Finding qualified tenants isn’t always as easy as it seems. Let’s be honest, there’s nothing sexy about industry standard best practices for tenant screening. But if you’ve ever heard a horror story about what it’s like when renting to bad tenants, you’ll understand the importance of this post. If you’re fortunate enough to stumble upon this blog without a terrible tenant experience, lucky you! This post will shed some light on what you need to know about each tenant and expert advice on standard practices when screening tenants.
After reading this post you’ll know the four key areas to uncover about your tenants and why they’re the most important to your success when managing rental properties for profit.
What’s the deal with bad tenants?
As a landlord, a bad tenant can take you from positive cash flow to foreclosure in just a few short months (or less). As a rental professional, a bad tenant can make the difference between a thriving business and bankruptcy. Understanding the ramifications of what happens when you have a bad tenant will ensure you’ll complete your landlord due-diligence prior to signing your first lease.
A landlord’s tenant screening due-diligence involves digging into the history of your applicants, and weeding out potential “trouble-makers”. In most cases, pre-screening applicants will save you lots of time before scheduling a showing. For helpful questions to review with interested parties before scheduling the first showing check out this free pre-screening questionnaire.
There are four key areas to investigate on every applicant:
- Employment history and income
- Credit history and score
- Rental history and previous evictions
- Criminal convictions
These areas are explored in more detail below along with tips on bonus items of consideration to paint a clear picture of your tenant. Gather as much information as you can on potential tenants throughout the process so you can make the most informed leasing decision possible to minimize the risk of renting to bad tenants down the road.
A bad tenant horror story as told by one of our users
It’s a hot summer afternoon and you have just shown up at your rental property to complete a final inspection since your last renter moved out a few days early. As you begin walking up the sidewalk suddenly your nostrils become filled with a foul smell, and much to your dismay you notice piles of trash on the front porch. It looks like the grass hasn’t been mowed since last year and you notice one of the shudders is missing.
Growing increasingly concerned your mind begins to race, these tenants always paid rent on time and never raised any alarms or mentioned any issues. How bad can this situation really be? Slowly you turn the doorknob to enter the home and you’re hoping for the best. However, waiting for you inside beyond the dirt and filth is a kitchen filled with garbage and a sink full of roaches! This is now your reality on a very hot summer afternoon. How could this have happened? These renters came with references and every time you needed to access the home, there was never a mess like this!
What is one to do?
You have new renters coming in less than a week and you’re left with a disaster that not even the security deposit is going to touch! As you look back over the last year searching for clues you’ve missed out on how this could have happened, reality sets in. You’ve been taken by bad tenants. This was real life for one of our clients and shows that you can’t always trust your gut with your investment property. Certain due diligence is necessary to avoiding these types of situations in the future. The most basic due diligence is completed with a simple rental application and background check. This is an industry standard across the board and begs the question, are you screening your tenants?
Here’s what you need to know about screening your tenants
1. Income and employment history: Does the applicant make enough to pay you each month with reliable income?
A good rule of thumb for rental housing is for the applicant (or applicants) to make a minimum of 3 times the monthly rent. For example, if the rent you’re seeking is $2,000/month your ideal tenant should make a minimum of $6,000/month. Verifying the applicant’s income can be completed by calling employers or by asking for a copy of their most recent pay stubs and W2. Ensuring they make enough money to pay rent each month is imperative to know before signing a lease with a renter. An applicant that has been at the same employer for an extended period of time is always a plus!
Insider tip: Make sure the applicant makes 3 times the monthly rent
2.Credit report and score: Do they have a history of paying the bills on time?
A basic credit check will look at the applicant’s ability to pay their bills on time as well as a general understanding of their credit history. A high amount of credit card debt may mean something different than a high level of educational debt. A good rule of thumb when it comes to credit history is to look at the type of debt an applicant has on their credit report. Keep in mind, everyone comes across rough times here and there, if the tenant looks good in the other areas of importance, ask for an explanation of any discriminatory items. After all, they are renting for a reason and you should ask them why.
Insider tip: Ask the applicant for a written explanation of any red-flag items, especially if other areas of the application are strong.
3. Rental history and evictions: Gather references and search for prior evictions.
This is perhaps the most important area to complete your due diligence as a landlord. Any tenant who has a recent eviction is an immediate red flag! Ask yourself, if they did not honor their lease with their previous landlord, why would they honor yours? It’s very important to make sure any tenant screening solution you use also checks public eviction databases. A good rule of thumb here is to get 3 years of previous housing references and to follow up with each asking about their experience with them.
Insider tip: Always be leery of renting to a tenant with previous evictions on record.
4. Criminal convictions: Do they have a criminal background?
A background check will examine the criminal history of your tenant and in many cases will include felony, misdemeanor, and even criminal driving offenses. Another option to include in background reporting is the sex offender registry. Double check with your tenant-screening provider as most will include this search at no extra charge.
Insider tip: Complete the necessary background checks to get a clear picture of your applicants.
While there is not one hard and fast rule for tenant screening, there are industry best practices to help you understand the importance of landlord due-diligence.
Possessing knowledge of what’s important to lookout for when screening tenants, will help you avoid a sink full of roaches in your investment property. Your rental applications and tenant screening will provide you with in-depth information on each applicant, a well-known part of the process for renters.
Smart tenant screening from RenterResume will save you time, making your application process streamlined and transparent with personalized recommendations on every applicant.