Minimize Your Losses and Increase Your Profits with Proper Tenant Screening

Minimize Your Losses and Increase Your Profits with Proper Tenant Screening

We all know that vacancy is the most expensive thing to a rental property owner or manager, but proper tenant screening is the most important thing to ensure that your property stays profitable. Screening your tenants thoroughly will save you a lot of money and headache down the road. The last thing that you want to do is put a tenant in your property only to have to evict them a few months later. Here is how we screen the tenants in the properties that we manage.

• Credit & Criminal Background Check – There are a multitude or credit reporting companies available to rental property owners and managers. We use My Smart Move from TransUnion (www.MySmartMove.com). They give us a complete nationwide criminal background check credit report, credit score, and even a recommendation on whether or not to accept the prospective tenant. Both the credit check and criminal background check are extremely important when screening a tenant and should not be overlooked. We collect an application fee from the prospective tenant at the time that they submit a rental application to cover the costs of the credit report and criminal background check. The credit report & score is useful, because it gives a very clear indication on how responsible the prospective tenant is in paying their bills and how they will perform as a tenant. We have noticed a direct correlation between a tenants credit score when they apply as a tenant compared to how they perform during the lease. Tenants with higher credit scores tend to pay their rent on time or early and tenants with lower credit scores are consistently late and we have to spend a lot of time collecting from them each month. The criminal background check is also extremely important, especially if your property is multifamily. If you move a convicted felon or sex offender into one of your units, you can be assured that your other tenants will find out. They will probably move as soon as their lease is up (if not sooner), and you will have a very difficult time re-leasing any units in the immediate area.
•  Employment Verification – We require our tenants to have at least 3 times the gross monthly rent as verifiable income. We feel that this is the minimum income needed for the tenant to afford the rent payments and all of their other financial obligations. Do not accept the amount that the tenant puts on the application as their income. Tenants often will lie or exaggerate about their income in order to get approved. Always verify their income with copies of their paystubs and/or contact their employer for verification. If the prospective tenant is self-employed, ask for a copy of their tax return as income verification.
• Rental History – This is probably the most important item in tenant screening. If the tenant has a good track record with their previous or current landlord, then they will probably be a good tenant for you as well. Contact their rental references and ask about their payment history and any lease violations. If their reference is an independent landlord, be sure to check the tax records to make sure that you are contacting the actual property owner and not a “friend” of the tenant that is posing as their landlord for reference purposes.

You should stay consistent with all of your screening practices to avoid any fair housing violations. If you decline a tenant because of a criminal offense, be sure to decline all future applicants with the same offense. Consistency will keep you clear of any discrimination claims.

Occasionally, we receive an application where the prospective tenant has an excellent rental reference, great employment, but they may have some credit issues from the past that they are working to clear up. In this case, we may accept them if they can provide an additional security deposit to help mitigate any risk for the property owner.

We are often contacted by property owners that need our help in managing their rental property, because they did not screen their tenants, the tenants haven’t paid rent in months, and they now need our help evicting them. Proper tenant screening up front will prevent many of these issues down the road. It is a little extra work up front, but will save you a lot of time and money later on.