How to Screen Tenants

tenantriskverification June 7, 2012 0

Selecting the right tenant is crucial to making a profit with your rental property. Poorly screened tenants are more likely to leave you without full payment and with hefty rehab costs. However screening tenants can be one of the trickiest areas of property management because it is regulated by two federal laws, The Fair Housing Act, and the Fair Credit Act, and sometimes local ordinances as well. Some examples of local ordinances that effect tenant screening include a prohibition against discriminating anyone based on sexual orientation or gender identity which is done in Philadelphia and Reading, PA, another local ordinance example is that in Madison, WI you cannot discriminate against people based on their arrest record./Before you engage in the tenant screening process you need to familiarize yourself with the laws and ordinances to which you are subject.  Please refer to our videos on Fair Housing and the Fair Credit Reporting Act to understand the federal laws that affect you as a landlord.

However for now, we’re going to assume that you know about those topics and move on to the nuts and bolts of selecting and screening a tenant. When a potential tenant calls you say hello and tell them you will be doing a background check, a credit check and verifying their income. Also ask them if they have any felonies, convictions, violent misdemeanors or prior evictions. Let the caller know that you will have an application fee ($25 or so) to cover the background check. It is very important that you ask all potential tenants the same questions and treat each and every prospect exactly the same. If they agree to your terms and like the home you have showed them then have them fill out an application.

Once you have their background check and their application completed you have to decide which individual gets the apartment.  The standards you choose are your decision. You could base it on a myriad of legally acceptable data obtained from the tenant application and credit/ background check. Credit score, landlord referrals, a lack of a criminal record, and an established income that is 2 and a half or three times the rent are good examples of generally legally acceptable criteria from which to base your decision.  It is wise to have a clear, written policy of your screening process and criteria to avoid getting caught up in the Fair Housing net and any other local discrimination ordinance nets.

Please note that your criteria for accepting or denying a tenant does not have to be exactly the same for every property. You can have different tenant standards for various properties if you label each property as A,B, & C or whatever you decide, and base those rankings on the quality of the property. Keep in mind you can deny someone who is in a protected class as long as you are denying them based on a legally acceptable criteria and not because they are part of that protected class. As long as each tenant is treated exactly the same, and you use the same measuring stick with each applicant for a particular home you should be fine legally.

What do you do if there are two roommates that meet the criteria and one that doesn’t? Well. every tenant should be held to the same standard to keep it fair. With roommates you just want to make sure that collectively they make three times the rent or two and a half times whatever your standards are, but they should have the same requirements for credit scores, background check etc. What if they are young or in school and have little or no credit? In this case you need to have a co-signer and the co-signer needs to meet the criteria you set out for your unit./When you screen your prospective tenants you will end up with more rejections, and it can be hard to reject people, but rejecting tenants off the bat is better than the headache and cost of a trashed unit or non-payment that result from not screening tenants well.

Source : operationlandlord

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