Tenants

Tenant screening best practices

When it comes to screening potential new tenants, you never want to cut corners; it can be the difference between an upstanding tenant and a landlord’s worst nightmare. Many well-meaning landlords stop after performing a simple credit check, even when additional investigation costs  very little time and/or money. However, with so many options for investigation and potential pitfalls, you may easily get overwhelmed with what to do during a tenant screening. If you want to make sure you have the most qualified tenant living in your property, make sure to follow these best practices.

Credit Checks

The most obvious part of a tenant screening is the credit check. Before you even spend money or time running a credit check, you must make sure that you have verified the applicant’s identity with a driver’s license or other ID, obtained a complete rental application from all potential tenants, and received their written permission to pull their credit report. Never run a credit check without first receiving this permission. If the applicant refuses to give you permission, you’ll know that they are not a serious applicant right off the bat.

Once you obtain the permissions, you should collect any payment you need to cover each credit check. As a landlord, you can use Experian, TransUnion, and/or Equifax to pull a comprehensive credit report for each of your potential tenants. Experian and TransUnion both offer credit reports to landlords for free, while Equifax will require you to pay a small fee (that you can easily charge as part of the application fee).

After you’ve pulled each tenant’s credit report, you will want to pay serious attention to the Negative and Potentially Negative Items section, which will list any accounts past due, discharged or in collections. Luckily, this section is almost always on the first page of any credit report. Other red flags on the credit report include instances of bankruptcy, eviction, or foreclosure. You should also review all individual accounts and loans listed in the report. For each account, you should verify that they have had no late payments; if they do, the report will also list how late each late payment was made.

However, you don’t have to immediately reject an applicant based on one strike you may find on their credit report. There’s always a chance that an applicant may have had late payments, non-payments, or even bankruptcy on their report, but has since displayed good credit habits. If these red flags occurred many years in the past and they have showed positive changes, it is likely that they may have made a one time mistake, and that the applicant has been working to fix their credit. In this case, you should feel comfortable in accepting their application. On the other hand, if you notice that the tenant has either foreclosed on a home or was evicted from a property, you should be extremely wary of renting to them, even if it occurred years in the past.

Criminal Background Checks

Although a credit check can tell you vital information about a tenant’s financial history, you absolutely should pay to obtain a criminal background check on all applicants. Applicants with serious criminal backgrounds may pose a danger to the property, your other tenants, and the neighborhood. You can obviously give any applicant a chance despite the information you find, but you can easily “get burned” if you aren’t seriously wary of applicants with a history of criminal convictions.

Before you shell out any money on professional background checks, you should Google the applicant’s name, along with their name followed by words like “arrest,” “mugshot,” or “conviction.” You can also try searching their phone number and review any links or photos associated with it. Applicants’ social media accounts are easily investigated as well and can give insight into the type of person they are. In addition, most states also have a public court website that you can use to search applicants for possible convictions.

If you’re satisfied with what you found during your own investigations, you can move on to obtaining a professional criminal background check. Make sure to conduct the report as soon as possible because they can take many days to come back and you may miss out on much needed rent. You’ll need to obtain county level criminal checks on any county that the applicant previously lived in the past seven years. Base the counties you investigate on the addresses provided in the credit report, not just what the applicant has provided on their application.

The Fair Housing Act does not protect individuals with a criminal history, so you are legally permitted to deny an applicant based on what you find during a background check. However, you should make sure that you use the same criteria to evaluate all tenants and their criminal histories, so that you cannot be sued for discriminatory policies. It should also be noted that you can only use convictions, not arrest records to deny an applicant, and the convictions must show that the applicant may pose a danger to the property, other tenants, and/or the neighborhood.

Questions to Ask in Tenant Screening

Most importantly, you must ask and receive permission from any potential applicant to conduct a credit check and a criminal background check. If you don’t receive this in writing, you can stop the process with this applicant right then and there. You should also ask the applicant if they have every been evicted, foreclosed on a property, or been convicted of a criminal offense. You will of course obtain this information in the credit and criminal checks, but it’s good to know if the applicant will tell the truth.

Other important questions to ask include:

  • When do you want to move?
  • Can you pay the move-in costs (first month’s rent and security deposit) upon signing a lease?
  • Do you have pets?
  • Will you be able to pass a criminal background and credit check?
  • Where are you currently employed?
  • Have you ever been evicted or sued by a previous landlord?
  • Why are you moving?

In order to maintain nondiscriminatory application practices, it’s important to remember that whatever questions you ask of one applicant must be asked of all other applicants. You must also remember that the Fair Housing Act prohibits you from asking questions about national origin, disabilities (unless they have a service animal that you must verify), children, and religion.

Income and Employment

Do not forget to investigate an applicant’s current and past income, and their current employment. This is a three-part process that involves investigating their income for the past year, verifying their current employment, and cross-checking their credit report.

To investigate an applicant’s income, you can request paystubs and W2s, or bank statements and Form 4506 from the IRS. Request paystubs for the past two to three months to determine a tenant’s weekly, monthly, and yearly income. A good rule of thumb is to require tenants to make about three times your monthly rent costs. You should also verify their W2s to investigate how much income the applicant declared in the previous tax year.

If an applicant is self-employed, they will likely not have paystubs for you to check. In this case, you should check their bank statements for the past two to three months to verify how much income they have coming in each month. For these applicants, it’s recommended that you also complete a Form 4506 with the IRS, which requests for a copy of the tenant’s federal tax records. Because this request can take up to 60 days to be fulfilled, you can also use the Form 4506-T to simply request a transcript of the applicant’s federal tax returns, which you will receive in a day.

After checking an applicant’s income, the next step is to verify that they are employed where they say they are. It can be tempting to simply call the phone number an applicant has provided for their place of employment; however, it is very simple for a potential tenant to use a friend or family member to impersonate an employer. Instead you should research the company that they work for on your own and contact the employer directly using the phone number publicly listed. If the applicant’s income and employment status line up with what they have included on their application, you can move on with the process.

Previous Landlords

Use an applicant’s previous landlords as a candid reference for each potential tenant. As with verifying employment, you need to also verify that the landlord references your applicant provided are actually landlords and not an applicant’s friends or family. Check public records, usually online, to confirm that the number provided is the same as what is listed. If not, the applicant is likely trying to pull the wool over your eyes.

Once you do get ahold of the previous landlord(s), ask detailed questions about their payment habits, communication abilities, and if the applicant was a respectful resident. A previous landlord will likely tell you directly if they would or would not rent to this person again. If not, you should not move forward with the applicant.

Occasionally, during this process, the previous landlord will not respond to calls or emails despite your best efforts. Leave voicemails and messages, but after three attempts it is advised that you notify the applicant that you are having difficulty reaching the previous landlord. In this situation, you should request that the applicant contact the landlord to rectify the situation. If an applicant is serious about moving in, they will do everything in their power to reach the previous landlord. If they fail to do so, you’ll know that they probably were not serious applicants to consider.

Common Mistakes and Red Flags in Tenant Screening

With the work and dedication that comes with adequately screening each tenant comes the inevitable pitfalls and common mistakes. As you work hard to select the best tenant for your property, make sure to avoid the below:

  • • Being more lenient about tenant screenings when you are having trouble finding a quality tenant (it will save you money and heartache in the long run)
  • Forgetting to make in-depth screening a number one priority
  • Relying on gut instinct instead of what your investigations find
  • Only checking an applicant’s credit
  • Skipping an eviction report (not all evictions will be listed on a credit report)
  • Screening one applicant and not all potential tenants
  • Violating the Fair Housing Act and other local regulations

You should also be aware of common red flags that may show up during the screening process. Avoid tenants with low credit scores, histories of evictions/foreclosures, long gaps in employment, and insufficient income. You should also be wary of any applicant that acts suspiciously during the application process or tries to avoid being fully screened. An applicant that has something to hide will want you to accept them without any additional information.

How to Deny or Accept an Applicant

Once you’ve completed the screening process, you will have to accept or deny an applicant. If you’ve selected your perfect tenant, you should first call or email the applicant to verify that they are still interested. If yes, you should then inform the tenant that they have been approved. Following their confirmation, you should give them their next steps, including signing the lease, collecting move-in costs, and confirming dates. You can then send them a copy of the lease; however, you should give them a strict deadline for signing, such as 24-72 hours, so they cannot keep you on the hook if they change their mind about moving in.

After you’ve completed the process with the accepted tenant, you must move on to denying any other applicants. To make sure that you comply with the Fair Housing Act, you must be able to tell every applicant why they were not approved in order to avoid a discrimination lawsuit. The law allows you to reject an applicant based on their credit report, their criminal background, or for other legal reasons. Make sure that all reasons are made clear to the denied applicants in writing. You can also deny an application due to availability. Since you should be approving applicants on a first come, first serve basis, you may have to deny a perfectly qualified candidate just because they were second in line. If this is the case, make sure that you clearly indicate this to the applicant and give them clear instructions on how to apply to any other properties you manage.

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