Conducting in-depth tenant screening is one of the most important things you can do for your rental business.
Thorough tenant screening is the best way to find great tenants and avoid the bad ones. A well-developed process saves you from all sorts of hassle down the road, such as constant late payments, damaged property, and costly evictions.
Best property management software provides you with all the tools you’ll need to screen tenants thoroughly, but it’s still your responsibility to know what to look for in a tenant screening report.
A credit report gives you access to information that tells you how financially responsible someone is. As a landlord, you’ll be using a credit report to determine how likely a tenant is to consistently pay rent on time and in full.
While someone’s credit score is a good place to start, you want to look deeper than that. A credit report has several components that you should look at, including tradeline summaries, basic inquiries, and fraud indicators.
If an applicant’s credit report shows that they regularly make late payments on rent, credit card bills, etc., then you can assume that they’ll do the same when they start renting with you. Multiple outstanding debts may also suggest that an applicant isn’t financially responsible.
No landlord wants an eviction on their hands. Evictions can be a stressful process, and they’ll end up costing you a lot of time and money. As such, you need to look at eviction reports for every applicant to try to avoid renting to a tenant prone to evictions. An eviction report gives you information about someone’s prior evictions, including dates, locations, and reasons for the eviction.
A tenant who has had one or more evictions is a red flag. However, it’s a good idea to learn more about it rather than automatically denying them, because there can be instances where the tenant isn’t in the wrong.
By looking at criminal records, you’ll be able to see an applicant’s history with the law. As a landlord, it’s your right to reject someone with a history of crimes that might put your neighbors, property, or other tenants in danger.
With that said, many states have laws in place that make it illegal to deny housing to someone with less serious crimes. Make sure that you review your state’s legislation before you reject an applicant due to information found on their criminal record.
An essential part of tenant screening is a rental application. This allows you to ask applicants questions about themselves directly. One of the most important pieces of information you’ll need before renting to someone is their employment history and monthly income (on your rental application, you should ask for proof of income via pay stubs, W-2 tax forms, or other documents).
You want to make sure that a tenant makes enough money to comfortably afford your rent. It’s generally recommended that a tenant brings home an income of at least 3 times the price of rent. You should avoid renting to someone who makes less than that and might struggle to make rent payments on time and in full.
Long-term tenants are better for your business than tenants who jump around from lease to lease. Renters who renew leases reduce your tenant turnaround, which means you won’t have as many vacancies to deal with, saving you time and money.
Asking for an applicant’s residence history is a good idea because it will help you assess how likely they are to rent with you long-term.
When you ask for an applicant’s residence history, you should also ask for the names and contact information of previous landlords. Reaching out to these references is a great idea because landlords are in a unique position to tell you what kind of a tenant this person is.
Avoiding bad tenants and finding great ones saves you substantial time and money in the long run. As such, it’s vital that you perform rigorous tenant screening. Knowing what to look for in a tenant screening report will allow you to make the right decisions and fill your units with the great tenants you want.