The success of any income property is determined by the kind of tenants that live there. If you have good tenants, you will not have to worry about the safety of your rental property or the payment of rent. However, a bad tenant will be a source of endless stress. To avoid trouble, you need to learn how to screen tenants for a rental property properly before letting them sign a lease. You can either carry out the screening yourself or hire a property management company if you are a first-time landlord. This will enhance tenant retention and make owning a rental property less of a headache.
Related: What Should Landlords Do to Find the Perfect Tenant?
If you want to know how to screen tenants, here are the 7 essential steps:
1. Pre-Screen Potential Tenants
Even before asking potential tenants to send applications, look for ways of pre-screening them. One of the best ways of doing this is by checking their social media accounts. If the tenant displays undesirable behavior on their Twitter, Instagram or Facebook accounts, they are probably not a good candidate for your investment property. Besides social media, you could simply Google the name of the prospective renter. You might just stumble on some information which could prove helpful.
Consider asking applicants a few pre-screening questions or even adding them to the application. The answers to these questions may save you the hassle of doing a full background check. You can find templates of pre-screening questions for tenants on various sites online.
2. Ask for an Application
The next step after pre-screening is to request all the potential tenants to submit an application. You can find great templates of rental application forms from different real estate sites online. The application form should cover all the important details you will require from the tenant. This includes personal information, employment information, and financial information. Be sure to mention that a credit check, criminal history report or financial report might be required. Some of the details that should be captured in the form are:
- Previous and current employer
- Current income level
- Contact information for previous landlords
- Financial data such as credit cards and bank accounts
- Number of occupants (including pets)
- Personal references
3. Carry Out a Background Check
As part of your tenant screening checklist, be sure to run a thorough background check. There are several companies that can provide detailed reports using the prospective tenant’s social security number. The tenant background check should check for information such as:
- Public records – Avoid tenants that have been sued in the past for unpaid child support, unpaid rent or any other financial issue.
- Eviction – If someone was evicted from their previous residence, be wary about allowing them to rent your investment property.
- Criminal records – A tenant with a serious or long criminal record could expose you and other tenants to danger.
Related: What Landlords Need to Know About Filing an Eviction Notice
However, don’t be quick to dismiss a tenant just because they have a criminal record. Ask yourself the following questions before making a final decision:
- How old was the tenant at the time of offense?
- What were the circumstances surrounding the matter?
- When was he or she released?
- Were there any rehabilitation efforts?
4. Conduct a Credit Check
A credit check will reveal information about the tenant’s credit history for the past few years. You can order a credit score and credit report from Equifax, Experian or TransUnion. Ideal tenants that most landlords look for have a credit score of 620 or higher.
However, anyone looking for background and credit information on someone else must adhere to the Fair Credit Reporting Act (FCRA). If you are not careful, you will violate FCRA laws without knowing it. In addition, credit reporting agencies (CRAs) might require landlords who are looking for credit information to be accredited. This could involve an actual visit to the rental property to ascertain that the request for credit data is genuine.
Here are some of the things to look out for when reviewing a credit report:
- Credit history – Check for evidence of collection accounts, late payments, and bankruptcy.
- Current debt – In case the potential tenant has numerous loans, he/she might not be able to make the rent payments.
5. Get in Touch with Previous Landlords
The input of previous landlords is crucial for anyone learning how to screen tenants. When contacting a previous landlord, you could ask the following tenant screening questions:
- What is their rental history? Were they paying rent on time?
- Did the tenant cause any damage to the property?
- Does the tenant owe any debt?
- Was the tenant a nuisance to his neighbors?
- Would you allow this tenant to rent your condos, single family homes or multi family homes in the future?
6. Talk to the Tenant’s Employer
Before allowing the tenant to sign a lease for your real estate rental property, find out if they have a steady source of income. You could either ask for a recent pay slip or get in touch with their employer directly. While most employers might not be willing to share private information, they should at least be able to confirm if the tenant is currently an employee.
7. Interview the Tenant
Once all the background information is verified, you could then have a brief phone or face-to-face interview with the tenant. However, remember that the Fair Housing Act does not allow landlords to discriminate on the basis of family status, color, religion, national origin, sex, race or disability.
Here are some of the questions to ask:
- Are you intending to get housemates in the future?
- Do you own any pets? Are they house-trained?
- Do you smoke or drink?
- Do you work odd hours or night shifts?
- Will you have relatives and friends sleeping in your house often?
Related: Should You Allow Pets in Your Real Estate Investment Property?
Conclusion
Besides knowing how to find tenants, landlords should also learn how to screen tenants. Though screening can be time-consuming and stressful, it is worth it in the long run for anyone owning a rental property. However, don’t go overboard since you will risk violating the tenant privacy laws.