Tenant screening is an essential part of the leasing process that you shouldn’t overlook. Without a thorough screening process in place, you risk facing several problems down the line. The best way to safeguard your investment from the very start is by implementing a tenant screening process.
Why is Tenant Screening Important?
#1 It determines the likelihood of on-time payments
Collecting rent payments is one of the most stressful aspects of property management, especially if you’re a long-distance landlord. There will always be that one tenant that doesn’t pay on time. And, despite your efforts to send them a “gentle” reminder, they will still refuse to pay their rent.
Avoid chasing after your tenants (literally) by running a credit report. You’ll be able to look into the prospective tenant’s financial situation by reviewing their credit score, monthly income, and so on. With this information, you can determine the financial risks involved with each applicant.
#2 It protects your rental property
Another reason why tenant screening is important is that it protects your home from property damage. Over time, your rental property will show signs of ordinary wear and tear. This includes dirty grout, loose door handles, stained carpets, and so on.
However, when your rental property is occupied by irresponsible tenants, the damage may go beyond ordinary wear and tear. You may be surprised to discover that your property has been turned into a dump.
To protect your rental property from irreparable damage, work with a property management company. Their property managers will ensure that your prospective tenants will treat the property as if it were their own.
#3 It guards your reputation
Do you own a condominium or multi-family rental property? When you have multiple tenants on the same property, you run the risk of tarnishing your reputation by welcoming one bad tenant into the community. Other tenants won’t be too happy to find out that their next-door neighbor is noisy and messy — or worse, violent.
You must ensure that everyone in your building gets along. Implementing a tenant screening process can help weed out unsociable and potentially dangerous tenants.
How Should You Screen Your Tenants?
Ideally, tenant screening should be conducted by a property management company, but if you’re planning on taking the do-it-yourself route, here’s what you should do:
Step 1: Pre-Screen Your Applicants Over the Phone
Pre-screening your prospective tenants allows you to determine whether they’re the right “fit” for your rental property. By interviewing your applicants over the phone, you can start to weed out the prospects that don’t meet your requirements.
For instance, if your prospective tenant has a pet but you have a no-pets policy, you can tell them outright that you don’t allow animals in your rental. Doing this ensures that you don’t waste your time showing the property to unqualified tenants.
Step 2: Arrange a Viewing of the Property
Viewings are an opportunity to better understand your prospective tenants. During the viewing, be extremely observant. Pay close attention to their behavior and ask yourself questions like:
- Do they seem enthusiastic about the home?
- Do they smell like smoke? (This is a major red flag if you have a no-smoking policy!)
- Does their car look clean? (A messy car is a sign that they won’t take care of the home!)
Encourage your prospects to ask questions to ensure that they fully understand the responsibilities that come with living in your rental property.
Step 3: Receive their Rental Application
If the prospective tenant is interested in the property, they will submit their rental application form to you or your property manager. Keep in mind that you cannot reject their application even if you’re 100% certain that it won’t work out. Your prospects are protected by the Fair Housing Act which prohibits discrimination in housing.
If you haven’t hired a property management company, you can find premade rental application forms online.
Step 4: Check Their Credit
A credit report tells you whether the prospective tenant is responsible when it comes to paying off their debts. It determines how likely they will pay their rent on time and in full.
According to the FICO, the average credit score in the United States is 711, which belongs in the “good” range. If your prospective tenant has a credit score that’s “good”, “very good”, or “excellent”, it’s likely that you won’t have problems when it comes to payments.
Step 5: Run a Background Check
Running a criminal background check can help keep your neighborhood safe. Skipping this step can cost you thousands of dollars in lawsuits in the event that you end up with a dangerous tenant.
Check federal and state records to determine if your prospective tenant has ever been convicted. Be on the lookout for patterns in their behavior, such as subsequent convictions for the same crime. You should also consider checking sex offender registries and terrorist watchlists.
Step 6: Verify Income and Employment
How much does your prospective tenant earn? Is their job stable? Answering these questions can help you determine if your prospective tenant can afford the rent and continue paying it until the end of their lease.
Step 7: Call Their Landlord
Finally, ask their current and previous landlords if they ever had any problems with the prospective tenant. Find out whether they paid their rent on time, got in trouble with their neighbors, and so on. Questions you may want to ask their current and previous landlords include:
- Did they pay their rent on time?
- Did they take care of the property?
- Did they violate any of the terms of the lease?
- Did their neighbors ever complain about them?
Step 8: Make Your Decision
Although you may have your ideal tenant, there’s no such thing as a “perfect” tenant. In most cases, you will end up choosing the applicant that satisfies the majority of your standards. However, if all of your applicants seem problematic, remember that you do not have to choose anyone. With the help of your property manager, you can continue conducting tenant screenings.
If you decide to deny an applicant due to their credit, be sure to provide them with an Adverse Action Notice.
Tenant screening is a tedious process that takes a lot of time, but it’s a step that you cannot skip. Failing to thoroughly screen your prospective tenants puts you at risk of lawsuits, loss of income, and much more.
Partnering with a property management company such as Luxury Property Care can help you mitigate the risk of renting out your property to the wrong tenant. We implement a meticulous tenant screening process to ensure that our clients have peace of mind, knowing that their properties are being occupied by responsible renters.