risk putting a strain on the relationship if anything with your rental agreement goes south.
Bottom line: if you want to rent to friends and family, proceed with caution.
3. Unintentional Discrimination
As you’re interviewing applicants, you might make some assumptions about the people who are applying. Don’t.
As a landlord, you have to stay unbiased regarding age, sex, race, disability, familial status, religion, color, and national origin. That means your questions, fees, and application process need to be the same for everyone. If you waive late fees for one person but not another — violation. Maybe it had nothing to do with race or gender, but they can claim it did. So always stick to your policy.
As a landlord, you have to stay unbiased regarding age, sex, race, disability, familial status, religion, color, and national origin. That means your questions, fees, and application process need to be the same for everyone.
Also, document the rent offers you give to each prospective resident. If you’re running a special, offer it to everyone. If you offer it to one person, but not another, it looks like you’re discriminating.
Why a Property Manager Should Handle Tenant Screening
No matter where you live and who applies for your property, the best tenant-screening services come from an experienced and qualified property manager. Property managers are the ideal choice for tenant screening for a number of reasons, including:
Their years of experience in tenant screening have taught them what to look for, which tools to use, and which criteria are the most important when choosing tenants. This experience will ensure that you get the best tenants in the door of your properties and protect your investment.
Property managers are able to leave their emotions out of the screening process and look at applications objectively; their only goal is to get the best tenant into the property. They’re not swayed by sad stories and don’t let their emotions get the best of them.
No Personal Relationships
If you do decide to go the friends-and-family route, having a property manager handle the screening process is ideal. Because they don’t have a personal relationship with your friend or family member, they’ll screen them just like any other tenant.
Their Tenants Will Make You More Money
With tenant-screening expertise, property managers get the best, most reliable tenants: the kind who pay their rent on time and take care of your property. And that means more money for you in the long run.
Properly screening tenants should be non-negotiable. Passing the responsibility off to a qualified property manager will ensure only the best tenants make it through the screening process.