How to Create Tenant Selection Criteria

Establishing effective tenant selection criteria is an essential step for landlords and property managers to ensure reliable, responsible renters occupy their properties.

In fact, a clear tenant screening process helps reduce property damage risk, late payments, and even pricey evictions. In this post, we explore important criteria to look for in potential renters, how to identify good tenants versus bad tenants, and how to incorporate these criteria into your personal screening process. 

Understanding the Importance of Tenant Selection Criteria

Your tenant selection criteria will shape the foundation of your tenant screening process. Setting up these criteria helps you make legally sound and objective decisions, ensuring fairness and consistency while minimizing the chances of discrimination claims. 

The impact of good versus bad tenants can be significant, impacting not only daily operations but also the long-term profitability and stability of your rental units. Understanding these impacts is vital, as the quality of tenants dramatically influences the success of your property management efforts. 

Good tenants, for instance, provide stability, reduce costs, and require less time and effort, making the landlord-tenant relationship smooth and productive. On the other hand, bad tenants can drain resources, increase costs, and potentially harm the long-term viability of your rental property. 

Your tenant screening process must follow local, state, and federal laws, especially the Fair Housing Act (FHA), which prohibits discrimination based on race, color, national origin, religion, sex, familial status, and disability.   

Essential Criteria for Screening Tenants

Stable Income and Employment

A steady job with sufficient income to afford monthly rent is one of the most critical elements to consider. A common standard is to look for renters whose income is at least three times the monthly rent. For proof, ask for recent pay stubs, employment letters, or tax returns. You can also verify employment directly with the potential renter’s employer.

In addition, you can check the prospective tenant’s credit history and score analysis through a tenant screening service for further evaluation. A credit report offers insight into their financial responsibility. And while you don’t necessarily need perfect credit, timely bill payments and a good credit score suggest reliability. Look for any red flags such as large amounts of unpaid debt or frequent late payments.

Rental History

Applicants with a solid rental history, including on-time rent payments, good communication, and no evictions, are typically a good choice.

Reach out to former landlords to verify the prospective tenant’s rental history. Ask about their character and behavior, rent payment history, and whether they left the rental unit in decent shape. Be cautious if you come across signs of frequent moves or previous evictions. 

Background Checks

A rental applicant’s criminal record can be significant; however, you must consider the nature of the offense. For instance, how long ago did it occur? Do you think it would impact their suitability as a tenant? Keep in mind that not all criminal records should automatically disqualify a prospective renter.

How to get started? Conduct a criminal background check through your screening service. Make sure your criteria comply with local and federal laws, including the FHA, which may limit the kind of criminal offenses you can consider. Also, ensure that running a background check is legal in the state you’re in. 

Personal References

Personal references can play a key role in tenant screening by offering additional insight into a prospective renter’s character, reliability, and behavior.

While references may not be as objective as credit reports or background checks, they do provide a more personal perspective on the applicant’s habits, lifestyle, and communication skills.

Personal references can help confirm:

• Integrity and trustworthiness
• Behavior, character, and lifestyle
• Consistency

Red Flags to Watch Out For

Inconsistent or insufficient income. Renters who don’t meet your minimum income threshold or have unstable employment may have difficulty keeping up with rent payments. In this situation, politely decline prospective tenants who can’t provide evidence of consistent income, lack income documentation, or have low credit scores.

Vague rental history. Negative feedback from former landlords, including late rent payments, property damage, or lease violations, are red flags. Why? Consistent issues in previous rental experiences indicate potential issues. It’s essential to verify the applicant’s history with past landlords.

Criminal history concerns and how to weigh them. Serious criminal convictions, property damage, or drug-related offenses are more reasons to do your due diligence. While certain criminal records should not disqualify potential renters automatically (depending on local laws), convictions for crimes related to property damage or illegal activities pose a risk to other tenants and the rental unit.

Personal references that raise concerns. Another red flag is difficulty reaching or verifying references or references that seem fake. Valid references, especially from former landlords, can help confirm the applicant’s reliability. Fake or evasive references raise concerns about their legitimacy.

Legal and Ethical Considerations

It’s crucial that your tenant screening process follows local, state, and federal laws, especially the FHA, which prohibits discrimination based on race, color, national origin, religion, sex, familial status, and disability.  

Additionally, some states have laws limiting how you can use criminal records in tenant selection. Ensuring your criteria are applied consistently and fairly to all prospective renters will help protect you from potential lawsuits.

Implementing Your Tenant Selection Criteria

Using tenant selection criteria is critical for landlords and property managers to ensure they select reliable renters who can meet the rental requirements and accept the lease terms.

Here’s a structured approach for effectively implementing your tenant selection criteria:

1. Develop written criteria. Document your tenant selection criteria and apply them consistently to every potential renter. This will also protect you in case of any legal disputes.

2. Use a tenant screening service. Tenant screening services can shed light on areas like credit checks, background checks and rental history verifications, streamlining the process and ensuring accuracy.

3. Check references and verify information. Always verify the details tenants provide, whether by calling employers or former landlords or cross-checking pay stubs.  

4. Document your decision process. Keep detailed notes on how you evaluated each applicant against your established criteria — this can be beneficial for legal reasons and future reference if an applicant questions your decision 

Tools and Resources for Tenant Screening

Here are recommendations for tenant screening services and resources for staying updated on legal requirements: 

Tenant Screening Services

These companies provide comprehensive screening services, including credit checks, criminal background checks, eviction, and rental histories.

TransUnion SmartMove. Provides credit reports, criminal background checks, eviction reports, and resident score. Offers fast, easy-to-read reports directly from TransUnion. Tenants can apply online, and landlords don’t have to handle sensitive personal information. Pay-per-report model, costs are often passed to the applicant.

RentPrep. Provides background checks, credit checks, eviction history and bankruptcy reports. RentPrep offers customizable screening packages and includes FCRA-certified screeners for more accurate reports. Tiered pricing starts at $21 per report.

MyRental (by CoreLogic). Offers a tenant credit check, criminal background check, eviction history and income verification. Detailed tenant scoring system and robust reporting features. Allows landlords to set up customizable tenant screening packages. Cost is $24.99-$39.99 per report, depending on the screening level.

Avail (by Realtor.com). Provides background checks, eviction history and full credit reports, integrated with online rental applications. This is free for landlords, and renters pay for their own background check. Also offers lease templates and rent collection tools. Price is $55 for tenant screening, passed onto applicants.

Resources for Staying Updated on Legal Requirements

These resources can help landlords and property managers keep up to date with legal changes related to tenant screening and fair housing practices: 

HUD (U.S. Department of Housing and Urban Development). Provides essential guidance on federal housing laws, including the FHA, which affects how landlords can screen tenants.

Resource: HUD Fair Housing Laws

NOLO. NOLO offers state-specific legal guides for landlords, covering topics such as tenant screening, fair housing laws, and evictions.

Resource: NOLO Landlord Laws by State

Fair Credit Reporting Act (FCRA). This federal law governs how credit information can be used during the tenant screening process.

Resource: FCRA Guidelines

State Bar Associations. Many state bar associations provide regularly updated landlord-tenant law resources, including information on tenant screening guidelines specific to your state.

Resource: Find your state’s bar association website through a quick online search (i.e., California State Bar).

  National Association of Residential Property Managers (NARPM). This one provides legal updates, news, and best practices for property managers and landlords, including tenant screening guidelines.

Resource: NARPM Resources

Local Real Estate Associations. These associations often provide updates on housing laws, ordinances and landlord-tenant regulations that affect tenant screening.

Resource: Search for your state or city real estate association, such as the California Apartment Association.

National Fair Housing Alliance (NFHA). This alliance provides resources for landlords to ensure they comply with fair housing laws. It also offers tools for avoiding discriminatory practices during the tenant screening process.

Resource: National Fair Housing Alliance

Final Recap

Establishing solid tenant selection criteria is crucial to protecting your rental properties and ensuring smooth rental operations. 

By focusing on essential aspects like income stability, rental history, creditworthiness, and communication skills and steering clear of red flags such as incomplete applications or poor financial habits, you can find tenants who are more likely to pay on time and care for your property.