The 80/20 rule of the landlord-tenant relationship dictates that 20% of your tenants will be responsible for 80% of your grievances and headache. Since a few bad apples will end up consuming the majority of your time/energy, and in turn stunt your efforts to grow your business, a proper tenant screening should be at the top of your mind when it comes to filling your vacancies.
Tenant Screening: Before Receiving Applications
Prequalify the Applicants
Your tenant screening process actually begins before you even meet the applicant. Any time you are asked to do an individual showing of the property, avoid making work for yourself later by prequalifying the interested party to make sure he/she has a chance of being a good fit.
Essentially you want to ask the questions that will make or break an applicant’s chances with your property. I’ve included a sample list of questions below. You can email them to anyone who inquires about your unit so that you’ll have a copy of their responses:
- Our desired move-in date is ____. Does that work for you?
- What is your current monthly salary? (If it’s low, does he/she have a co-signer?)
- Have you been previously evicted or asked to move out?
- How many people will be living in this unit?
- Any smoker among your group?
- Do you own any pets?
If an applicant has one of the “deal-breaker” qualities (e.g., owning a pet when the owner has specified that no pets are allowed), you’ve saved yourself the time of showing the property to someone who couldn’t rent anyway.
Show the Property and Give Out Application Forms
Once you’ve pre-screened the interested parties, you should show the property. Aside from letting these prospective renters see the unit, the showing gives you the perfect opportunity to interact with them in person. You’ll be working with your new tenant a lot in the coming months, so it’s worthwhile to meet all the candidates face-to-face and determine who you’d most enjoy working with. Some property managers even check IDs to make sure they are meeting the person who will be renting the property, not just a friend representing the applicant. (For more on this, see The Savvy Landlord’s Guide to Catching Application Lies & Red Flags.)
Make sure to offer the application to anyone who is interested so that everyone has a fair chance to apply. Not only can you , it’s also a violation if you give out different application forms to different individuals, so make sure you ask every applicant identical questions. (Property management software from vendors like Buildium allows you to customize and then standardize your rental application forms.)
Here is a list of everything you should ask in the application:
Personal information
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Full Name
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Phone Number
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Email Address
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Social Security Number
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ITIN (Individual Taxpayer Identification Number) if available
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Current Residence Address
Information regarding your rental property
*(pre-filled in, except for the applicant’s preferred move-in date)
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Address of your unit
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Lease term (in months), start and end month/year
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Applicant’s referred move-in date
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Monthly rent
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Other charges (e.g., parking)
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Last month’s rent
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Security deposit
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Amount due upon acceptance
Financial Information
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Checking and Savings Accounts
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Bank Name
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Account Numbers
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Bank’s address
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References
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Current and Previous Landlords/Property Managers
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Address of the rental unit
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Applicant’s lease terms
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Landlord’s full name
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Landlord’s phone number
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Landlord’s email address
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Landlord’s address (if available)
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Current Employer
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Company name
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Company address
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Dates of employment
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Annual salary
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Employer’s full name
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Employer’s phone number
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Employer’s email address
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(*Optional: Some property managers also ask for previous employer’s info)
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Personal Reference
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Reference’s full name
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Reference’s phone number
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Reference’s address
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Finally, include a clause that obtains the applicant’s permission for you to perform a background check. For a sample, check out Nolo’s template. (Buildium also provides resources to make background checks as painless as possible.)
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Charge a fee for your time and to cover the cost of the credit check ($30~$50 is reasonable).
Tenant Screening: After Receiving Applications
Check Rental History
When it comes to reference checks, your main objective is to confirm the applicant’s rental history and employment information according to his/her application form. Rental history is arguably the more critical of the two since it gives you an idea of the applicant’s credibility specifically as a tenant.
Aside from contacting the applicant’s current landlord or property manager, you should also contact his/her previous landlord or property manager. This is because an old landlord has no reason to lie to you about the tenant’s past behavior, whereas a current landlord who is trying to get rid of this bad tenant may be incentivized to cover up the tenant’s poor behavior in hopes of “unloading” this tenant to the next property that would take him/her.
Below is a list of questions you should ask both the past and current landlord or property manager.
First, you should confirm that the current or past landlord isn’t an imposter, since applicants who know that a landlord wouldn’t speak favorably about him/her might list a friend on the application instead. This is not a foolproof method, but try asking about details of the rental to see if they match the information on the application:
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Ask: “I am a property manager doing reference checks on John Smith. He listed you as his reference. How do you know him?” and see if the person answers anything other than “I’m his landlord/property manager.”
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What’s the address of the rental unit?
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What are the dates of the applicant’s residence in that unit?
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How much is/was the applicant paying in rent
Once it sounds like the person has an accurate knowledge about the applicant, you should ask about the applicant’s behavior as a tenant:
- Is the applicant ever late in paying their monthly rent? If yes, how late was the rent? How many times did late payment occur?
- Did the applicant violate any other terms of the rental agreement? (This includes damage to the property, being disruptive, unauthorized guests, illegal activities, etc.)
- Have you ever had to serve the applicant a notice to vacate the unit? If yes, why?
- Would you rent to this applicant again?
Another way to background check the landlord or property manager is to Google search the person’s name, address, and phone number. If the property is a multi-unit housing unit, or managed by a property management firm, that information should show up on the web. Unfortunately it is not a foolproof method since individual homeowners who rent out their property wouldn’t come up as a search result.
Check Employment Information
Not every property manager performs an employment reference check, but it may be worthwhile if you’re uncertain an applicant can afford the rent. When it comes to confirming an applicant’s employment history, the process tends to be trickier because companies are limited on the employee information they can disclose. Unlike the types of questions you ask current and past landlords, your questions for the applicant’s employer should have Yes/No answers to make it easy for them to answer. I’ve included the key questions to ask below:
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Does John Smith work at your company as a ____?
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He listed his salary as $__. Is that correct?
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He listed his employment period as ___. Is that correct?
When interacting with the employer reference, don’t be surprised if the company can only interact over email. A lot of companies prefer email interactions to maintain records of their responses, in order to avoid being sued for slander by the applicant. This is common practice and shouldn’t be a cause for alarm.
If you prefer to do research on your own, you can try typing in the applicant’s name into Google search and see if you can find his or her LinkedIn profile, which will show the current and past employment of the applicant.
Run a Credit Report
A credit report reveals an applicant’s financial and legal status for the past seven to ten years. You should order one for all the applicants you are seriously considering since it is the one piece of evidence that cannot be faked. It will provide information such as:
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Late payments in bills, rent, and loans
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Convictions and arrests
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Eviction history
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Involvement in lawsuits
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Credit score and history
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Bankruptcies
You should have obtained every applicant’s name, address, and social security number (or ITIN, Individual Taxpayer Identification Number) in their application forms, which you need to obtain a credit report. Depending on the type of report you order, you may also get a FICO score that reflects an applicant’s credit. The score ranges from 300 to 850, and typically an applicant with a score above 650 is considered medium-to-low risk.
To obtain the report, you need to work through a credit reporting agency or a tenant screening service. You can find ones that service your area by Google searching “tenant screening”, or look under the “Credit Reporting Agencies” section of the Yellow Pages. Property management software like Buildium also offers a credit reporting service.
Set Criteria to Compare Applicants Fairly
To avoid discrimination accusations down the line, it’s in your best interest to have a clear system on how applicants are scored against each other. Now that you’ve gathered all the pertinent information, follow an objective scoring system like the one I’ve provided below:
Income
____ Individual
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Individual’s monthly income is > 3x the monthly rent — (5)
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Individual’s monthly income is = 3x the monthly rent — (4)
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Individual’s monthly income is < 3x the monthly rent — (0)
____ Co-signer
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If individual’s monthly income is < 3x the monthly rent, but he/she can secure a co-signer with FICO score > 700 — (3)
References
____ Rent Payment
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Applicant has always paid rent on time — (5)
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Applicant has paid rent 10 days late at most, 1-2 times/year — (4)
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Applicant has paid rent 10 days late at most, 3+ times/year — (3)
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Applicant has paid rent more than 10 days late — (1)
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Applicant has been evicted — (-5)
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Applicant has never rented — (0)
____ Landlord Recommendations
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Past and current landlords both gave good reference, no complaints, would re-rent to applicant — (5)
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Past and current landlords both gave mediocre reference, small complaints, might re-rent to applicant — (3)
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Cannot get reference from either landlord, but found no eviction history — (2)
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Past and/or current landlord gave poor reference, will not re-rent to applicant — (-5)
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Applicant has never rented — (0)
____ Employment information
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Information given by the employer and applicant match – (0)
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Information given by the employer and applicant don’t match – (-3)
Credit Report
____ Credit Score
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FICO score is > 680 (“Excellent”) — (5)
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FiCO score is > 620 (“Good”) — (4)
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FICO score is > 580 (“Average”) — (3)
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FICO score is <580 (“Low”) — (0)
____ Bankruptcy (in the past 3 years)
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Applicant has never declared bankruptcy — (0)
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Applicant has declared bankruptcy for medical bills due to accident or illness — (-3)
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Applicant has declared bankruptcy for other reasons — (-5)
Total Score: _________ / 20
The applicant with the highest overall score is likely your best bet. Make sure to keep all the paperwork on how you scored each applicant, because they will be pivotal if you ever get in trouble for discrimination accusations from an unselected applicant.
Make Your Decision
After you’ve scored all the applicants, it’s time to make your decision. For the tenant you’ve selected, review all the rules together so that he/she has a clear understanding of your expectations. Make sure he/she understands his/her responsibilities to receive the full security deposit back at the end of the lease, since security deposit disputes are among the most common in court. This is a particularly good time to clarify how and when you will perform your move-in/move-out and/or periodic inspections to record any damages incurred during the tenant’s stay.
Mobile applications that digitize the property inspection process, such as Happy Inspector, will be particularly useful here since it enables you to perform the inspection quickly with a digital checklist on an iPad, attach photos and e-signatures automatically, and generate a web-based report to be shared among yourself, the tenant, and the owner so that everyone shares an understanding on the condition of the property. Since all inspection reports are stored digitally, if a legal issue arises over property damage, you can easily find the inspection records to show the tenant, or in a worst case scenario, present it in court as concrete evidence.
For the applicants you do not select, if the cause of their rejection is negative information on a credit report or because another applicant has a higher credit score, you must provide him/her with the name and address of the agency where you obtained the report. You must also tell the person that he/she has the right to request a copy of that report within 60 days of receiving rejection from you. This is a requirement of the federal Fair Credit Reporting Act.
From buildium.com
