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The Complete Guide to Tenant Screening

Every Landlord has faced the question before: How do you get a good quality tenant to lease your rental?

You want to make sure that your prospective renter can do three things really well:

  1. Pay the rent on time.
  2. Keep the apartment in good condition
  3. Not disturb other tenants or cause trouble.

Enter the tenant screening process. While well known and well used, it’s actually quite misunderstood.

In this guide, I’m going to cover a few important issues. If you follow them well, you have an incredibly high chance of getting high quality tenants without much fuss.

We’ll cover:

  1.  What is tenant screening and How does it work?
  2. What makes a great tenant?
  3. How do you find a good tenant?
  4. How Do Fair Housing Laws Affect Tenant Screening and Apartment Marketing?
  5. How to Pre-Screen Tenants with your Rental Application
  6. What You Must Put On Your Rental Application
  7. How to Run a Background Check and Credit Report on Your Tenant
  8. Tenant Employment Verification to Verify Income
  9. How to Verify Previous Rentals with a Landlord Verification
  10. Running a Background Check on a Co-signer or Coapplicant
  11. The Adverse Action Letter: Denying a Tenant Application

What is Tenant Screening?

Tenant screening means finding out everything there is to know about your potential tenants, as it affects their ability to pay and meet the requirements of their lease. In other words, it’s a deep dive into who your tenants are and what you can learn from their past actions.

Tenant screening works by taking all of the important qualities you want from a tenant (we’ll get to that in a second), and making sure they exist. It involves checking their criminal and credit history, talking to landlords and employers, and making sure they have the money to pay the rent for the next year.

When you think about it, you’re giving someone access to a product (your rental) over a year or longer, so you need to make absolutely sure that your renter can handle it. Thinking about it like a much smaller version of mortgage lending will help you evaluate risk and make the right decision when it comes to choosing a tenant.

What are good qualities for tenants to have?

The most important thing you look for in a tenant is their ability to pay the rent, on time, every time.

All of the qualities below influence that:

  1. Ability to pay You need to establish the tenant’s ability to pay the rent. A good rule of thumb is that the tenant must make at least 3 times the rent in monthly income. Settling for less may jeopardize your ability to collect rent from a tenant.
  2. Consistently pay on time The tenant needs to show that not only can they pay the rent, they will. This is usually established by looking at credit reports and talking to previous landlords.
  3. Long term Income Will the tenant always have a job over the length of their lease? This is not 100% easy to predict, but a history of stable work history over the last few years with consistent income and paychecks is a good sign.

How to Market and Find a Great Tenant

Apartment marketing is an art unto itself, and is probably deserving of another post altogether. But to put it briefly, there are plenty of great tenants out there. When you first post your ad, make sure your screening requirements are clearly listed in the ad.

Make sure you are honest about what your apartment is, and the type of tenants it can support in terms of income and employment.

Different internet sites drive different types of tenants. Make sure to test ads both on Craigslist AND other sites like Facebook.

 Fair Housing Laws,  Tenant Screening and you

You can screen people based on some information and details but not on others. For example, it’s fine to disallow a prospective tenant because of a poor credit history or a violent criminal past. What’s not ok, and is illegal, is discrimination against someone in what’s called a “protected class”.

The Fair Housing Act make it illegal to discriminate based upon “race, color, national origin, religion, sex, familial status or handicap”. While that seems obvious, it means you can’t write things like “No Kids” or “Great Hispanic Neighborhood” in your ad.

When talking to prospective tenants, you can’t ask them about their family or mention what a wonderful catholic neighborhood your apartment is in.

To reiterate – you can deny someone rent based on their criminal background, a past eviction, or all sorts of monetary criteria. But you can’t violate the basics of the fair housing laws.

How a Rental Application will Get You Great Tenants

The rental application is actually a core process of your tenant screening. Most tenants hate applying, because they’re incredibly long and take a good 15-20 minutes to fill at least. For the Landlord or Property Manager, however, the leasing application is the second line of defense after making your requirements clear in your marketing.

Simply put, the property application and leasing form allows you to gather all the information you need, and to catch tenants in lies. Many prospective tenants who don’t meet your requirements, will balk at paying and filling out the application. Other tenants, who don’t want to put the effort in to filling out the application, may not put the effort into paying the rent on time, either.

In short, the rental application is a great way to weed out those who wouldn’t make it to the final stage anyway, while saving you a ton of time and money.

What Should Go  On Your Rental Application

The Rental Application should have a few important sections:

  1. Identity Verification: Here you ask for the Applicant’s Name, Date of Birth, Social Security Number, Driver’s License, Current Address and phone and email.
  2. Employment and Income: Current and previous employers going back 5 years. Salary information and any other claimed income.
  3. Rental History: Names, Addresses, Phone Numbers of Previous Landlords going back 5 years.
  4. Criminal, Eviction and Bankruptcy questions: Asking the prospective tenant if any of these issues have affected them makes things much simpler off the bat.
  5. Consent form: You must have a consent form, separate from any other form, in order to run credit, background and landlord screening.

How to Run a Background Check and Credit Report on Your Tenant

Once you have your tenant’s application, and a separate signed consent form, it’s time to run the actual background check and check the credit report. We’ll add more info here about logging into your background check system and pulling credit reports.

Make sure your tenants know that the credit report for renting will be a hard pull, so they’re not surprised when it shows up on their systems.

Verifying your Tenant’s Income and their Employment

Assuming the background check came back clear [no felonies, evictions, reasonable credit score and information], it’s time to make sure they’re telling the truth about how much money they make and who they work for.

Verifying income is tougher then most landlords consider. W-2s and Income statements can be easily faked.  Most Landlords will be ok with pay stubs anyway, but there are a number of more secure ways to verify income:

1. File IRS Form 4506-t and get access to the previous years W2, 1099 or 1040 Form

2. Do an online screen share with your tenant to view their income from their bank account.

3. Use a background check service to authenticate employment verification for your tenants.

The next step is via employment. You might do this via a service like The Work Number, or by simply calling the reference. When calling the reference, google the phone number first to make sure it really belongs to the company. Call the company main line and ask to speak to the person listed as a reference. Unscrupulous tenants have been known to provide cell phone numbers of friends and family, instead of a bad reference from a boss.

Verifying Previous Landlords

Call previous landlords to find out how the tenants acted. Did they pay rent on time? Were they evicted? Did they cause trouble?

Before calling the landlord, verify with the county assessor that the name given is the owner of the property. Sometimes it may be a property manager or real estate agent, but you need to check these things. Tenants can sometimes provide the most bizarre and inaccurate information to try and trick you.

Should you run a background check on a co-signer?

This is the simplest answer: anyone who is going to be on the hook for rental payments, needs to have their background screened and verified.

The Denial Letter

If you decide not to accept a tenant, you must send them an Adverse Action letter telling them why, and notifying them of the name of the Consumer Reporting Agency who created the report.

 

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