Make Screening Tenants Simple

by Michael Lucarelli | Updated: Apr 24, 2020

Return on investment, or ROI, has long been a driving force behind property owners and investors. The desire to maximize ROI influences many critical activities of owners. Screening tenants ranks among the top factors impacting profitability. It’s regarded as the first line of defense in reducing risk, minimizing turnover rates and avoiding evictions. 

So how do you go about effectively screening tenants? The answer is not so simple due to a variety of factors:

  1. Availability and accuracy of tenant information: What information are you able to access about prospective tenants?  No matter how many units you own or manage, you want to have access to as much information at your disposal as is legally permissible. Gathering this information is difficult enough. On top of that, it’s crucial to verify all information so that you base your decisions on accurate information.
  2. Navigation of legal and regulatory hot spots: With so many changes to the federal and state regulatory environment, it’s increasingly important to ensure you’re not committing any discriminatory practices when screening tenants. Nearly 30,000 complaints were filed with federal, state and local fair housing agencies in 2017. Eighty-seven percent of those complaints were related to the rental housing industry. This represents a 30% increase over the number of complaints filed in 2000 and resulted in millions of dollars paid out in settlements.
  3. Convenience of use: It should be easy to access applicant information.  The ability for owners to get set up to start screening tenants can be tedious and may require on-site inspections/setup fees. This can take weeks. On top of the setup process, screening itself involves multiple steps that can be confusing for new owners or management staff members. Tenant screening is only effective when it can be properly carried out by property representatives.  
  4. Cost-effectiveness: Keeping a handle on operating expenses is a great way to increase ROI for any investment property. In addition to screening fees, there’s an indirect cost in administrative expenses for time spent screening tenants. But even if you handle screening yourself, you still want to make sure the screening process isn’t becoming a drain on time. Too much back and forth in gathering information or getting an application package together is bad for everyone.

Here is a simple breakdown of the major tenant screening steps:

1. Set screening criteria

Before you dive into tenant screening, it’s good practice to establish set criteria that you will use when evaluating applicants (ex. minimum credit score). This is important to ensure that you are using objective criteria when making decisions. Further, it will decrease the likelihood of you carrying out any discriminatory practices. It’s recommended that you consult with an experienced attorney in the development of your screening criteria.

2. Pre-screen

As you market your property, you’ll start to receive leads for prospective tenants. At this stage, it can really help to gather some basic information from prospects. This can assist in identifying applicants who may not be a viable fit. For example, a group of five occupants may not be suitable if you’re renting out a studio apartment. As another example, the property may be available starting July 1st but the applicant will not be ready to move until September 1st.

Learning these things upfront can save everyone’s time and money. In addition, getting into contact with prospects ahead of time will allow you to communicate your screening process and requirements. In some cases, just letting applicants know what you require can dissuade those who know they won’t pass your screening criteria.

3. Show the property

Once you have applicants who may be suitable for the property, you can set up a time for them to visit. This is also beneficial because it gives you the chance to meet and get a feel for the people you may be renting to.

4. Collect rental applications

When you’ve identified the prospects who would like to move forward to apply, you’ll want to collect a completed rental application from each occupant over the age of 18. The rental application will provide a portion of the applicant information you’ll need for thorough vetting. This information includes:

  • Personal information
  • Current and previous residence information
  • Current and previous employment information (including income)
  • References
  • Miscellaneous information (pets, vehicles, etc.)

At this point, you can also collect a screening fee from applicants depending on your preference.

5. Access screening reports

Receiving a rental application is great to provide you with surface-level information. However, the real benefit of looking at one lies in your ability to compare information listed on it with additional information provided by an objective source. This allows you to interpret the information provided by the applicant and is most commonly done using a credit report and/or score. Put simply, a credit report and score provide an overall indication of an individual’s ability to meet his or her financial obligations. For many owners, the credit score is one of the most important criteria to use in selecting a tenant. While the score is extremely important, there’s also value in looking at applicants’ credit history found on the credit report, so both should be given consideration.

Two other important reports you might want to view are a criminal background check and an eviction history report. For obvious reasons, these two can provide valuable information.

6. Verify applicant information

Once you have gathered all applicant information, it’s now time for some investigative work. This commonly involves:

1) Collecting documents from applicants 

2) Contacting applicants’ landlords, employers and references. If an applicant lists on the rental application that he or she makes $15,000 per month in income, you would be wise to verify that information. You may want to verify it by collecting proof of income (W-2s, tax returns or recent pay stubs). 

Contacting applicant landlords, employers and references can provide equally valuable information. An applicant’s previous landlord is often considered one of the most important individuals to speak with. This is because an applicant’s current landlord is less likely to reveal the truth about a bad tenant — the applicant could find out and move out.

Overall, the information listed on the rental application and the screening reports should inform the areas that you need to investigate further.

Next steps

Tenant screening can be daunting if you don’t have a clear process and procedure in place. With these basic steps in mind, you can move forward in a more efficient manner, and your business will benefit greatly. To screen your tenants at no cost to you, get started here.

The information contained in this article does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional financial or legal advice as they may deem it necessary.

Categories: Landlords

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