No part of investing in a rental property requires as much attention as selecting tenants. As experienced landlords know, the difference between a good and bad tenant can be the difference making and losing money on an investment. While a bad apple will occasionally slip by even the most assiduous screening process, landlords can ensure they are consistently choosing high-quality renters by following these steps:
Establish Qualification Standards, and Stick to Them
Prior to beginning your search, determine which standards prospective tenants must meet. What minimum credit score must they have; how much verifiable income do they need; what if they smoke; are pets okay?
The questions you ask are ultimately up to you, but once you’ve decided on your answers, you should put your standards in writing and adhere to them at all times. Having established screening criteria means you will deny many people. That’s okay. Part of being a responsible property investor is turning down more applications than you accept.
Follow Fair Housing Laws
All of that said, you should absolutely make sure that all of your criteria are in accordance with Fair Housing Laws, which state that you cannot discriminate based on gender, race, family status, and other grounds. (See the website for the Department of Housing and Urban Development, HUD.gov, for more detailed information.)
If faced with a Fair Housing complaint, being able to show a clear, consistent, discrimination-free screening process can help to protect you legally.
Carefully Check References
Always call an applicant’s employer and previous landlord. Speak to these people on the phone and verify their information. It’s too easy for a potential renter to give the numbers of friends or family, who then misrepresent themselves as an employer or landlord. Check online to ensure the name and number you’re given match who the person claims to be.
Ask the Right Questions
In addition, when speaking to references, avoid asking broad, open-ended questions. Instead, make direct inquires that help you to get the information you need. With employers, for instance, you should verify an applicant’s salary and how long he or she has worked for the company.
With landlords, be similarly diligent. Ask about the timeliness of rent payments, whether the tenant damaged the property, and whether he or she was disruptive in any way. Keep in mind that a current landlord is incentivized to give as glowing a reference as possible, in order to get a problem renter off their property. Talking with an earlier landlord can bring to light any such deception.
Obtain a Credit Report, Making Sure to Watch for Irregularities
A credit report can reveal problems—such as debt, bankruptcies, and poor payment history—that a prospective tenant might not want to disclose. After getting written permission, perform a credit check every time, for every applicant—no exceptions.
Once you receive the credit report, do not simply scan it and move on. Look over it carefully to make sure the social security number and street addresses match. Giving falsified information is one way an applicant might try to hide utility judgments and other financial red flags.
Run a Discerning Background Check
Each adult applicant should consent to a background check to determine if he or she has a criminal record. As with the credit check, watch for attempts to mislead. Some potential renters might, for instance, provide the social security number of a relative in an effort to conceal past crimes.
If you find an applicant has a criminal history, consider examining the nature of the crime. The choice ultimately lies with you, but some experts point out that a long-ago misdemeanor probably should not hold the same weight as a recent violent crime or other serious offense.
Meet Applicants Face to Face
While rental applications, credit reports, and background checks are invaluable in the screening process, you can learn a lot about prospective renters by taking the time to walk them through the property. While you do, try to get a sense of who they are. Are they clean? Are they friendly? Did they arrive on time? Do they seem responsible? Answering these questions can help you decide whether they would be good tenants.
Although logistically difficult, you should also make an effort to visit applicants in their homes. Seeing how they live in their current residence will illuminate how they will treat your property.
Keep Detailed, Organized Records
Any and all reasons for denying an applicant should be explained to him or her in writing and noted in your records. Be detailed and precise, identifying the exact rationale—unacceptable credit score, negative feedback from references, not enough income, etc.—that drove your decision. Failure to list this information can open you up to a housing discrimination claim.
Your attentiveness should also extend to storing records. State laws vary, but you should plan to retain applications and other rental documents for at least a few years. Remember that these materials contain sensitive information about applicants. Even if you deny someone as a tenant, you still have a responsibility to keep his or her information safe and secure.