Reseda Property Manager

Five Stages to a Good Screening Process

Stage 1: First Contact – The prospective tenant calls you for more information about the property and the lease. Ask some pre-screening questions to make sure this prospective tenant isn’t going to waste your time.

Stage 2: The Showing – The prospective tenant has passed stage 1. Now, you’ve scheduled to show the apartment and will meet the prospective tenant(s) face-to-face for the first time. Watch out for these red flags.

Stage 3: The Application – Your prospective tenant is still interested and so are you. Have him or her fill out a rental application that includes references from prior landlords and employers. Run a credit report and criminal check.

Stage 4: Approval Process – This tenant seems like a good candidate. Accept him or her and gently decline all other applicants. Until you have a signed lease, though, you’re not done screening.

Stage 5: Lease Signing – You and your prospective tenant(s) are ready to sign a lease. Go through the lease with him or her carefully and make sure all the rules are completely understood. It’s not too late to rip up the lease if things aren’t going well, even at this point.

So what does a good tenant look like on paper?

First, the rental application on its own won’t tell if you if someone is going to be a good tenant. You’ll have to do a bit of work still to derive that answer. So at this point, we would have expected that you’ve called their prior landlords and current employer. The employer should have confirmed employment and prior landlords shouldn’t have raised any red flags. In fact, if the prior landlord is a company or owns enough units, its actually a good thing if they don’t remember the tenant you’re considering. Not remembering means the tenant didn’t cause any headaches. If you haven’t called these people yet, go back to the prior blog and do your homework. You’re not ready to make this kind of decision yet.

Stability

If you have done your homework, then you may be asking what are some other positive attributes that you can look for to confirm this is more likely to be a good tenant. Stability! At this point you can make an assessment about the stability of your tenant. How long have they been at their current employer? Usually a few years, at least, is a good sign. Statistics have shown that 2 years seems to be a magical number. If someone stays with an employer more than 2 years, they’re more likely to be developing a long-term career and garnering skills that make them an asset at that company – and all the less likely to lose their job. So not only will this tenant be more likely to actually pay the rent, but he or she is more likely to renew their lease for multiple terms. The inference here is that a tenant with a stable job will stay in the area longer and continue to rent for several lease cycles. It also means the current lease payments are more likely to be paid.

Not only can you hope that a tenant renews a lease because of a stable job, but you can judge whether a tenant is more likely to stay multiple terms based how long they lived at some of their prior residences. Seeing a prior residence for two or more years is usually a good sign that the tenant enjoys staying in one place. Of course, this isn’t always accurate. If a tenant just graduated college, then they may have four prior residences, each for just one year. Although, all things being equal, you’d typically prefer tenants that are more likely to stay multiple years. Just think about the headache you went through to get this one tenant. Do you really want to do it all again in just 12 months if you don’t have to?

Disposable Income

OK, is it really your business to know if the tenant has disposable income? Actually, yes! It’s almost precisely your business. You need to now if this tenant can afford your property. There’s a very common metric that landlords use to determine if a tenant can afford the property, called the “3-times rule”. Is the tenant’s gross income greater than 3 times the asking rent amount? If you’re asking for $1,000 per month, then the tenant (or combined tenants in the case of roommates) should have an income greater than $3,000 per month. It’s a simple, straightforward rule.

But since you pulled a credit report, you can do one better. What the “3-times” rule doesn’t take into account is what other things the tenant has to pay off out of that income. That’s why you can pull the total monthly payment amount for all debts right off the credit report and see what impact that makes to the affordability rule. Here, we typically apply a new rule, called the “40%” rule. The rule goes as follows: the asking rent should be no more than 40% of the tenant’s monthly gross income minus all other monthly debt obligations. You just have to make sure you’re leaving enough room where a tenant, after all debts, has enough to pay the rent and pay for food. Because let’s face it, if it comes down to a choice between paying rent this month and eating, the choice is obvious.

Accountability

In our prior article in this series, we mentioned that you’re basically a new creditor for this tenant. So if you want to see how you’ll be treated, you can see how the tenant has treated other creditors. Most credit reports will show you a calendar view of when tenants’ payments were late and by how much (our reports show this as 30 days late, 60 days late, etc.). If you’re not seeing any accounts where there were late payments, that’s really good. It means the tenant is extremely aware of their obligations and makes a best effort to pay everything on time always.

If you see a few late payments on some accounts, it’s not necessarily a deal breaker. You’ll just need to determine if its a pattern or a one-time thing. You can also look and see when these late payments have occurred. If they occurred a couple years ago in the past and not recently, that could be a good indication that the tenant may have gone through a temporary struggle and has since recovered. However, if you’re seeing a pattern and its recent, you can likely expect the same pattern with your rent payments.

It’s Not Just Whats On Paper, Though

If you’ve followed us through this screening process from the beginning, then you’ve got some extra tidbits besides just the rental application. Hopefully you’ve met the tenants face-to-face at least one-time. This is sometimes the best way to identify red flags. Although we don’t recommend landlords accepting tenants based on just a meeting (always get the application and credit report!), there’s plenty of things you can uncover while meeting a tenant in person that might set of your “creepy” sense. These are things you can look into after you’ve met the tenant. We’ll talk more about fair housing laws in a bit, but just be careful not to discriminate.

From: https://www.rentalutions.com

Carnahan Property Management Services Woodland Hills,West Hills,Bell Canyon, Hidden Hills, Calabasas, Canoga Park, Tarzana, Reseda, Topanga, Encino, Northridge, Van Nuys, North Hills,Chatsworth, Sherman Oaks, Studio City, North Hollywood, West Hollywood, San Fernando Valley, Granada Hills, Mission Hills, Simi Valley, WestLake Village, Agoura, Toluca Lake, Valley Village, Burbank. Call us at (818) 884-1500.