DIY Landlord: Tenant Screening
When it comes to placing strangers in your home as tenants, it’s always a risky venture. One of the best ways to lower your risk is to screen your tenants prior to placing them.
There are a couple of questions worth considering before getting started.
- Why should you screen a tenant?
- Which tenants should you screen?
- How do you screen a tenant?
Let’s take a brief look at the first two questions, then we’ll dig a little deeper into the process of how to screen a tenant.
Why should you screen a tenant?
The main reason you want to screen a client is to assess your risks, such as will the tenant be able to pay the rent, do they have a history of damaging property, or do they have a history of committing crimes? Figuring this out ahead of time can save you a lot of headaches and needless worry.
Who should you screen?
In the chance that you’ll be renting a home out to multiple adults, you’ll want to screen each adult that will be living in the residence. If it’s two roommates, a husband and wife, a boyfriend and girlfriend, it doesn’t matter. Simply stated, any adult that will be moving into the home should be screened.
How to Screen a Potential Tenant
It may sound common sense to screen tenants, but how exactly do you go about doing that? After all, you’re not a private investigator! Before we go into the nitty-gritty, one thing worth pointing out is that renting out to a friend or family member can be just as risky as a stranger, in the fact that it ends up being detrimental to the relationship if things don’t go smoothly or when money changes hands. It changes the power dynamic of the relationship and is something we recommend avoiding.
Think of your rental property as an investment. It’s best to keep business and personal issues separated. When it comes down to it, it’s tough to deal with situations were it’s a family member or friend, when money is involved. If you choose to go this route, we’d suggest screening them as you would anybody. Plain and simple, you need to know who you’re dealing with and if there’s something you might not know when it comes to your investment.
We recommend going with a professional screening service. A simple search for “tenant landlord screening” will help you sort through which companies are available to work with. They tend to be reasonably priced and can leave you with peace of mind.
It’s important to get a detailed report of the potential tenant’s credit history, criminal history, and rental history. You’ll also want to be sure and verify income claims. Note the word detailed. It’s an important part of this, as you don’t want to just look at overall numbers. You don’t want to simply know what their credit score, for example, but what contributed to that score.
Another thing to consider is that just because they have a good credit score doesn’t mean they’ll have a good rental history. Maybe they’re great at paying their credit card bills, but skip on the rent or have a history of paying late. There could be others who have a great rental history, but maybe they’ve struggled with their other bills. Knowing what plays into the information is important to you.
We’ll talk about fair housing in a moment. But, know what your potential tenant’s criminal history is as well. The other area to look closely at is the income verification portion of the report. Request multiple pay stubs, generally at least two, to establish their income.
Sufficient income is defined as being approximately 2.5 to 3 times the rent in gross income. (Example: Rent is $1,000 month, then you want to see that they have at least $2,500 to $3,000 gross income)
Transparency is critical. It will save you time and headaches. It should be listed front and center on your rental verifications before somebody even comes to see the home. They need to know straight up that during the application process there will be screenings. Being upfront about this saves you both time and saves them money if they know they don’t genuinely qualify.
Fair housing. You’ll want to speak with an attorney if you’re a DIY landlord. It’s extremely important to understand these laws. An attorney can help you not only draw up leases and answer legal questions, but they can help you understand the ins and outs of the fair housing laws. It’s vitally important to know how Federal Fair Housing Laws apply to you.
The long and short of it is Federal Fair Housing Laws exist to protect the public from discrimination. Do not waiver your criteria based on who’s applying, because that’s a great way to discriminate unintentionally against someone that’s in a protected class. We’ll say it again, know your Fair Housing Laws!
Speak with the tenant’s previous landlord. They can be a great source of information. We encourage you to reach out to them and learn what you can—even if you do a screening and a landlord verification. This conversation can help you more than you realize. Ask if the tenant was late with their rent. Did they do damage? Did they leave the home in good condition? Were there issues with them? Often, extra details come out and you can learn things you might not have known otherwise.
Congratulations on your investment property. It’s exciting to finally be able to rent it out, but by taking the time to screen your potential tenants, you’ll know who you’re dealing with, what their detailed history is, and who can become a risk to your investment and who is a good candidate to live in your rental property.