Hi everyone! This is a guest post from Pam Storm at RentMarketplace.com. If you have rentals and care about screening for the best tenants, you’re in for a treat with this in-depth tenant screening guide.
Pam is an expert on the science of tenant screening, which is one of the most important parts of the rental business. She has her own rental properties, but she also led one of the nation’s largest tenant screening organizations for years. In the process, Pam helped to facilitate over 16 million (!!) tenant screening transactions. I thought I had done a lot!
Pam reached out to me and asked how she could help coachcarson.com readers. I told her I would love to get her recommendation for a step-by-step process to screen for the best tenants. She went above and beyond with the following guide, which includes an awesome infographic that I recommend you save and use as a reference.
Be sure to take advantage of Pam’s expertise and leave your tenant screening questions or comments at the end.
Enjoy the guide! Here’s Pam …
Introduction: Great Tenants make Great Rentals
If you’ve been a landlord for a while, you probably agree that great tenants are the foundation of a great investment property. And, if you haven’t been a landlord before, this is probably one of your biggest concerns – how do you make sure you select reliable renters and don’t get burned? For both of these reasons, learning how to screen tenants to find only the best ones is a must-have skill.
Applicant Acceptance Standards: Your Key to Finding Good Tenants
A bedrock to selecting great tenants is knowing and documenting your applicant acceptance standards. And, it’s a valuable skill that you can master.
Simply put, applicant acceptance standards are the criteria you use to evaluate applicants. When you apply the criteria, the output is 1 of 3 options:
- Accept an applicant
- Decline an applicant
- Accept an applicant with conditions (such as an extra security deposit)
Think of acceptance standards like Standard Operating Principles (SOP’s), and imagine trying to run a business without SOP’s.
In the rest of this article, we’ll address the benefits you’ll reap from great acceptance standards and how to create your standards. Then we’ll review a few case studies to demonstrate the impact of using acceptance standards — and what happens when you don’t.
Benefits of Using Applicant Acceptance Standards
In addition to selecting reliable residents, other meaningful, desirous benefits will follow from using applicant acceptance standards:
- Removing emotion
- Facilitating compliance
- Establishing baselines
1. Removing emotion
When using acceptance standards, declining applicants that don’t qualify becomes easy. There is no emotional fatigue about should I or shouldn’t I, or trying to help someone out, or liking an applicant and wanting to rent to him/her when you know that person is high-risk.
Simply put, there are minimum qualifications for ‘lending someone this asset’ – and if it’s not a fit, it’s not a fit. Communicating this to applicants also becomes easy, because you will have given applicants your acceptance criteria before they apply.
So this one practice removes emotion that can lead to bad decisions, and it also removes emotion from communicating with applicants — two huge benefits from one practice.
2. Facilitating compliance
Documenting your standards and communicating them with applicants helps ensure consistency while evaluating your applicants.
There are two major federal regulations to stay compliant with at all times – Fair Housing and Fair Credit – and this one practice helps facilitate compliance with both. To go wayward, you would have to deliberately violate your own rules and SOP’s, which alone will give you pause.
With written standards, you are well on your way to treating everyone the same way and avoiding discrimination. Remember that even when you “bend” or “sway” with good intentions to “help someone out”, it’s discrimination and poor business practice.
Consistency is key, so the two benefits discussed will help you make better decisions, avoid pitfalls, and be a professional. But there’s more.
3. Establishing a baseline that can be adjusted over time
Lastly, as macroeconomic factors change over time, using acceptance standards will help you establish a baseline to adjust over time.
As you see employment conditions change, school systems improve, and so on — you will be in a good position to easily tighten or loosen certain criteria over time. You will be able to draw correlations between these changing conditions and your acceptance criteria.
In a sense, it becomes much more natural to review and correlate your financial results to your operational standards
