When you think of life as a landlord, what images spring to mind? Freedom to enjoy life while a passive income rolls in, with rent covering your mortgage payments and your capital investment growing steadily year after year?
That sounds wonderful! But as is often the case where humans are involved, perfection is not a very realistic goal. While, for the most part, being a landlord is relatively straightforward, there are times when the role can be extremely frustrating. Consider, for example, what you should do if your tenant stops paying rent? What if they damage your property and eat into your investment through their carelessness? Eviction is certainly not an easy option in these cases.
Bad tenants are every landlord’s nightmare, but there is a way to safeguard against these horror stories as much as possible – and that is through using a robust, thorough tenant screening process. The goal is to find trustworthy individuals, which will result in less hassle and fewer headaches, not to mention reduced costs. Eviction is always a last resort, and by following our 8-step guide to tenant screening, hopefully you will never have to face it as a possibility.
Why Screen Tenants?
Screening tenants for their suitability to live in your rental property is essential, as it will allow you to choose the ideal qualities in an individual, as well as avoid any red flags. The main things you will want to look out for are their ability to pay the rent (including if this will be on time), their attitudes, whether they have pets, and more.
What Are Protected Classes?
While you may have a checklist of the ideal candidate in mind, there are some aspects that you may not take into consideration when choosing a suitable individual – in fact it is illegal to do so. These are known as protected classes, and the US Department of Housing and Urban Development’s Fair Housing Website states them as follows:
In the Sale and Rental of Housing: No one may take any of the following actions based on race, color, national origin, religion, sex, familial status or handicap:
- Refuse to rent or sell housing
- Refuse to negotiate for housing
- Make housing unavailable
- Deny a dwelling
- Set different terms, conditions or privileges for sale or rental of a dwelling
- Provide different housing services or facilities
- Falsely deny that housing is available for inspection, sale, or rental
- For profit, persuade owners to sell or rent (blockbusting) or
- Deny anyone access to or membership in a facility or service (such as a multiple listing service) related to the sale or rental of housing.
- In addition to these protected classes, State laws in some areas also make it illegal to discriminate based on:
- Marital status
- Sexual orientation and gender identity
- Source of income (which usually comes down to “you must accept welfare as a valid source of income”. This does not hold fast if you have an idea that someone’s income has come from an illegal source.)
In order to protect yourself from breaching these laws, it is best to avoid all questions related to these classes, and be sure not to advertise based on them either. All rental applicants should be asked the exact set of questions to ensure that you give all individuals a fair opportunity to be considered as tenants.
Our 8-Step Tenant Screening Guide
1. Basic Criteria
In order to protect yourself from ‘bad tenants’ and prevent wasting your time, it is advisable to set your absolute minimum requirements for potential tenants. This is your bottom line, and you can tailor it to your needs. We suggest the following 4 items.
- Their income should be at least 3 times the rental amount
- They should receive good references from past landlords
- There should be absolutely no evictions in their background
- They should have a clean background in terms of criminal activity.
You can go ahead and add to these, providing you don’t discriminate on any grounds covered by the protected classes. It would not be wise to waive any of these, though, if you intend to take on an upstanding individual as a tenant.
2. Pre-screening Phone Call
Once these have been established, you can start to screen individuals that would like to be considered as tenants. It makes sense to open proceedings with a pre-screening phone call, which will establish your criteria, give you an insight into what the potential tenant is looking for, and ultimately save you a lot of time in the long run.
This call should list the basic criteria and the rent terms as well as any rules on pets and smoking, for example. It is also useful to open up the opportunity for the potential tenant to ask questions, which will give you an opportunity to find out a little about them.
3. Screen in person
Once an individual has passed the pre-screening, the next step is to meet with them in person and show them around the property. This meeting serves two purposes. It allows the potential tenant to see whether they would like to live in the property, as well as what you may be like as a landlord. It also gives you an opportunity to assess the individual’s suitability. You can take clues from their vehicle, their appearance, attitude and punctuality.
4. Application Form
Once you have met the potential tenant, and you both wish to proceed, you can provide them with an application form to complete. As mentioned, the same form should be used for every candidate, in order to keep your process fair. You can choose whether to charge a fee for this, which manages expectations of dealing with you as a landlord, maintaining professionalism from the start.
The questions can be tailored to your needs, but should generally include the following 6 questions to enable a background and criminal check. The remaining are suggestions based on your own preferences.
1 Name, address, phone number, and driver’s license number
2 Social security number and date of birth
3 Current and past landlords with contact info
4 Employer and job details with contact info
5 Have they ever had an eviction filed upon them or broken a lease?
6 Release of information signature
Optional points to include:
- Requested move-in date
- Do you have pets?
- Do you have enough cash to pay the first month’s rent and security deposit?
- How many people will be living here?
- Emergency contacts?
- How is your credit? Explain…
- How did you hear about this listing?
4. Background and Credit checks
Once you have received the completed application form and a verified copy of the potential tenants ID, you can proceed to the background and credit checks. This may seem like overkill, but is an essential step in protecting your investment. It will give you an indication of an individual’s suitability by identifying their criminal and eviction history, plus any instances of fraud and their history of paying bills in the past.
It is usually easiest to use a screening service for this, and there are many to choose from. The potential tenant usually inputs their details into an online system, the data is analyzed, and you are sent a detailed analysis within minutes, with a recommendation from which a decision can be made as to whether you would like to proceed with the tenant.
If the information that is brought to light through the credit and background checks is unfavorable and causes you to reject the potential tenant, you are required to divulge this information.
“Anyone who uses a credit report or another type of consumer report to deny your application for credit, insurance, or employment – or to take another adverse action against you – must tell you, and must give you the name, address, and phone number of the agency that provided the information.” ~ www.consumer.ftc.gov
6. Call Previous Landlords
It is wise to call previous landlords to find out their experience of dealing with an individual as a tenant. The reason that we specify ‘landlords’ rather than just their current landlord, is that any issues occurring at present may result in the landlord offering up fantastic references simply to get the tenants out of his property.
In general, though, landlords are very honest and supportive toward one another.
7. Call Current Employer
Calling the current employer of a potential tenant is imperative as it gives you an opportunity to evaluate their ongoing ability to pay rent. Ask questions such as:
- How long have they been employed?
- Do they work full time or part time?
- Is the role temporary or permanent?
All of this information will help you to make an informed decision and prevent potential hassles in the future. If the individual is self-employed, it is a little trickier, and you will have to rely on tax returns and perhaps client testimonials.
8. Additional Checks
The seven steps listed here will provide a thorough idea of the suitability of a potential candidate, but there are a few further steps that you can take if you want to dig further. Remember that in order to be fair in your process, whatever steps you take must be replicated for each potential tenant.
- You can trawl social networks for an indication of ‘off-guard’ behavior
- You can visit their current home unexpectedly to see living conditions and cleanliness
- You can call personal references, which may be useful despite obvious bias.
Our 8-step guide will put you in a great position to make an informed decision regarding potential tenants, which should make your job as a landlord far easier in the months to come. Remember, it is best practice to send a letter explaining the reason behind rejecting any applicants, too.