You are reading: How to Screen Potential Tenants
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As a property manager, you have likely poured time, effort, and money into building your rental property empire. But one wrong tenant can cause damage that could take years to recover from. Evictions, legal battles, and property damage can all lead to significant costs and headaches.
That’s why it’s crucial to have a rigorous tenant screening process in place before granting residency to anyone. In this blog, we’ll share everything you need to know to effectively screen potential tenants for your rental properties. With our tips, you can make sure that you’re only leasing to reliable renters who will help your business thrive.
What to Include in Your Screening Process
There are a few elements that every property manager should include in their screening process.
- Credit check
- Background check*
- Rental history and references
- Employment verification
- ID verification
- Rental application
- Interview questions
- Accept or reject the applicant
Employment verification is a must-have to ensure that your potential tenant has a steady income stream to keep the rent flowing. Next up, ID verification is crucial to confirm that you’re getting the real deal and not some sneaky imposter trying to pull a fast one on you.
Don’t forget about credit reports! They can tell you everything from how trustworthy a tenant is with their finances to their favorite flavor of ice cream (okay, maybe not the ice cream part, but you get the idea). Lastly, background checks are an essential piece of the puzzle that can help you uncover any skeletons in a potential tenant’s closet. With careful examination of these categories, you can sit back, relax, and watch as your rental property becomes the envy of all your neighbors. Let’s take a closer look at why each of these steps is critical.
1. Credit Check
Most property managers know the importance of including a credit check in their process, but they may not know the exact reasons behind why. Credit scores are based on credit history: number of open accounts, total levels of debt, repayment history, and other factors. While their credit score is important (the number between 300-850), you should always review the entire credit report to get the full picture.
A comprehensive credit report can help property managers spot red flags, such as:
- If the tenant has a history of paying bills on time
- If the tenant has any debt
- How likely it is that the tenant will pay rent on time
A good credit score often makes a tenant appear more reliable and less likely to default on rent. If a tenant has a bad credit history, it could be because they maxed out their credit cards, have too many credit cards, or have a high balance on their credit limit. For example, if their limit is $4,000 and they are consistently spending $3,900 of that, it can be looked down upon by the credit bureaus.
2. Background Check
Including a background check is a no-brainer for property managers. If you’re going to let a person live in your property, you need to know what they’ve been up to! This is an easy way to see how much risk a tenant might bring.
By conducting a background check, you can ensure that potential tenants are trustworthy, have a good rental history, and are not a threat to the property or community. These checks can reduce legal risk and help prevent damage to the property, saving you headaches down the line.
Background checks are comprehensive in nature and typically include the following items:
- Credit score
- Address history
- Employment history
- Public Records
- Eviction records
- Criminal records
Be sure to review each section of the report carefully. Just because someone has a great credit score doesn’t mean there aren’t other pitfalls within the report. Keep in mind that some states have laws that prohibit the sharing of criminal records,
3. Rental History and References
A great indicator of whether or not someone will be a good tenant is their rental history and references. It’s like a report card for rental properties! You can see how long they’ve been a renter and who they’ve been renting from. Give the previous property manager or landlord a call and ask how their tenancy was.
Things you should ask a previous property manager include…
- Was the tenant ever late on rent?
- Did they cause any disturbances?
- Did they take care of the property?
- Did they abide by the rules and lease?
At some point, you may encounter someone that doesn’t have any rental history. Maybe they lived with their parents before or owned a home but never rented. This isn’t always a red flag, just be aware that you may be taking on additional risk with these tenants. In this scenario, you may want to require a co-signer and/or an increased security deposit.
4. Employment Verification
Employment verification is a crucial step when screening rental applications. First, it allows property managers to confirm that the applicant has a steady and reliable source of income, which is critical when considering their ability to pay rent on time.
Second, it ensures that the tenant has a job, reducing the risk of evictions or missed payments due to sudden unemployment in the future. Additionally, employment verification can give you an idea of how long the tenant is likely to stay. Someone who has worked at their company for a longer period of time is less likely to spontaneously move out.
5. ID Verification
Another crucial component in tenant screening is ID verification. This stage confirms the identity of the applicant and helps to prevent fraud. By verifying an applicant’s identity, property managers know that they’re dealing with the right person and not an imposter who may be stealing someone else’s identity to rent a property.
This process can also help to reduce the risk of financial fraud, as it ensures that the applicant has provided accurate and verifiable information regarding their identity. ID verification can also help landlords to uncover any criminal records or past evictions associated with the applicant’s identity, giving them a more complete picture of the individual they may be renting to.
6. Include a Rental Application
In addition to these checks, you can require that they submit a rental application. The application should request information from the applicant, including:
- Basic information (name, contact information, etc.)
- Employment information
- Rental history
- Personal references
- Questions regarding pets, storage, parking, etc.
The completed application will give you an overview of the tenant, their history, and what they will be bringing to the property.
7. Interview Questions
Interviewing the applicant can be a great way to get your pressing questions answered quickly. After all, what better way to see if someone is a good fit for your property than by meeting them yourself? Here are some questions you may want to consider asking:
- How long have you lived in your current home and why are you leaving?
- When would you like to move in?
- Do you have any pets?
- Do you anticipate anything in the future that may affect your ability to pay rent?
- Have you ever had to break a lease?
- Do you have any questions for me?
8. Accept or Reject the Applicant
Once you’ve received all the necessary information, it’s time to make a decision! Remember to weigh all factors carefully before deciding. This person might live in your property for a few years, so be sure that it’s a good fit and you’re confident in your decision. Don’t forget to adhere to Fair Housing requirements to avoid any legal trouble.
Tenant Screening Software
In today’s digital age, many property managers elect to use online tenant screening platforms instead of doing everything manually. While it may be possible for a small landlord with two units to screen everyone by hand, it’s not feasible for larger complexes and companies.
There is plenty of tenant screening software on the market to choose from, each of which offers different features and capabilities. In general, these software options provide a way for property managers to quickly and efficiently run the aforementioned checks and verifications on potential tenants. These programs can save time and improve the decision-making process.
However, some have concerns that because these all-in-one report systems are so rapid, they are prone to making mistakes. These reports replicate whatever is in the database it’s pulling from. If that database has errors, they will show up on the report as well. This means that some important information may be omitted, while false data may be included since there is no system in place to double-check the work.
Another thing to consider is the Fair Credit Reporting Act or FCRA. This document outlines the protections tenants have when it comes to the results of their reports. They have the right to dispute any discrepancies in their report, such as incorrect or outdated information. Not all tenant screening platforms use FCRA-certified screeners, so make sure to pay attention to that when deciding which one to use for your properties.
While there are some minor concerns with these software, as a whole they make the tenant screening process easier for property managers and tenants alike.
Fraud Detection Software
Whether or not you decide to use full-fledged tenant screening software, you should be using fraud detection software. Why might this be necessary? We’re glad you asked!
In recent years, applicants have become increasingly tech-savvy and sneaking, leading them to alter the documents they’re submitting as part of their rental application. The most common occurrences we see are the changing of bank statements and altering pay stubs. A few keystrokes and their salary goes from $50,000/year to $150,000, bypassing your rental criteria and moving right into one of your units.
It’s not your fault that these bad tenants slip through the cracks. Altered documents often look identical to the original copies and can be next to impossible to see with the naked eye. If only there was a solution to this problem…wait, there is!
Snappt’s software is designed to catch these fraudulent documents so that bad tenants don’t make it into your property. Our platform quickly detects any alterations to documents and flags them for review, allowing you to make the best decision on which tenants to approve. We catch over 99.8% of fake documents, reducing potential future bad debt & evictions by over 50%! With our help, you can keep your property safe and secure while still having peace of mind that your building is full of quality tenants. To learn more, visit our website or schedule a demo.
Fair Housing Act
Perhaps the most important aspect of all of this is adhering to federal, state, and local laws. The Fair Housing Act protects people from discrimination when they are renting or buying a home, seeking housing assistance, or engaging in other housing-related activities.
These laws prohibit the following types of discrimination in housing:
- National Origin
- Sex (including gender identity and sexual orientation)
- Familial Status
There are very few property exemptions under this act. In limited circumstances, it exempts owner-occupied buildings with no more than four units, single-family homes sold or rented by the owner without the use of an agent, and housing operated by religious institutions.
Violating any fair housing act can get you into to big trouble very quickly. Make sure whichever screening platform you use adheres to these laws or you could be facing serious financial and legal repercussions. Lastly, review any state and local laws that may affect housing in your area.
Frequently Asked Questions
What’s the cost of screening a tenant?
The cost of screening a tenant varies depending on what platforms you use, but it’s typically between $30-75.
What questions can’t you ask prospective tenants?
While you may be tempted to get every burning question answered, there are some things you are not allowed to ask.
- Where were you born?
- What is your ethnicity?
- How many kids do you have?
- Have you ever been arrested?
- Will you be retiring soon?
- What is your sexual orientation?
- Are you religious?
- Are you disabled?
Should you use tenant screening software?
Tenant screening software can be a big help for property managers, especially if they manage a large building or portfolio. These systems keep everything organized and help ensure that each tenant is treated the same. Do your research into which screening software may be best for you.
To Sum Up…
Tenant screening is a vital process that can make or break your rental property business. By conducting credit checks and background checks and verifying employment and identification, you can mitigate risks and ensure that you’re renting to trustworthy and reliable tenants. Remember to stay up-to-date with fair housing laws and regulations, as they may change over time.