Veteran landlords agree: Quality tenants are the key to long-term profitability. Many a landlord has taken it on the chin when they cut a questionable applicant some slack against their better judgment–or when they fail to notice red flags that a little digging would have brought to light.
Good tenant screening software helps a great deal–but even the best systems can’t catch every warning sign. Background checks can’t predict an applicant’s propensity to commit crimes in the future, of course, or catch crimes that haven’t been discovered yet. So here are the 10 time-tested tenant screening tips that we rely on.
1. Develop written qualification criteria and document it. As a landlord, you have to decline an applicant from time to time. Sometimes, that applicant may be a member of a protected class under federal or state housing regulations. If an applicant accuses you of housing discrimination, you’re going to want to be able to show them a race-neutral, gender-neutral, disability-neutral, familial-status-neutral criteria written in advance. And of course, you’ll want to be able to show how the plaintiff didn’t meet these perfectly legal tenant screening criteria.
2. Verify income sources. A generation ago, it was very difficult to create a fake pay stub. However, now that everyone has a computer, a scanner, and photo editing software, it’s a snap to forge or alter a pay stub.
As if that wasn’t enough, check out www.stubsamples.com and www.speedystub.com. Yes, these services are marketed to small business owners, contractors, and others who are frequently paid in cash–many of whom are legitimate applicants. However, it’s a simple matter for anyone to generate entirely fraudulent pay stubs for the purpose of deceit.
To reduce the risk of being conned by a fraudulent pay stub, consider asking for three months of bank statements as well.
3. Check out social media profiles. If you can find the applicant on Facebook, Instagram, or LinkedIn, take some time to scroll through their account. Does their information match their employment and residence history? Are there references to committing a crime or being incarcerated? Do they affiliate with any hate groups or gangs? Do they have questionable pizza topping preferences? (Just kidding.) Know the warning signs.
4. Contact two previous landlords. Remember: their current landlord may speak of them in glowing terms just to get rid of their worst tenant. If the tenant is trashing the place, is a chronic late payer, or is generating complaints, the current landlord has every incentive to give a superlative reference just to get them to pack up and leave. Call their previous landlord, if possible, to get a less biased reference.
5. Run a background check on each adult applicant. Both spouses or roommates should get their own background check. Stay alert to attempts to substitute a relative’s background check information in place of the actual applicant.
6. Don’t offer leases without a fully completed and signed rental application. Often, someone who fails to complete an application is hiding something. If you need to conduct an eviction down the road, you may need that application in order to show that the tenant lied. If you allow them to turn in an incomplete application, you open yourself and your other tenants up to risk, and you take an important arrow out of your quiver if it comes to an eviction.
7. Don’t make written comments on the application other than those specifically pertaining to your rental criteria. A comment like “Credit score of 560 is less than the 620 required” or “Income is less than the $4000 per month required to rent” is fine. However, if a plaintiff’s attorney gets ahold of the tenant’s application and finds that you’ve written “Two small children” on the app, that’s probably enough for them to hang you out to dry on a housing discrimination claim.
8. Hold on to applications for several years. The specific time frame depends on the statute of limitations in your state. However, be sure to keep them under lock and key. These records contain sensitive, personal information on each applicant that they’re depending on you to secure. Access to these records should be on a strict need-to-know basis.
9. Beware of false positives. If a tenant has a common name, it’s relatively easy for an innocent person to get flagged. If an otherwise good tenant is coming up hot on a criminal background check, look at the mugshot and basic biographical info to be sure that it’s the same person.
10. Use a property manager. A professional, experienced property manager brings important benefits to the table for the landlord. First, you don’t have to spend time dealing with unserious or unqualified applicants. Second, a qualified and experienced property manager is likely to stay up-to-date on the evolving laws and regulations that govern housing discrimination. They can prevent landlords from making common layman mistakes, like posting discriminatory language on housing ads–a mistake that can cost careless landlords tens of thousands of dollars in fines and court costs. Third, if the property manager screws up, they generally carry substantial errors & omissions insurance that can protect you if their error results in liability to you as the landlord. This is a vital consideration. You can ask for proof of E&O insurance when you interview and contract with a property manager.
Writing about personal finance and investments since 1999, Jason Van Steenwyk started as a reporter with Mutual Funds Magazine and served as editor of Investors’ Digest. He now publishes feature articles in many publications including Annuity Selling Guide, Bankrate.com, and more.