Screening Tenants? How To Do Your Best To Find The Best!

Screening Possible Renters? How to Find  the Best !

First part by Adam Frisch
It is very common for management to accept anyone with decent credit and background data. By knowing additional information you can protect against this and make more informed decisions about tenants
Unfortunately, not all property managers or landlords have adopted the habit of thoughtfully screening potential renters. It’s very common for the managers of massive buildings to readily accept anyone with fair financial qualifications. However, if one’s goal is to fill their buildings with quality residents who will happily stay for at least a few years, then there is much more involved in the screening process. Our proverb is “find good tenants and and be god landlords, or at least good”

Without a doubt, a potential renters financials are key. Brokers and landlords should check their credit, income, assets and employment record. Of those factors, credit is the most important as a proven ability to pay one’s credit card bills on time is very likely to equate with the ability (and willingness) to pay one’s rent on time, even if they may be not have many assets. The second most important factor is employment. With the exception of students, it’s very important that renters have at least some type of steady income especially in a cities where rents are high. If someone’s financial situation seems a bit odd, it typically isn’t worth the risk and renting to them. Often, if people have bad credit, it’s because they have gotten themselves into a bad situation. With that said, there are instances such as extreme illness in which bad credit may be somewhat outside of a person’s control. However, entitled people who claim that their bad credit is an injustice and that they don’t have to pay on time should never become your residents.

During the screening process, both brokers and landlords should learn everything they can about a prospective resident’s personality. Brokers only have to work with the person for a few weeks, but a property manager may have to deal with them for several years. Thus, the temperament of potential renters should be of utmost importance to landlords. Of course, people are entitled to complain if there are legitimate issues with the building but the ability to bring a problem to the property manager’s attention in a respectful manner is paramount. Brokers and landlords should constantly be evaluating whether potential residents seem relatively personable. Red flags include people who aren’t respectful of the broker’s time or that speak in a curt voice. If someone mentions government agencies, such as saying that they need to check with the Department of Buildings, that could be a sign that they are litigious. It’s almost always a mistake to assume that someone who is difficult in the leasing stage would be any less difficult upon moving into the building.

Having worked primarily in landlord representation throughout my 15 years real estate business, I always try to get to know prospective residents on a somewhat personal level. I ask them what they do for a living and whether they enjoy it as well as where they’re originally from and how long they plan on staying in the city. Although they may be basic, these types of icebreaker questions typically provide me with a solid sense of one’s agreeableness, or lack thereof.

Have you heard the story about the tenant who deliberately threw maggots down the stairs to the tenant below? Or how about the tenant who moved in 15 children into a 800 Sq Ft house? These stories are not made up for entertainment – they are true stories and are just a tiny sample of what a real estate investor often must go through as a landlord.

However – by effectively screening prospective tenants you can reduce the chance of this happening and relieve the stress, headache, and back-aches that often accompany the landlord job. This guide will help you learn to discern a good tenant from a bad one, a responsible tenant from a irresponsible one, and a non-paying tenant from a paying one.

By following this chart from Bigger Pockets you will increase the quality of your tenant resulting in longer stays and less headaches for both of you. Let’s take a look at the system and see if you or your managers have a good system or if it can be improved.

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What is Tenant Screening?

When we talk about screening tenants – what exactly are we talking about?

Screening tenants is about digging into a potential tenant’s background and discovering who they really are. An application (which we’ll discuss in this guide) can only tell you so much – and can be easily manipulated or falsified. Screening your tenant means looking into the information they provided, as well as analyzing outside information you can discover, and coming to a reasonable estimate on the kind of tenant they will be. I say “reasonable estimate” because there are no sure-fire ways to know the future quality of a tenant. As a landlord – it is our job to simply screen effectively and choose the best possible applicant for the property.

7 Qualities of a Great Tenant

As mentioned above, there are no guarantees when it comes to the future quality of a tenant. However – there are several key metrics that will help you decide what kind of tenant they will be. To make your life as stress-free as possible, it is imperative that you only rent to the best tenant possible. The following is a list of the seven traits that make up a perfect tenant:

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Their Ability to Afford the Rent Payment

The first and foremost quality of a good tenant is their willingness to pay the rent. Without proper payment, you’ll be forced to evict and be faced with potentially thousands of dollars worth of legal fees, lost rent, and damages. Most landlords require that a tenant earn at least three times the monthly rentfrom their (documentable) job. Many tenants believe that they can afford more than they really can – so it is the job of the landlord to set the rules. Three times the monthly rent usually is sufficient.

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Their Willingness to Pay on Time

While some landlords look at late rent as simply a benefit (and the late fee as a financial bonus to them) a late-paying tenant is more likely to stop paying all together. The stress involved when the rent doesn’t come in is not a pleasant experience and can be avoided by only renting to tenants who have a solid history of paying on time.

Not-Available-for-Work-iconThe Long-Term Outlook for Their Job Stability

While a tenant may be able to pay the rent and pay it on time right now – their ability to do so in the future is often determined by their job situation. If they are the type to switch jobs often or have long periods of unemployment – you may find long periods of missed rent.

broom-iconTheir Cleanliness and House Keeping Skills

No tenant stays forever – and when they leave you want the property back in good condition. As such, it is important that the tenants day-to-day living be clean and orderly. They must take good care of the property you have entrusted them with.

pill-icon (1)Their Aversion to Crime, Drugs, and Other Illegal Activities

I don’t need to expound too deeply on this. Tenants who engage in illegal activities will cause nothing but stress and expense.

Emotes-face-sad-iconThe “Stress Quotient” – How Much Stress Will They Cause You?

The final quality of a great tenant is something I call their “stress quotient” or the amount of stress a tenant will cause you, the landlord. Some tenants are very high maintenance and constantly demand time and attention. Unless you are having a hard time finding quality tenants – these types will only cause more problems.

This ultimate guide is designed to help you find and sift through the information about the tenant to find one who most closely fits the above seven qualities of a perfect tenant. Obviously, no tenant is going to be 100% perfect, so deciding how close to perfection you will require is a personal choice that largely depends on your desired involvement level and the community in which your property is located in. If tenants are difficult to find – it may be financially advantageous for you to rent to a less-than-perfect tenant in order to fill vacancies. However – if you have plenty of tenants to choose from, you can be significantly more picky.

Setting Your Minimum Requirements

One of the most important steps in screening your tenants and finding the best qualified is by coming up with your list of minimum requirements for the property. This list of standards should be told to the tenant on the telephone, placed on the application, placed on your Craigslist ad, and told in person to eliminate those who simply will not qualify. The following four standards are commonly used by landlords on BiggerPockets:

Number-1-iconIncome Must Be Three Times the Monthly Rent

Tenants rarely know how much they can afford. By giving an exact minimum income requirement, you can keep out those who might believe they can afford to pay the rent but really can’t. Requiring income to be three times the monthly rent has been used by landlords for many years – as well as banks and other financial institutions that supply loans.

Number-2-iconTenant Must Have Good References

The references you receive from past landlords are the best indication of the way the tenant will behave for you. A bad review from a past landlord is a huge red flag for most landlords. Also – bad references from personal friends or family are also huge red flags.

Number-3-iconNo Evictions

A tenant who recently faced an eviction is unlikely to ever rent from me. I realize that many people change – but I’m not willing to take that risk.

Number-4-iconClean Background

I want tenants not problems. If a tenant has a background filled with criminal activity, I am very hesitant to rent to them. Again – people do change, but it is not a risk I’m willing to take.

Pre-Screening Potential Tenants

You’ve begun advertising for your property and have begun receiving calls. Contrary to popular opinion – screening doesn’t begin with a background check or an application – it begins with the initial contact. This is known as “pre-screening.”

As you can probably tell by the length of this guide – screening is not a flippant activity that you can do in a few seconds. Screening can take a considerable amount of time – and you don’t want to waste that time on every person who shows interest in your property. This is why pre-screening is so important. Think of the screening process as a funnel – like the kind you would use to pour oil into your vehicle. At each step of the process, you are able to narrow down the pool of applicants until only a small few – or just one – match. Pre-screening is the widest part of that funnel and will help to keep away those who obviously won’t qualify.

Pre-screening Through Your Advertising

Your pre-screening efforts begin with your advertisement. Whether you are using the newspaper, Craigslist, Zillow, or another service to market your property – the information in your advertisement can help to weed out time wasters. For example, by placing the location in your ad, you are able to screen out individuals who are looking for another location (don’t worry – if you don’t feel comfortable putting in your exact address, just put a general location or a nearby landmark.)

Also – putting the price in the advertisement also helps to keep those who can’t afford that price range from calling. I often see ads with no monthly rent listed – and have to wonder how many wasted calls they are receiving or how many potentially great tenants they are missing out on?

Pre-Screening Through Your First Phone Call

phone-iconThe initial phone call is the next logical step in screening tenants. The first thing you hear is often an indication (though, not proof) of the kind of tenant they might be. If the first words you hear after saying hello is a voice yelling into the phone

“How much do I have to have to move in?”

you can assume the tenant might not be a great fit. After all – they are more concerned with getting in anywhere than even asking to look at the property.

When a tenant calls about a property I have for rent, I like to ask them “What can I tell you about the property?”

This open ended question allows the tenant to begin talking and asking questions. The typical questions are generally,

  • “How much is it?” (Even though I always include it in the advertising)
  • “What’s the address?”
  • “Do you accept Pets?”
  • “How much is the security deposit?”
  • “Will you work with me on my security deposit” (No.)
  • “Can I get inside to see it?”

The kind of questions asked by the tenant are great indications of the kind of tenant they are going to be. I’m not suggesting that you judge a tenant solely on their ability to ask good questions – but it does help point me in the right direction as to the type of person they are. Are they orderly? Do they care about where they are going to live? Do they sound broke?

In the conversation, I also always include a few of my minimum requirements, as we discussed earlier. Usually, this is easily worked into the conversation such as, “Now, the property does have a minimum income requirement of $____ per month and we do a full background and criminal check to make sure we only rent to upstanding people.”

Many, many times I simply get a *click* after stating this information. If not, they usually will volunteer how much money they actually make and re-assure me that they have never done anything bad in their entire life.

This simple two-minute phone call does two great things:

  1. Get’s rid of 80% of the “bad apples” and prevents them from wasting my time.
  2. Let’s the good tenants know I am not a slumlord and only rent to good people.

In both cases – a win for me. This is what makes pre-screening so important. It allows you to save time, avoid nuisances, and project a good image. I’d also recommend leaving your minimum requirements on your voicemail as well – so when you can’t get to the phone, your tenants still get the message and your pre-screening still works.

Screening a Tenant In Person

The next step of the screening funnel is to meet with tenants and show them the property. This is also a great opportunity to screen the tenant before any paperwork is done. I always re-state my minimum requirements to the tenant in person, just in case they didn’t understand (or chose to ignore) when I told them over the phone.

At this point, many tenants will admit that they don’t quite meet the requirements but ask if I’ll work with them anyways. If I need time to think about it – I always tell them that I will have to check with the owner (or partner, or any other higher authority) and let them know. If I know they immediately won’t qualify, I let them know why but still offer the opportunity to apply. Why? I don’t ever want to be accused of being discriminatory for any of the protected classes. Let’s talk about those now.

Protected Classes

It’s okay to screen people upon some criteria but not other.

For example – discriminating against someone who won’t pay rent is acceptable, as is discriminating against someone with a violent criminal history. However, discrimination against someone in a protected class is not only morally wrong – it’s also illegal. This section will let you know what those protected classes are.

How are you doing with your system? Is it up to snuff according to this one? What improvements can you make to ensure that you get quality tenants that stay happily for years to come. 

Another area that should be of concern are the legalities of what you can and cannot ask. Also your documentation of the process.

In case you missed it, here are those classes that you cannot discriminate against.

  • Race
  • Color
  • National origin
  • Religion
  • Sex
  • Familial status
  • Handicap

While it is vitally important that you don’t discriminate against those classes, it is also important that you don’t even ask questions about those topics. This means don’t ask what their race is, how many children they have (you can ask how many people will be living there,) or if they have a husband or wife. Save yourself the legal trouble and simply do not ask. This also applies for advertising: DO NOT advertise for “no kids,” “great Hispanic neighborhood,” or “home great for families.” This is against federal law.

State and Local Fair Housing Laws

In addition to Federal Fair Housing Laws – your state may also have landlord-tenant laws that must be followed regarding fair housing, which might include:

  • marital status
  • sexual orientation
  • gender identity
  • age
  • participation in the Section 8 Program or other subsidy programs

Be sure to check with your State and local laws to ensure compliance to your fair housing standards. A simple Google search for “your state” and “fair housing” should give you the answers you need.

A Note on Age and Children Discrimination

As mentioned above, Federal Fair Housing laws prevent discrimination against family status and it is illegal to prohibit children. However – there is an exception to the law which states that certain properties that are designated as a “55+ Community.” According to HUD:

In order to qualify for the exemption, the housing community/facility must
satisfy each of the following requirements:

  1. At least 80 percent of the occupied units must be occupied by at least
    one person 55 years of age or older per unit;
  2. The owner or management of the housing facility/community must
    publish and adhere to policies and procedures that demonstrate an
    intent to provide housing for persons 55 years or older; and
  3. The facility/community must comply with rules issued by the
    Secretary for verification of occupancy through reliable surveys and
    affidavits.

In other words – if 80% of the units in a community owned by you have someone older than 55 living in them, and your visible intent is to provide housing for an older age bracket, and you abide by the laws that govern this exemption – you have the ability to exclude a familial status to include only those who are 55+ in age – thus discriminating legally against those with young children.

For more information on Fair Housing laws – see How to Market Properties without Violating the Fair Housing Act and speak to a qualified attorney.

The Application: Six Must-Include Sections for Proper Tenant Screening

The application is the window into your tenant’s life. It is important that you ask the right questions – and don’t ask the wrong ones (see Fair Housing, above.) The following is a list of must-have sections to include and ask on your application:

  1. Name, address, phone number, driver’s license number.Apps-accessories-text-editor-icon
  2. Social security number and date of birth.
  3. Current and past landlords with contact info.
  4. Employer and job details with contact info.
  5. Have they ever had an eviction filed upon them or broken a lease?
  6. Release of information signature

These questions are the most important for knowing the past history of your potential tenant. A good strategy to use is to not ask “have you” but instead “how many” or “when.” This makes it tougher for a tenant to lie. For example, by writing “have you been evicted” a tenant will more easily write “no” than if it said “how many evictions have been filed against you?”

Other Questions to Ask

The following is a list of other questions you may want to ask your tenant to find out more about them:

  • Requested move in date?
  • How many animals do you have and what kind?
  • What may interrupt your ability to pay rent?
  • Are you on Section 8?
  • How much money do you have?
  • How many felonies do you have?
  • Do you have enough cash to pay the first month’s rent and security deposit?
  • What kind of car do you drive?
  • Do you have a checking account? Savings Account?
  • How many people will be living here?
  • Emergency contacts?
  • How is your credit? Explain…
  • How did you hear about this listing?

The application must be completed completely. If it is not, I send it back to the tenant and ask them to finish it. Obviously, if they forgot one small section, I can make a phone call to find out – but I believe training your tenant to follow your policies begins here.

How to Run a Background and Credit Check

Let’s get down to the nuts and bolts of running background and credit checks – but first, allow me to explain the difference.

A background check looks at the tenant’s criminal and eviction history, as well as looking for fraud or deception.
A credit check looks at the tenant’s ability to pay their bills and obligations responsibly.

Several years ago, a law was passed in the United States that made checking the credit of a tenant much more difficult and cumbersome. Where before any landlord could simply enter in the applicant’s information and get back their credit report – there are now several hoops a landlord needs to jump through, including an on-site inspection. If this is an approach you want to take, there are several reputable companies you can use.

However, at BiggerPockets- we recommend using a screening service known as “SmartMove” which is offered by TransUnion (to learn more about TransUnion, click here) to avoid that hassel. SmartMove is unique because:

  • No site inspection is needed
  • SmartMove includes BOTH criminal and credit background
  • The Tenant applies and pays online
  • The vital information from the Tenant’s report is sent to you, the landlord.
  • No application process, no site inspection, no waiting period

To run a background and credit check through SmartMove – you’ll need to set up an account with the service which should take less than two minutes. Next, you’ll enter the property information and the potential tenant’s email address.

Your potential tenant will receive an immediate email prompting them to head to SmartMove and set up an account of their own which, again, should take them less than two minutes. They will be required to enter their name, current address, social security number, and a few other pieces of information. After doing so – they will submit their credit card number for processing (though – as a landlord, you can choose to pay for this service rather than the tenant.)

Almost immediately – you’ll receive an email letting you know their information is ready to view. At this point, simply log into your account and search for the tenant via the property address. You’ll see the following screen, letting you know SmartMove’s recommendation for renting to the tenant, as well as links to their Credit Report and Criminal History.

Make sure you consult with your legal council on everything that you do. I am not an attorney and you should not rely on my advice or Bigger Pockets to be correct in your state.

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