In this post we will cover five points I consider key to executing quality tenant screening. There can certainly be additional factors, but these five are necessary.
This assumes you are going to do tenant placement yourself as opposed to hiring a property management company.
#1 – Past Eviction
If you are screening a potential tenant and they have past evictions in their history, don’t walk….run away. If it’s more than one then clearly they are not a good candidate.
If there is just one – okay yes, there are cases where good people run into some bad luck and you can use discretion, but you are putting yourself at risk. That is not really the scaredy cat investor way, better to just move onto the next applicant.
#2 – Criminal Record
This is more about the type of crime, because due to new HUD (Housing and Urban Development) rules it is actually illegal to do a blanket disqualification of anyone whose background check comes back with a criminal record.
Look at what the crime was. Did they get busted scalping a few extra tickets they had to the game? Ok no problem.
However, if it’s a violent crime then I am in fear of my safety thus onto the next applicant. If it’s related to destruction of property, well I am in fear of the safety of my property, next applicant.
# 3 – Debt/Credit History
Generally there is a minimum credit score you want to set for approval. This helps weed out applicants that are not financially responsible. 620 is a minimum score that is common throughout the landlord community and what I use.
Also, what type of debt do they have? If one applicant has 25k in credit card debt and another has 50k in student loans, which do you think is the better candidate?
If we think about the debt types, credit card debt is consumer debt. Now a person may have made purchases due to circumstance, but many times it’s just overspending as the culprit. Do you really want someone that is buried in credit card debt owing you rent each month?
As for the student loans – generally that is debt someone used to better themselves to get a career or job. Well, atleast hopefully it got them a better job. Either way, someone that is using debt as a constructive instrument as opposed to a consumer instrument makes for a better applicant.
#4 – Employment
This one is pretty obvious. We must verify their employment and income to know they are able to pay rent each month.
To go about that you should ask for the most recent year’s W2 or 1099 and the last two months pay stubs.
Look for a gross monthly income that equals three times rent. That is what I use and is pretty standard for the industry. Anything less than that and a tenant may struggle to make payments. Think about it – rent will not be a tenant’s only bill and Uncle Sam still takes a cut of their gross income as well.
Also, get the employers contact info to confirm that the person is indeed an employee.
We then can take it another level and ask the employer about their employee. Knowing something like they show up to work late everyday is pertinent information as that could put their job, thus their source of income as risk.
#5 – Cleanliness/Lifestyle
It’s hard to know how an applicant will treat your property without seeing how they live. However there are ways you can get a glimpse into that.
One little trick I like is after showing the property to a prospective applicant – walk them back to their car and thank them for their time.
Why do this? – Because you can get a quick glance at their vehicle to see how it’s kept. If you see McDonald’s wrappers and soda cans all over the floor then how do you think your property is going to be treated?
(Success note: be sure you confirm all federal and state laws on what you can and cannot disqualify a tenant for. A lawsuit is even worse than a bad tenant.)
There you have it – the five points to cover when screening tenants.
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