Selecting the right tenant will lead to great success, riches, and happiness as a landlord or property manager. The wrong tenant can unravel all of your hard work, cause headaches and make life unbearable as you quickly reach for the ‘for sale’ sign.
Over the years of being a landlord and managing properties for others, I’ve enjoyed great success in screening and selecting tenants. We were managing over 50 properties before I stepped away from the property management business. During that time I successfully placed and managed hundreds of tenants.
Most of our tenants were very pleasant and great to deal with. A few tenants were high maintenance and dealing with them was difficult. Despite the rare ‘diva’ tenants, we seldom had a vacancy. None of our tenants trashed their place. We managed a 100% collection rate (for rents).
In the past, we have discussed how to fill a vacancy at rental properties. But what do you do once someone is interested in renting your place?
Rental Applications and Screening Tenants
Screening potential tenants is a must as a landlord or property manager. Common sense dictates an inspection when buying a home. Why wouldn’t you do the same with tenants? You don’t want to be stuck with a bad tenant.
Spending a few extra minutes up-front may save you from countless headaches. I’m not suggesting you make your tenant have a physical. Rather, I am referring to your screening process, rental application, and rental criteria. Not all tenants are created equal. Learning how to screen bad tenants is important.
This post will show you what information to collect in your rental application. Additionally, you will learn what to do with this information, or if you should move forward with a potential renter. We will discuss everything from previous landlord references to employment verification and credit and background checks.
Conducting proper due diligence will greatly increase your success as a landlord or property manager. Failing to do your homework may leave you exposed to many risks.
Your rental application should include the following sections:
The Rental Application
Below, you will find information to create your own basic rental application. You do not want to jam too much information into the rental application. Personally, I prefer a simple rental application; most applicants do as well.
The applicant section should capture all personal information of the applicant or co-signer. The information collected in this section of the rental application will be important for pulling credit reports and conducting criminal background checks. The applicant section should include:
- First, middle, and last name
- Social Security Number (vias number, a copy of the visa and a copy of applicants passport for international applicants)
- Date of birth
- Current address including city, state, and zip code
- Email address
- Personal phone number
- Work phone number
This section will capture all the information related to the renter’s current living arrangement. You will also use this section for a landlord reference. This section of the rental application should include the following:
- Is the current residence rented or owned
- Monthly payment
- Length of time at current residence
- When the lease ends
- If notice has been given
- Current landlord name
- Current landlord contact number
- Reason for moving
This section will be very similar to the current residence section of the rental application. I aim for two or three residences listed in the rental application. Note, younger applicants may not have as long of a rental history. Be sure to include:
- Was the previous residence rented or owned
- Monthly payment
- Length of time at the previous residence
- When the lease ended
- Was notice given
- Previous landlord name
- Previous landlord contact number
- Reason for moving
This section of the rental application should list every person that will live at the property. I recommend everyone over the age of 18 be on the lease; minors are not required on the lease but should still be listed on the application. This section should include the following:
- total number of occupants
- each occupant’s full name and age
- Pets – yes or no
- What kind of pet, breed, weight, age
The employment section will outline the applicant’s employment information. This section will be helpful for verifying employment. The employment section of the rental application should include the following:
- Employer’s name
- Type of business
- Length of employment
- Name of supervisor
- Supervisor’s contact number
This section will show the applicant’s income. Knowing an applicant’s income will help determine if they make enough to pay the rent. The income section of the rental application should include the following:
- Salary (annually, monthly, bi-weekly, or weekly)
- Commissions/Bonuses (if applicable)
- Other income
Income may not be the entire story for a renter. Some examples may be retirees, students or self-employed. The asset section of the rental application allows applicants to list other assets. This allows applicants to further prove their creditworthiness as a renter. The asset section of the rental application should include the following:
- Checking account
- Saving account
- Retirement account
A prime example of when assets make up for income – I use to manage a penthouse apartment (condo actually) in the city. A guy and his girlfriend applied to rent the place for two years. Their income was just below a level where we felt comfortable with them as tenants. However, the guy had a trust fund worth over $8 million. Given the assets, we were ok his income was a few grand short of our income requirement.
The emergency contact section of the rental application should include the following:
- Relationship to applicant
- two contact numbers
- How did you find this property?
- Have you ever filed for bankruptcy? If yes, please explain
- Have you ever been sued for non-payment of rents or evicted of non-payment? If yes, please explain. (personally, I will never rent to anyone who has been evicted. I do not recommend you rent to someone with a previous eviction.)
- Have you ever willfully refused to pay rent when due? If yes, please explain
- Are there any current judgments, lawsuits or bill collecting proceedings against you? If yes, please explain.
Be sure to include your rental criteria in the rental application. Clearly state your income and debt requirements. Be sure to include the minimum credit score and rental history requirements.
I personally look for gross annual income (income before taxes) to be no less than 42 times the monthly rent (3.5 times). Some landlords may have a different opinion, however, 36-48 times the monthly rent is common.
For example, if the rent is $1,000 a month, I want to see an annual income of at least $42,000/year or a monthly income of $3,500/month.
If a tenant does not meet the required income, they will need a co-signer or be able to show substantial liquid assets.
The total amount of the tenant’s monthly debt (credit card payments, car loans, etc.) plus the monthly rent should not exceed 36% of your gross annual income.
For example, if the rent is $1,000 a month. The applicant’s only debt obligation is a car loan for $500/month. In this instance, I want to see that all of their obligations is less than 36% of their gross annual income.
So, $1,000 + $500 = $1,500 / 0.36 = $4,166.67/month in pretax income
Or on an annual basis: $1,000 + $500 = $1,500 x 12 = $18,000 / 0.36 = $50,000 in annual pretax income
All applicants must have a satisfactory credit history and your rental application should state this. You should also state that you will obtain a credit report on all adult applications. Reports supplied by applicants will not be acceptable; make sure to obtain the reports from a third party vendor.
I also recommend stating that credit reports must not show any defaults, consistent late payments, outstanding judgments or collection items. Additionally, Co-signers are not permitted for applicants with bad credit.
Tenants must have a satisfactory rental history. State that you will conduct a nationwide check of Landlord/Tenant court records. Make sure you use a vendor and check this information. A few minutes of your time upfront can save you some serious headaches down the road. Personally, I recommend avoiding any applicant that has been evicted in the past.
Fair Housing Act
Perhaps the most important part of your application – be sure to include language that states you will comply with all aspects of The Fair Housing Act. An overly simplified summary of the Fair Housing Act – you cannot discriminate based on race, color, religion, sex, handicap, familial status, or national origin. You may face fines and legal troubles for violating the Fair Housing Act.
Screening Tenants with the rental application
The real fun begins after your potential renter completes a rental application. The three steps below will tell you a lot about your applicant. Based on the information you will need to make a decision to accept or reject the application.
- Credit and background check
- Employment and income verification
- Landlord references
Personally, an application is not complete until all tenants in the party have submitted the rental application and paid the application fee. This Important to consider when you have several applications for a high demand property. We typically operated on a first come first serve basis.
Once a rental application is complete, you should submit all the necessary information to your vendor for the credit and background check. This is a VERY important step in screening your tenants.
First, a credit report and credit score are like an ‘adulting report card’. A quality credit report with a reasonable credit score and a track record of on-time payments is a strong indicator the potential tenant will pay their rent on time. Alternatively, A poor credit score and a track record of delinquent payments may be a red flag and indicate the applicant may not be financially responsible or unable to pay their rent on time.
Don’t skimp on the credit report.
Second, run a background check. See if the applicant has a criminal history or a history of being evicted. Avoid applicants with a history of evictions. Use your best judgment when looking at other crimes.
For example, some may be ok renting to someone who was busted for underage drinking in college. However, most people would probably not be comfortable renting to those who were convicted of more serious offenses.
Employment and income verification
Contact the applicant’s employer. Verify that the applicant is in fact employed by the company. Ask the employer questions like:
- How long have they been with the company?
- What is their role/position?
- Character reference.
- Are they responsible? Do they show up on time?
- Would you rent to them?
If you have reservations about the applicant’s employment or income, you may ask for them to verify their income. Landlords commonly ask for the two most recent paystubs for verification.
Google is also your friend. Google the applicant. Many people are on LinkedIn or their company’s website. Check to make sure the employer contact information is not actually a friend or relative.
Speaking with the applicant’s previous landlord is a must. You will learn a lot from a previous landlord. This may help you avoid a bad apple. I’ve had bad tenants in the past, but I am not going to pawn them off on a landlord that is willing to do their due diligence.
Likewise, I have avoided a ‘professional tenant’ by checking on a landlord reference. The applicant in question had not paid rent for the previous six months to his current landlord and was in the middle of an eviction battle.
When calling landlord references, check to make sure you are not talking to a friend or family member of the applicant. Check public property records to verify the owner; a quick Google search will produce the owner’s name. Additionally, google the contact information provided by the applicant; you may be shocked by what you find.
If the tenant currently lives in an apartment building, be sure to talk to the management company.
When speaking to the current or previous landlord, ask the following:
- Have they been tenants at [insert address or building name]?
- What has their rent been and for how long have they been living there?
- Have they paid their rent on time?
- Have they taken good care of the property?
- Have there been any unusual repair request or noise/sanity violations?
- Would you rent to them again?
Making a decision
Performing a credit and a background check on potential tenants is a must. Be sure to include these two steps in your tenant screening process. Verifying an applicant’s employment and income will allow you to make an educated decision on the applicant’s ability to pay the rent. Reaching out to the applicant’s previous landlord may be very insightful.
In my experience, applicants who pass all three stages turn into great tenants an overwhelming majority of the time. You may get the occasional bad apple or high maintenance tenant. However, this process will help you avoid nightmare tenants. Never skimp on your due diligence. As President Ronald Regan once said, “trust, but verify.”