Screening Tenants: The Factors That Matter Most
No single decision that you make as a landlord will affect your business outcomes more than your choice of tenants. While the right tenant can help you turn your income property into the hassle-free money-maker you're hoping it will become, placing the wrong tenant in your rental can actually cost you thousands of dollars. Avoiding unpaid rent, legal fees, turn-over costs, and major property repairs are major goals for property owners and often factor heavily into the decision to hire a property manager.
When it comes to finding a tenant who will pay his or her rent on time, take good care of your property, and keep peace with the neighbors, some factors matter more than others. With this in mind, here is our prioritized list of things to consider during the screening process:
1. Meets Basic Requirements for Tenancy
While the Fair Housing Act requires that you not screen out tenants based on factors such as ethnicity, gender, disability, family status, or religion, you can reject a tenant who is not a good fit for your rental if they can't comply with your pet or smoking policies, if they have more than the allowed number of vehicles, or if they intend to occupy the property with more than the legally allowable number of occupants. In order to comply with Fair Housing regulations, it's a good idea to put all such requirements in writing, along with the rent and other fees you intend to charge. Give the form to any prospective tenants and have them sign and return it along with their application.
2. Rental History
You might assume that once a tenant agrees to meet your stated requirements for tenancy, the next most important criterion to consider is their monthly income. While that certainly is important, we'd actually rank rental history ahead of this. No matter how high their monthly income, or how steady their employment, if a prospective tenant has a rental history that includes evictions, chronic late payments, disruptive behavior, or major property damage, you'd be wise to proceed to the next candidate on your list.
3. Verifiable Income + Employment History
It probably goes without saying that adequate monthly income to make the rent payment you require is an important quality in a prospective tenant. When it comes to determining how much income is enough, most landlords use the basic rule of thumb that the monthly rent should add up to no more than one third of a prospective tenant's gross monthly income. Employment history is also a key factor. Most landlords like to see that a prospective tenant has been in their current job for six months or more, and has a history of long tenures at their previous places of employment. If your candidate has just moved into your area from out of town and is in a new job, a history of steady employment becomes even more relevant.
4. Credit Score
When evaluating credit score, keep in mind that people can have low credit scores for a variety of reasons. If a prospective tenant has recently been foreclosed on, for example, their credit will be adversely affected. However, they may have a stellar employment history and more than adequate monthly income to pay the rent on your property; they may have simply purchased a more expensive house than they could truly afford. When evaluating a credit profile, large amounts of credit card debt and/or extensive histories of late payments are the big red flags to watch out for.
5. Criminal Record
As with credit scores, not all criminal records are the same. If your prospective tenant has a history of run-ins with the law, you may want to investigate the nature of the crimes committed. Non-violent infractions committed several years in the past most likely have little to no relevance to a prospective tenant's ability to pay rent on time. While you're certainly within your rights to not rent to someone with a criminal record, if all other aspects of the applicants profile look good, you may want to give the applicant a chance.