With a good tenant, you can sleep easy at night as a landlord knowing the rent will get paid and the property will stay relatively undamaged. With a bad tenant, on the other hand, you’re left to wonder about the state of your investment while fielding calls from angry neighbors.
The problem is that any prospective tenant can act like the best tenant in the world during the initial walk-through. But if you want to make sure you’re getting the best renter, it’s important to screen every prospective tenant thoroughly before allowing them to sign a lease.
You have two choices when it comes to finding a new tenant for your rental property. You can hire a rental property management company to do the work for you (i.e. they take a cut off the top), or you can keep your money and find new tenants yourself. Personally, since I’m both cheap and a little greedy, I would choose the latter and screen my own tenants. Screening a tenant isn’t too difficult or costly if you follow the right steps.
Screening Potential Tenants
1. Request an Application
Start by having every prospective tenant complete an application. You can get a sample rental application from your local real estate association, create your own personalized rental application using a Microsoft Office template, or use one of the application forms available online through Tenant Data or On-Site.
Make sure the application you choose covers everything you need to know about a tenant. For best results, choose an application that encompasses financial information, employment information, and personal information. Make sure the application plainly states that a background check, criminal history report, or credit check will be ordered if appropriate, and that the prospective tenant is granting authorization for a check into his or her financial, employment, and personal history.
What to Look for on a Rental Application:
- Current and previous employers – How long has the tenant been at their current job? Has he or she switched jobs multiple times in the last few years?
- Current income level – Does the tenant’s income cover the rent plus normal living expenses?
- Financial information such as bank accounts and credit cards, including balances and minimum monthly payments, help to provide a financial “picture” for a prospective tenant and offer insights into his or her ability to pay the rent each month.
- Contact information for previous landlords should be listed with previous addresses, amounts of rent paid, and reasons for leaving. Are there any gaps in rental history, or are the names and contact inf0rmation for any landlords missing from the application?
- Lifestyle information such as number and size of pets and number of occupants should be included on the application.
- Personal references should include names, length of acquaintance, and phone numbers.
Ask the prospective tenant to complete the form and give it back to you. Review the form before you start screening to make sure the tenant didn’t exclude any information. Missing information could be a red flag that the tenant may be trying to hide something.
2. Run a Credit Check
Some state laws allow the landlord to charge a prospective tenant for the cost of ordering a credit or background check. Other states require that landlords cover the cost. Either way, it’s a good idea to pull a tenant’s credit. A credit check will show you details about the tenant’s previous credit history, going back 7 to 10 years. You can order a credit report and credit score using the Equifax Identity Report.
Consider the following when you review the credit report:
- Credit History. Look for a history of late payments, collection accounts, charged off credit card accounts or major issues such as bankruptcy. While one or two late payments in the past does not necessarily imply a bad tenant, you may want to reconsider taking on someone with serious delinquencies, such as bankruptcy.
- Current Debt. If the tenant has maxed out all of his credit cards, carried hefty loans, or has several unpaid balances, he may struggle to keep up with the rent payment.
3. Run a Background Check
A background check will give you a detailed report of the tenant’s past. Several companies offer investigative services for a fee, and will provide you with an eviction history, criminal history, credit history, and various public records. Typically, you can order these reports using the tenant’s social security number.
You can order a background check online through companies like StarPoint and ScreeningWorks.
Consider the following when you request a background check:
- Evictions. If the prospective tenant has recently been evicted, you may want to reconsider renting to the person. Alternatively, you can ask for more details about the eviction.
- Criminal Records. While you can overlook a youthful indiscretion, you may want to pass on any tenant with a lengthy or serious criminal record. Accepting a known criminal could put your other tenants, or yourself, in danger.
- Public Records. If the tenant is involved in a legal battle, or has been sued in the past, it will show up in a background check. You may want to pass on a tenant who was sued for unpaid rent, unpaid child support, or another serious financial matter. All of these could indicate a pattern of nonpayment.
4. Contact the Previous Landlords
Often, when a current landlord calls a former landlord, he only asks if the tenant has paid all rent and if the landlord was aware the tenant was moving. To get a real sense of the tenant, however, you need to dig a little deeper. While you don’t want to risk invading anyone’s privacy, you can ask some basic questions about the tenant’s lifestyle.
Questions to Ask a Former Landlord:
- Does the tenant owe you any outstanding debt?
- Does the tenant have a history of late payments?
- Has the tenant caused any major damage in the rental unit?
- Did the tenant disrupt the neighbors or cause any major issues while living there?
- Did the tenant quality to receive his or her security deposit when moving out?
- Would you rent an apartment to this tenant in the future?
5. Contact the Tenant’s Employer
You definitely want to verify that the tenant has a steady, reliable income source before you allow the tenant to sign a lease. You can do this in one of two ways: You can ask the tenant to give you a copy of a recent paystub, or you can contact the employer directly to learn more. Keep in mind that not all employers will give out salary history details or other private information. But, the employer can tell you whether or not the tenant is a current employee.
6. Interview the Tenant
If all of the background information checks out, you may want to consider doing a quick phone interview with the tenant. Most of the time, when you show a rental to a new tenant, you focus more on the property than on the potential tenant. By giving prospective tenants a quick call, you can find out more about them as well as their lifestyle. Do keep in mind that the Fair Housing Act stipulates that landlords cannot discriminate based upon color, disability, family status, national origin, race, religion, or sex.
Source: moneycrashers
