Tenant Screening Tips for Property Managers
The 80/20 rule of the landlord-tenant relationship dictates that 20% of your tenants will be responsible for 80% of your grievances and headache. Since a few bad apples will end up consuming the majority of your time/energy, and in turn stunt your efforts to grow your business, a proper tenant screening should be at the top of your mind when it comes to filling your vacancies.
This blog post will help you as a landlord or property manager to be as comprehensive and efficient as possible in the tenant screening process. We’ll detail each step, from before meeting the applicants to signing up your new tenant.
Before Receiving Applications
Prequalify the Applicants
Your tenant screening process actually begins before you even meet the applicant. Any time you are asked to do an individual showing of the property, avoid making work for yourself later by pre-qualifying the interested party to make sure he/she has a chance of being a good fit.
Essentially you want to ask the questions that will make or break an applicant’s chances with your property.
If an applicant has one of the “deal-breaker” qualities (e.g., owning a pet when the owner has specified that no pets are allowed), you’ve saved yourself the time of showing the property to someone who couldn’t rent anyway.
Show the Property and Give out Application Forms
Once you’ve pre-screened the interested parties, you should show the property. Aside from letting these prospective renters see the unit, the showing gives you the perfect opportunity to interact with them in person. You’ll be working with your new tenant a lot in the coming months, so it’s worthwhile to meet all the candidates face-to-face and determine who you’d most enjoy working with. Some property managers even check IDs to make sure they are meeting the person who will be renting the property, not just a friend representing the applicant. (For more on this, see The Savvy Landlord’s Guide to Catching Application Lies & Red Flags.)
Make sure to offer the application to anyone who is interested so that everyone has a fair chance to apply. Not only can you violate fair housing laws if you pick and choose who receives the application, it’s also a violation if you give out different application forms to different individuals, so make sure you ask every applicant identical questions. (Property management software from vendors like Buildium allows you to customize and then standardize your rental application forms.) Charge a fee for your time and to cover the cost of the credit check ($30~$50 is reasonable).
After Receiving Applications
Check Rental History
When it comes to reference checks, your main objective is to confirm the applicant’s rental history and employment information according to his/her application form. Rental history is arguably the more critical of the two since it gives you an idea of the applicant’s credibility, specifically as a tenant.
Aside from contacting the applicant’s current landlord or property manager, you should also contact his/her previous landlord or property manager. This is because an old landlord has no reason to lie to you about the tenant’s past behavior, whereas a current landlord who is trying to get rid of this bad tenant may be incentivized to cover up the tenant’s poor behavior in hopes of “unloading” this tenant to the next property that would take him/her.
Check Employment Information
Not every property manager performs an employment reference check, but it may be worthwhile if you’re uncertain an applicant can afford the rent. When it comes to confirming an applicant’s employment history, the process tends to be trickier because companies are limited on the employee information they can disclose. Unlike the types of questions you ask current and past landlords, your questions for the applicant’s employer should have Yes/No answers to make it easy for them to answer.
Run a Credit Report
A credit report reveals an applicant’s financial and legal status for the past seven to ten years. You should order one for all the applicants you are seriously considering since it is the one piece of evidence that cannot be faked.
You should have obtained every applicant’s name, address, and social security number (or ITIN, Individual Taxpayer Identification Number) in their application forms, which you need to obtain a credit report. Depending on the type of report you order, you may also get a FICO score that reflects an applicant’s credit. The score ranges from 300 to 850, and typically an applicant with a score above 650 is considered medium-to-low risk.
Make Your Decision
After you’ve scored all the applicants, it’s time to make your decision. For the tenant you’ve selected, review all the rules together so that he/she has a clear understanding of your expectations. Make sure he/she understands his/her responsibilities to receive the full security deposit back at the end of the lease, since security deposit disputes are among the most common in court. This is a particularly good time to clarify how and when you will perform your move-in/move-out and/or periodic inspections to record any damages incurred during the tenant’s stay.
For the applicants you do not select, if the cause of their rejection is negative information on a credit report or because another applicant has a higher credit score, you must provide him/her with the name and address of the agency where you obtained the report. You must also tell the person that he/she has the right to request a copy of that report within 60 days of receiving rejection from you. This is a requirement of the federal Fair Credit Reporting Act.
This post is by Elicia Chen of Happy Inspector in San Francisco, CA. Visit All Things Property Management to read more, including a pre-qualification checklist, a list of data to collect in a rental application, and a scoring system to evaluate rental applications.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.