Landlords: How to Select Tenants

tenantriskverification March 21, 2012 0

by Steve

Back in early 2010 I wrote about my favorite spot to find prospective tenants.  Can you tell I am not very creative in finding them?

I am still renting 80% of my properties via the For Rent sign in the front yard.

But the important question is, once you an application or applications how do you decide if you should rent to the tenant or not?

We are flexible with most aspects, but here are the most important factors:

1. Income Qualifications

If monthly rent is $1,200 and the tenant only makes $2,000 per month, the process is over.  They are never going to be able to pay.  Their credit score or the rest of the story doesn’t really matter.  As a general rule of thumb, we hope for 3x rent (which would be $3,600) but will settle for 2.5x.  I do take into account all income for this calculation.

2. Criminal Background / Eviction Check

I always prepare a criminal check and eviction check (the criminal charge is called an unlawful detainer).  San Bernardino County, where most of my rentals are in, offer this search for free.    Evictions, hard drugs and theft usually will completely eliminate the tenant.  If we see domestic disputes and other crimes this is a red-flag and we usually discuss them with the tenant.

3. Security Deposit

Our typical deposit is $100 above rent.  Again, if rent is $1,200 our requested deposit would be $1,300.  Very rarely are we flexible on the deposit.

 Other Factors to Consider

  • Length of Previous Residency: we are looking for tenants to stay at our house for a long time, if they move every year that is a red-flag
  • Rental History: we are looking tenants that have experience renting/owning a house before versus apartment
  • Length of Employment: the longer the better
  • Ready to Move in Quickly: a tenant that is willing to move-in within two weeks is a definite positive
  • Pets: we prefer no pets, we do take them and charge a bigger deposit
  • Previous Rent Amount: if a tenant is currently paying $800 and applying for $1,200 that is a concern we usually discuss
  • Number of Occupants: many of our houses have quite a few occupants, our max is 2 per bedroom, but we like fewer

As you may have noticed a high credit score is not on this list.  We rarely check credit… typically only when something else on the application seems fishy.  Most of our tenants have credit scores in the 500′s anyways, how does knowing that help us?

What we do if we see Red Flags

Many tenants meet criteria 1 through 3 but the one or multiple other factors bring up some red flags.  We will still extend an offer to rent to the tenant but we will ask for an increased deposit.  By California Law you can collect a maximum of 2x rent for a security deposit.  This has worked out with great success for us, if the tenant is unsure about their ability to pay the rent they probably won’t be willing to hand over additional funds.

source : buildbankroll

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