Screening and selecting a tenant for your rental property is the MOST important step in renting out your home.
Think about it. What do you worry about most when it comes to your rental property?
Here are some common concerns that we hear all the time:
- Is the tenant cleaning the home and preventing mildew and mold?
- Are they doing anything illegal in the house?
- Are they subletting to other people that I wouldn't have approved?
- Are they upsetting the neighbors or being disruptive?
- Are they damaging the walls, cabinets or appliances?
All of these concerns can be quieted with a great tenant placement. Renting your home to a tenant that is going to pay the rent on time every month and take care of the property like it was their own home is the best way to have the most profitable rental property.
If you have a high tenant turnover rate and each time a tenant moves out you are going through extensive rehabs that are both expensive and cause the property to sit vacant for long periods of time, you may need to reevaluate how you are screening your tenants. This doesn't have to be the norm!
Before any discussion can begin on how to screen and qualify a tenant for a rental property, it must be understood that there are specific Fair Housing guidelines that any owner or property management company must adhere to in screening and selecting tenants. There are a full list of Federal Laws you must comply with anytime you rent out residential property. Take the time to familiarize yourself with these laws and live by them!
Of course, you will only be able to screen potential tenants if they are finding and applying for your home. If you can't seem to get any applications, your property may be priced too high or you may not be marketing it well. Check out our posts on pricing your rental property or marketing your rental property online if this is your issue.
Now that you are familiar with the Fair Housing Laws and you have several applications to go through, here are 4 things you should know when screening potential tenants.
- Don't just rely on the FICO Score. Many companies and individual landlords will use an arbitrary cutoff on a person’s FICO score to make a placement decision. While a good place to start and certainly something you should check, this is not the best way to screen tenants! The FICO does not tell the whole story on a person’s ability to pay the rent and take care of the property.
- A low credit score can still mean a great tenant. The most common example of a low FICO applicant who is a good risk is a person who just went through a divorce with a financially irresponsible spouse but they were the main source of income in the household, they have 20+ years on the job and make well over three times the rent. This applicant, excluding other issues, could be a great placement because of their job.
- Find a tenant that has something to lose. If you place a tenant that stops paying rent and then trashes your house all during the first lease period, chances are you weren't the first owner they've done that to. You can go after this person for all damages that they caused, but you will probably be joining other landlords doing exactly the same thing. In the worst case scenario, if you had to go after a tenant that stiffed you, had an already low FICO going into the lease but had over 20 years on the job, you can always get a judgment against that past tenant and then garnish their wages. They typically won’t quit their job just to avoid paying you off on a judgment.
- Be very wary of dishonesty on applications. In the words of Ronald Reagan you need to “trust but verify.” Here at Mesa Properties, we process literally hundreds of applications every month and we find tenant dishonesty to be the biggest obstacle to getting through all those applications. The deceit ranges from phony pay stubs to having their buddy give the landlord verification. You need to have other ways of verifying their information that doesn't rely on trusting everything that they put down on their application.
This may sound like a difficult step, which it certainly can be. But if you get this part right, you can place the perfect tenant that will pay the rent on time, every time and take care of the property. If you're lucky, they will stay for several years and you will never even have to think about your rental home or wonder if everything is going ok. Doing your homework upfront will save you a lot of pain in the long run.
For a comprehensive guide to managing rental property, check out this resource.