What happens when you don't properly screen your tenants?
If you don't properly screen your tenants, you can end up with vacancies, evictions, and significant damage. Bad tenant horror stories are true horrors, with units needing full renovations, property owners losing months of rent, and evictions eating up tremendous time, energy, and resources. Choosing the right tenant can make or break you.
These are steps to take within your tenant screening process to decrease the likelihood of having a bad tenant and the consequences of failing to take these steps.
Check Credit Reports
If you don't run a credit report, you won't be able to tell if your tenant consistently pays back their debts. If your tenant ends up delinquent in their payments, that may compromise your ability to pay your bills. For example, it's possible that if someone is delinquent in paying their utilities, it will make it harder for future tenants to set up their utilities.
If you know how much your tenant owes to others, you can gauge how challenging it may be for your tenant to pay their bills. A tenant may make significantly more than their bills but still be a risk if their previous debts are significant, which they may even prioritize over what they owe you.
Employment and Income Verification
You want your tenant to have the means to pay their bills. Stable work history is also an indicator of general stability. An income source that can't be verified may mean that your tenant can't cover rent every month. It may also mean that a portion of their income comes from illicit activity or that they're simply lying. It's also essential to make sure that what they claim is their income doesn't add up to be more than their reported income. Such discrepancies must be explained.
On average, your tenant's monthly income should be 2.5 times their monthly rent and utilities.
A great indicator of future behavior is past behavior. If your tenant has ever been evicted or broken a lease, they may do so again. A history of not staying in a single place for very long may mean that your applicant won't stay at your place for very long. They may move around for various reasons: employment, being caretakers, inability to pay rent, roommate troubles, eviction, etc. Make sure their reasons are okay with you.
Interviewing landlords is almost obvious. While a landlord reference could reveal whether your tenant has a history of being difficult or causing property damage, some landlords can have unfair or unreasonable expectations of their tenants. This is often the case with landlords renting out properties in which they have an emotional attachment.
Criminal Background Check
While not all crimes are equal and when in time the crimes took place is a big deal, knowing if your tenant has a recent history of crimes that you're not comfortable with is a good reason to pass on a potential occupant. You don't want to open yourself up to legal liability or jeopardize your property.
Use Online Applications
Application services streamline the application process and make it easy to view all the results in one place. You can even get results you might not have even expected, like whether someone is on the Department of Homeland Security's terrorist watch list or in the sexual offender registry.
Follow the Law
You can't legally deny a tenant based on race, color, religion, sex, disability, national origin, or familial status. For more information, read up on Fair Housing Laws from the U.S. Department of Housing and Urban Development
Interview Them in Their Home
While you may not necessarily be able to do this, if you get a peek into how your potential tenant lives their lives in their current property, you can gain insight into how they'll live in your property.
Mind the Process
How your potential tenant behaves during all your interactions may give you insight into what sort of tenant they will be. If they don't follow up, don't agree to various types of checks (background, credit history, etc.), are unfriendly, or lie about any details regarding their history or income, you're likely to end up with a tenant who continues these behaviors.
Set a Deadline
If you have a sign-by date for your rental agreement, you will ensure your tenant won't be late. If you start seeing your tenant dilly-dally, then that's a warning that they may be late in other ways once they move in or might not even end up moving in, leaving you with a vacancy to deal with. Using an online application makes it easier to avoid this situation.
Be Specific with Denials
If you have an exact reason why you want to deny an applicant, make a note of it, and save any relevant documentation. This will protect you in case the applicant wishes to retaliate in any way against you.
Don't Tell Them the Unit is Rented if it's Not
You can't legally tell an applicant that your unit is rented if it hasn't been rented. Accept a tenant first and make sure they're following through with signing the lease and only then rejecting the other applicants.
Be Kind When Rejecting Applicants
If you want to deny an application, you can say something like, "We regret to inform you that your application has been rejected. Thank you for your time." This also protects you if your potential tenant falls through because you'll have a pool of other applicants to choose from.
Tell Your Applicant why They Were Denied if They Ask
It's not legally necessary to tell your applicants why you denied their application. Although, it is a professional courtesy to explain if you're asked for one. Not doing so opens you up to legal liability because the applicant may take legal action to determine why they were denied.
Tell Your Applicant if They Were Denied Because of Their Credit History
You have to tell your applicants if they're being denied because of their credit report. As stipulated by the Fair Credit Reporting Act (FCRA), anyone who uses a credit report must let a tenant know when "adverse action is taken" due to the contents of their report. So, if the reason for the rejection is the applicant's credit score, debt, missed payment, or anything else their credit history reveals, you need to let them know.
Start Screening ASAP
As soon as you have a potential renter, start the screening process right away. This way, you're less likely to end up with a vacancy or lose out on a great renter. You're also more likely to weed out trouble tenants faster.
Interview the Tenant
Simply put, it's easier to lie to someone when you're not in front of them. By asking your applicant some basic questions in person, you'll get a better sense of who they are as a person and tenant. Plus, there's a lot of information that screening would otherwise miss if it lacks the intimacy of a face to face conversation. A dialogue can also be a significant first step to cultivating a positive relationship with your future tenant.
Note Their Legal Battles
Court cases will show up in a background check. A solid red-flag is being sued for unpaid rent, unpaid child support, or any other serious financial matters that reveal a history of nonpayment.
Pump the Breaks on Applicants in a Rush
While it's great to find an applicant who's eager to move in, being in a rush may also be a symptom of desperation. These applicants may be hiding something or escaping a bad situation, whether it be avoiding an eviction before it goes on their public record or trying to escape a poor living arrangement.
Ask, "Could Anything Interrupt Your Ability to Pay Your Rent?"
This is a straightforward question that's usually met with common responses like job loss or medical emergencies. But a particularly specific answer like student loan debt may mean that your applicant is expecting trouble in the future.
While these are the measures you should take to screen your tenants properly, they don't guarantee that nothing will go wrong. That's because situations change all the time. Just like someone with a bad credit history may become a fantastic tenant, someone who looked great on paper and even lived without incident for years can end up costing you a fortune. By taking these steps, you make it highly likely you and your tenants will both end up happy.
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