The Tenant Screening Guide to Avoid Nightmare Renters

Landlord Tenant Screening Guide
Photo Credit: mastersenaiper

 

Are you willing to give a random stranger off the street a suitcase stuffed full of hundred dollar bills or the keys to your Cadillac and telling them to watch over it while you go run an errand?

No?

While not exactly the same thing, yet when you rent your property to someone, you are doing something similar. You are giving someone the keys to something that you own – a house, apartment, condo, or townhouse that is worth a whole lot of money in exchange for a monthly payment that is a small percentage of its actual value.

While they are renting your property, you are hoping they pay their rent on time and take good care of your property without leaving you with thousands of dollars in damages when they move out. Because of tenant rights and housing laws, you are limited by what you can do in terms of evictions or even being able to enter the premises.

Whether you are an aspiring real estate investor with plans for dozens of properties or if you are renting out your residence because you have to move for a job, knowing how to screen potential tenants can reduce the amount of stress and headaches from being stuck with a problem tenant.

I’ve been a landlord and I’ve also been a renter so I’ve been on both sides of the screening process. Here are some tips and a step-by-step guide on how to find great tenants.

What Makes A Model Tenant

There are no surefire guarantees that someone will be a perfect tenant. As a landlord, you can only find the most qualified candidate and hope for the best.

There are 6 qualities you can look for in someone who wants to rent from you:

1) Able to afford the rent

The most important criteria when someone contacts you about renting is whether they can pay the rent. This means considering the ratio of income to rent.

You don’t want a tenant who is over-stretching their finances to where an unexpected bill means they can’t afford to pay next month’s rent. Non-payment means you’ll be constantly chasing them for money, evictions, legal fees, and vacancies, all of which will cost you both time and money.

2) Pays rent on time

Someone who makes enough money to pay their rent doesn’t mean anything if the money doesn’t make it into your bank account. Some landlords might see the late payment penalties as extra money, but the further a tenant falls behind on their rent, the more unlikely they will be able to get caught up.

No one wants to wonder whether they will get paid this month when they have their own mortgage and bills to pay. The main way to avoid this is to find someone who has a history of paying his or her other obligations on time.

3) Stability of their income

For many people, being able to pay one’s bills regularly depends on their employment situation. Someone who doesn’t have a stable source of income may not be able to come up with the money needed to pay their rent once their savings run out.

Frequent job-hopping could also mean they might need to move to another area for employment, resulting in a vacancy or turnover costs. This is especially true if you use a property management company that charges you a month’s rent to place a new tenant.

4) Cleanliness

The beauty of renting is one can decide to move any time once their lease is up. Future renters of your property want to see a place that they can live in comfortably when viewing a rental. This means somewhere clean, well-kept, and presentable when friends and family visits.

You want to find tenants who will take care of your property as if it was their own and doesn’t keep their home like a pigsty. Even better when it’s someone who leaves the place just as clean or in better condition than when they initially moved in.

Finding holes punched into walls, broken windows, and soiled carpets from their untrained pets means costly renovations before your rental is ready for your next tenant.

5) Past history of criminal activities

You wouldn’t want to live next door to a drug dealer or gang members and neither would your neighbors. As people with questionable morals move into a neighborhood, those looking for a safe place to live will move out. Home values will fall and you’ll have a harder time finding good tenants.

6) Low maintenance

A good tenant knows the general basics of home maintenance and what is and isn’t an emergency. No landlord wants to get 3 AM phone calls about changing a light bulb or clogged toilets. A good tenant will let you know when things need to be fixed before they turn into bigger problems and you will rarely hear from them otherwise.

How To Effectively Screen Tenants To Find The Most Qualified Tenant

Think of finding a tenant as like a funnel. You have a giant pool of people who are looking for a place to rent and you want to narrow them down to one.

Finding a good tenant involves give processes:

1) Qualifications
2) Pre-Screening
3) In-Person Screening
4) Verification of Details
5) Lease Signing

Step 1: Qualifications – Finding A Good Fit

The first step is something both the landlord and the tenant do. The tenant wants to find a place to rent that best fits their needs. As a landlord, your job here is to tell people who are casually browsing the listings why your property is the best out of all the other listings.

This is where your ad comes in. I’ve seen A LOT of bad ads posted with minimum details. What happens then is everyone will be calling and emailing you with general questions regarding the property.

I don’t know about you, but as a landlord, I hated spending time telling people the same thing over and over again like a broken record. And as a renter, I hate emailing someone about how long the lease is when it should have been in the ad in the first place.

You can save everyone’s time and list everything you can think of about the property in your ad. This includes:

  • How many bedrooms and bathrooms
  • The monthly rent amount
  • The security deposit amount
  • Any application fees
  • How long is the lease – monthly, semi-annual, or annual
  • The home’s address or the cross-streets if you don’t want to post the address
  • Whether you allow pets and what kind
  • If washer/dryer is included or if there are laundry hookups available and what kind
  • When the property will be available for move-in
  • The elementary, middle, and high school district
  • Whether you allow smoking indoors
  • The parking situation – number of spots, garage, assigned parking, or street parking

By putting all these details in your ad, you are also pre-qualifying the interested people. Those who can’t afford the monthly rent or security deposit, or are looking for a place in a particular area close to their work won’t contact you.

Step 2: The Pre-Screening Process

Contrary to what some people think, the pre-screening process shouldn’t begin in the initial email or phone call. I like to post my screening criteria in the rental ad to further narrow down the number of interested people.

This involves coming up with your minimum requirements you’d expect from applicants and listing them in the ad.

My Minimum Requirements For Tenants

These requirements are the ones I’ve used for my own screening. Use them as a general guideline and modify them as needed.

1) Income must be at least three times the monthly rent

This amount is the most commonly cited one used for how much someone should spend on housing costs. Also known as the 30% rule of thumb for the amount of gross income that a family could spend and still have enough money left over for other essentials, this percentage is also used by lenders to determine whether a borrower could qualify for a mortgage. When a borrower exceeded 30% of their income, the federal housing enterprises – like Fannie Mac and Freddie Mac wouldn’t purchase those mortgages from the lender and the lender assumes all the risk of writing the mortgage.

2) Good references from current and past landlords

Past and current landlords provide extremely useful information about a potential tenant. They’ve had direct experience with the tenant and they can let you know whether they’ve treated the property well, paid their rent on time, or have had any problems.

Usually landlords look out for other landlords because they if the shoe was on the other foot, they wouldn’t want to be stuck with a bad tenant either.

3) No evictions in the last 3 years

When someone has gotten to the point of being dragged into court and evicted recently, I view it as a big red flag.

4) No more than one late rent payment in the last 2 years

I understand that things come up and sometimes people are late on their rent so I give them a little leeway if it is not a common occurrence. Rent is due on the first day of the month and I give them a few days grace period before it is late and I charge a late fee. Someone who is late multiple times on their rent means they may not be good at managing their finances or there might be issues with the stability of their income.

5) Needs to be able to pass a credit and background check

The credit report and credit score shows you how responsible a tenant is in managing their payments and debts. The credit report will show you their past addresses, the number of credit cards they have, their limits, account balances, and payment histories. It will also show you whether there is any overdue debt from collection agencies or judgments against them.

They might get a pass if they their credit score is bad due to one time situations like divorce, they lost a job because their place of employment went out of business, they had some medical issues, and the problem has now been resolved.

A background check will show any criminal activities. Minor traffic violations aren’t important. Just about everyone has a speeding ticket or whatever. What you want to pay attention to is recent or multiple instances of trouble with the law that are felonies and misdemeanors. This shows someone might have trouble making good decisions.

It helps that by putting that I will be doing a background and credit check in the ad, people with serious blemishes on their records will probably skip my rental and find someone else who isn’t as stringent in their screening process.

Pre-Screening During The Phone Call

The next step of the pre-screening process is usually the phone call or email. Phone calls tend to be better because you can listen to the tone of their voice and any replies are on the spur of the moment.

The trick here is to listen to what the tenant has to say. Generally, I like to ask if they have any questions about the property. Pay attention to what they ask. If you did your job right in your ad, the ad should have answered most of their questions. Take note of whether they ask questions that have already been answered. You want to see if they pay attention to details.

Even though my minimum requirements are already in the ad, I like to mention them again during the call.

Sometimes they will try to see if you will budge on any of your requirements. I’ve had people say they have a small dog that is friendly, doesn’t cause any problems, is housebroken, etc and can I make an exception for them when the ad said no pets. One person even offered a pet deposit or extra rent.

When you need time to think about something, I’ve told people I’ll check with the owner or someone higher up than me. This avoids things being personal. You are just another cog in the wheel and only following instructions. This works even if you are the owner or landlord because over the phone, you are just a voice on the other end.

Step 3: The In-Person Screening Process

The next step is the in-person screening when the tenant come sees the property. I like to personally meet the tenant because there is so much you can pick up from observing them, their body language, and their interest in the property.

Punctuality

The first thing you should pay attention to is whether they show up to the appointment on time. Do they keep on canceling or rescheduling their appointment? If you say you’ll meet them there at a certain time and they are late, don’t show up, or call letting you know they are stuck in traffic, consider that a strike.

First impressions are everything. You wouldn’t show up late for a job interview and expect to make a good impression. In my case, if they are more than 15 minutes late with no phone call, I will usually leave. They can call if they show up and are still interested.

I think of it as if they can’t make it on time and don’t give notice, will they also be late on their rent payments.

What their car tells you about them

Once they’ve arrived, I like to check out the condition of their car. By condition, I’m not talking about dents and dings. That’s like trying to judge a book by its cover and there are a lot of extremely bad drivers on the roads.

What you want to pay attention to is the inside. Is it covered in trash or filthy? Does it look like it hasn’t been taken care of? How are the tires? Are they bald? Are the tags expired? Does it look like the car hasn’t been washed in years? This is an indication of how they might treat your property once they are living there.

How are their manners

When entering the property, I usually make it a point to wipe my feet on the doormat. They’ll get extra points if they do it too. Even though they may not end up renting the place, having respect for other people’s things goes a long way.

If you do not allow smoking indoors and they smell of cigarette smoke, ask if they plan to smoke outside. If they smell like marijuana and you are in a state that hasn’t legalized pot, you’ll have to consider how likely they will go outside to smoke it.

Watch out for tenants who are in a rush to move in

Unless they just moved from out of state, renters and landlords usually have to give each other 30 days advance notice before moving out of their current residence. So they have a whole month to look for another place.

When they are in a rush, this could mean the landlord wants them out immediately. Maybe they’ve been given a pay or quit notice for being late on their rent or some other violation. It could mean they put things off till the last minute. When you get someone like this, you will want to be wary and ask questions and follow up with the landlord to see if the stories match up.

Don’t let someone who wants to move in as soon as possible and the dollar signs of no longer having a vacant property rush you into accepting a tenant. You should still take your time screening and verifying their references thoroughly no matter how long it takes.

Do they complain about or criticize the property

I’ve had someone complain that the chair rail molding was “dirty” because we hadn’t painted it. Then they went on to ask about getting the rent reduced. You can bet I didn’t try to encourage them to put in an application because if they are already complaining and they are not even renting yet, they will probably complain about every little thing once they move in.

Trust your intuition

Finally, just trust your gut. I’ve found that the more tenants you meet, the easier it is to read their body language and interest in the property. Ask them questions about their lives and listen to their answers. If their replies seem a little sketchy or you feel like they are hiding something or being less than honest, take that as a sign to keep looking for tenants.

The Application

Here is the copy of the rental application I was using. Feel free to download and use or modify it to suit your needs.

Another form that you may want to include is a release of information letter to be signed by the tenant in case an employer or property management office asks for one before they will talk to you.

Step 4 – Verification of Income, Employment, and References

Once you get an application in, it’s time to see if they qualify. To do this, you will check their credit score, proof of income, their employment, and call their landlord references.

Checking A Renter’s Credit Score and Credit Report

You shouldn’t base your decision solely on an applicant’s credit score, but do understand that past history does give a strong indication of how likely they will make their future payments on time.

Unless you are lucky and your applicant pulls their credit score and report to include with their application, you will need to go request it yourself. That is easier said than done. Thanks to the federal Fair Credit Reporting Act, the credit bureaus started requiring site inspections in 2003 to ensure that consumer data was protected if a landlord wanted a full credit report.

If you do not pay and go through a site inspection of your office and be approved to request full credit reports, what you will likely get from a screening company instead is a recommendation such as yes or no. This doesn’t tell you much about your tenant. You have no idea about their past addresses, payment histories, recent credit inquiries, public record filings that include evictions, judgments and liens, or repossessions.

For small time landlords, who might only need to screen a tenant once every few years, it might not seem worth the trouble getting inspected and qualified to request reports.

Luckily, the credit bureaus have started offering services for landlords to make it easier on tenant screening. Rather than you requesting the report, the tenant makes the request, you or the tenant pays a fee (you included an application fee on your rental ad, right?), and then the tenant gives you access to the report. All you need is their name and email address.

Experian Connect

  • Full credit report with credit score
  • You get private access to report for 30 days
  • Renter pays $14.95

TransUnion SmartMove

  • You can run a credit check and national criminal background check
  • You choose who pays for the service – you or the tenant
  • Three options: SmartCheck Basic for $25, SmartCheck Plus for $38, and SmartCheck Premium for $40
  • SmartCheck Basic only provides a ResidentScore and a background check
  • SmartCheck Plus adds a full credit report and national eviction report (recommended)
  • SmartCheck Premium adds Income Insights, which I think isn’t really needed because you should be getting paystubs or bank statements for proof of income

Checking A Tenant’s Income

Proof of income usually involved checking recent paystubs, W2’s, calling up employers to verify the applicant has a job there, or getting copies of bank statements and tax returns. Sometimes when a tenant had just moved to an area for employment, landlords have asked for a copy of their employment offer letter.

I never actually called up an employer and asked more in depth questions other than if they were currently working there and for how long. Sometimes employers are hesitant to provide more in depth details like salary, whether they are a good employee, and such to a random unknown caller due to fear of lawsuits. If you want to know more about the tenant from the employer, you might have better success having the tenant sign a release of information letter to fax to the employer.

What If A Tenant Is Self-Employed

For self-employed renters, you can’t really call up an employer or get paystubs. That leaves bank statements or copies of tax returns.

I prefer bank statements because if you want an actual income tax return or transcript from the IRS, you will need to file Form 4506 “Request for Copy of Tax Return” or Form 4506-T “Request for Transcript of Tax Return”. The transcript will be faster, but as you can imagine, dealing with the IRS is usually anything but speedy.

When I checked bank statements for self-employed tenants, I wanted to see a couple months of statements to see how much income they had regularly coming in and how much expenses were going out.

On the flip-side, when I was renting I once passed a property management company’s screening by simply showing my bank account balance on my phone. But I had close to a year’s median income in the account, so they probably didn’t see the point of scrutinizing it more thoroughly.

Checking A Tenant’s Background

Besides using TransUnion’s SmartMove, there are several other things you can do to research a tenant’s background.

Judiciary Case Search

First thing is for their current and past addresses, locate the county court’s website. Court records are public record. Look for cases filed under dispossessory action, which refers to eviction proceedings by a landlord against a tenant. Some apartments will immediately file one after rent is past due. These will be dismissed if the tenant pays the rent. If not, the judge will issue a writ of possession, which means the court has ordered the sheriff to evict the tenant.

After dispossessory cases, other things you can look up are any criminal cases filed against them.

Internet and Social Media Search

Depending on how common their name is, an online search might bring up some information about them to help in making your decision.

A Google search might be up online postings or news articles. To help narrow down the results, you can put their first and last name in quotes for an exact match and add in their city or state to the query.

Checking their Facebook public profile or finding their Instagram might reveal additional details about their lives. For example, you might find out they have a pet when you do not allow pets in your rental.

Stop By Their Current Residence

Driving by or stopping in on their current home could give you additional info about whether you should rent to them or not. A visit can give you an idea about their cleanliness or whether they take care of the property. Finding broken windows, trash all over the front yard, or a lawn that hasn’t been mowed in months says they may treat your place the same way.

Checking A Tenant’s Landlord References

After proof of income, the probably next most important thing to check is their current and past landlords’ references. How the tenant has treated their landlords is a good chance of how they will treat you.

Their current landlord will probably be able to tell you how timely they were in paying their rent and how high maintenance they were. However, there is always that possibility that the landlord wants them out of the property and are less than forthcoming about the true experience with the tenant.

Therefore, calling the previous landlord is a good idea. The previous landlord will be able to provide you the condition of the property the tenant left behind, and whether they got their full security deposit back and why not if they didn’t.

This is why getting a credit report helps immensely. The credit report will have their past and current addresses listed if they’ve lived there for a length of time. You can use those addresses to compare to what is listed on the application.

Be very suspicious if the tenant leaves the landlord references out of the application as they may be hiding something. Sometimes the tenant will give a friend’s name and number if they have less than stellar reviews, which I’ve had happened before. I called up the “landlord”, who gave me a great review, but something felt off. So I did some searching of the property records and ended up finding the real landlord’s name and a Google search bought up his office number. I called up the landlord and was told the tenant had left a bunch of trash in the garage and didn’t pay his last month’s rent before moving out.

Some questions you may want to ask the landlord:

  • Did the tenants pay their rent on time
  • Does the tenant have any pets
  • Was the property returned clean and free of damages
  • Did they have any trouble with the tenant
  • Would they rent to the tenant again

This brings us to the next point. How to verify that you are actually talking to the right person. I like to Google the phone number provided to see if there are any matches, and if the name matches to the phone number if they are the same. You can also enter the number on Facebook to see if it has been added to any accounts.

Next, you can go to property’s county tax assessor’s website and do a search on their current and previous addresses. This will bring up the name of the person who purchased the property and when. If it is a company, you can find the owner or principals of the company by searching for the company name on the Secretary of State’s website. See if the name matches to what is listed on the application.

For property management and apartment leasing offices, I will often look up the company or apartment complex online to find their business phone number. If the business number does not match what is on the application, you can call the business number and ask to speak to the reference. Hopefully that person works there.

Sometimes the property manager or leasing office will give the tenant a letter of reference. I’ve driven to the address on the letterhead and went into the office to confirm with someone that it was from their office. Showing up in person usually holds more pull too because you are not some random stranger on the phone.

Step 5 – Signing The Lease

Everything checks out and you’ve let your future tenant know they’ve been approved.

Great!

The only thing left is to meet, sign the lease and give them the keys.

At lease signing, if you required the first month’s rent and security deposit at move-in, be sure these are paid in full before they get the keys.

The general consensus is to get the first month’s rent and security deposit as a cashier’s check, money order, or cash rather than a personal check. I’ve had a property management company request this method of payment too when I was renting. The reason is you do not want these to bounce. Once the tenant has moved in, you will have to deal with going through the eviction process to get them out.

Closing $ense

Yes, proper tenant screening is a lot of work. You can be extra thorough and still get a problematic tenant. There is no way around this because when dealing with people anything can happen. But hopefully with careful screening, the amount of headaches experienced is reduced and you can sleep easier.

Am I forgetting anything? Do you have any tips and advice on how you do your property screening? Do you have any horror stories?

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