Aggressive tenant screening is an investment that pays for itself many times over, by preventing most tenant defaults, tenant damage, and tenant lawsuits. But how exactly should you screen these rental applications? How do you measure tenants’ relative worth?First, let’s spend a moment discussing the rental application itself, and what data you need to make sure you collect.
Make sure each applicant fills in their current landlord’s name and phone number on the rental application, as you’ll want to call them for a reference on what kind of tenant the applicant is. Granted, tenants can lie and fill in a friend’s name and number on the rental application, or sometimes their existing landlord will be so desperate to be rid of them that they will lie, but this isn’t often the case, and when it is, you can usually tell that something is wrong.
Be sure the applicant fills in their employment and income data on the rental application as well, including a supervisor’s name and phone number, so you can verify the information. When you call the supervisor to verify the applicant’s employment and income, also verify what kind of employee they are, and the chances of their continued employment.
Find out the rental applicants’ pet and child status: do they have children or pets? How many? What ages? What breeds? We’ll talk more in a moment about discrimination, but it’s worth noting here that you cannot, under any circumstances, deny a rental application because of their familial status, including anything to do with their children. Don’t ever list children as a reason why you denied someone’s rental application, it’s illegal.
Be sure to collect information about their assets, such as vehicles, bank accounts, or any other kind of property. This may seem unnecessary, but in a year from now when your tenants default on their rent and leave your rental property in a state of shambles, you’ll know how to collect the money from them after winning a judgment in court.
Finally, make sure your rental application includes a section for them to state whether they’ve ever been evicted, been sued, been convicted of a felony, and other such disclosures. If they go bad as a tenant, and you discover they’ve lied about one of these issues, you’ll have a signed statement of perjury you can show in rent court.
Other than verifying their rental history, employment, and income, you’ll also want to pull some background reports about the rental applicants from third parties. To be able to do this legally, you’ll need a release clause in the rental application, authorizing you to perform any background checks necessary to evaluate them as prospective tenants. First, check their credit history, and look for late payments, look for bankruptcies, and look for their amount of debt (any of these are very bad indicators). Second, check their criminal history, for obvious reasons. Third, check their eviction history, and, if available, their checking history to make sure they aren’t in the habit of writing bad checks. Say what you will about the entitlement to second chances, most people are either committed to paying their bills or they’re not; tenants who have been evicted once are astronomically more likely to default on their rental payments again.
Finally, a word on discrimination. The federal Fair Housing Act outlaws denying any rental application based on the applicants’ race, color, national heritage, religion, gender, disability, and familial status. If someone takes you to court over this issue, you’ll have to prove that you chose a different tenant over the suing applicant for a reason other than any of those seven reasons, which is yet another reason why you MUST collect detailed rental applications, perform detailed background checks, and keep records of all of them for at least six months. If a rejected rental applicant asks you why you rejected their rental application, tell them you’ll have to look up their application to check, and then mail them a letter specifying their credit, income, employment, or housing history.
As a last note on the matter, it is easy to unknowingly break this law, by stating in your advertisement for the property that you’d prefer a specific type of person (such as “looking for a young couple…”). Be extremely careful to avoid these mistakes, and because some states have different laws adding to the federal law, be sure to check your state’s laws as well. All of this trouble just to sign a rental agreement may sound like a lot of work, but when you find a good tenant, who will pay rent on time, keep your investment property clean, and not sue you, you’ll be glad you spent a little extra effort on tenant screening.
Author Resource:- Brian is a landlord who did his own tenant screening and property management for many years before reaching too many properties to continue managing them himself. He contributes regular real estate investing content to a variety of online resources for landlords.