What is the Best Way to Screen Tenants for Rentals?

What is the Best Way to Screen Tenants for Rentals?

Placing your money in a rental property can make for a highly rewarding investment for your real estate portfolio. With this type of property, you’re able to generate income from the monthly rental payments that your tenants must provide. Likely the single most important aspect of owning a rental property is to make sure you properly screen potential tenants. If you make the mistake of approving bad tenants, these individuals may miss payments or pay late. The following is a comprehensive guide on the best techniques for screening tenants for a rental investment property.

Set Preferred Tenant Requirements

The first step in this process involves setting tenant requirements that will serve as the baseline as you screen potential tenants. For instance, you might want to set a credit score requirement of at least 650. In the event that the property is an upscale or luxury one, a higher minimum score requirement may be necessary.

Make sure that you also set financial requirements for signing the lease, which could involve a security deposit. This deposit will protect you from paying for damages to your property. Most landlords will require one month in rent as the security deposit. Before setting this specific requirement, check local laws.

Another question you should ask yourself is if pets will be allowed. If so, you may want to charge a small fee because of the possibility that pets will bring in odors or cause damage to the building.

Screen Potential Tenants Early

The next step in this process involves creating an extensive and highly detailed listing, which will allow people to identify if they would like to rent the property and if they currently qualify. By placing this listing online, you’re essentially pre-screening tenants.

The tenants who don’t meet the necessary qualifications or aren’t interested in some of the apartment policies will look elsewhere since they already know they aren’t interested. Some of the requirements you might want to place in the rental listing include:

• Total security deposit amount
• Monthly rent
• Credit report and rental application fees
• Background check
• Smoking or pet policies
• Previous landlord references.

Collect and Analyze Applications

Once you start receiving applications, you can learn more about potential tenants, which will give you the details you need to perform a background and credit check. All applications should include:

• Applicant’s contact info, name, DOB, SSN, and license number
• Previous addresses
• Names of additional occupants
• Income and employment info
• Contact info for references
• Screening questions pertaining to reasons for moving, pets, and previous evictions

Once you have some completed applications in hand, you can start screening these tenants and removing some from consideration.

Perform Background Check and Credit Check

When you perform a credit check, the credit score isn’t the only thing that matters. It’s also important to make sure that the applicant provided you with the correct information on their application. You should also look for any past bankruptcies or missed/late payments. The credit check can help you determine if an applicant should still be considered. If you notice any issue, you could ask for a higher deposit.

As for background checks, these are designed to determine if a tenant places the neighborhood or property at risk of theft, violence, or similar criminal activity. A background check will reveal eviction, criminal, and sex offender records. Request additional information from the tenant about any issues you might find.

Verify Additional Tenant Information

Before accepting a tenant into your property, there are some additional pieces of info that should be verified. It’s possible to verify income and employment with a W-2 or recent pay-stub. You can also contact personal references and previous landlords to find out more about the potential tenant.

Make Your Final Decision

Now that you’ve narrowed your list of possible tenants and have verified the information that you were given, you may be ready to select the tenant that you believe will be ideal for the rental property. Consider choosing one or two alternates in the event that your first choice finds somewhere else to live. Make sure that you have a lease agreement drafted for the tenant to sign.

Screening potential tenants is the only way to be confident that the people who live in your building won’t damage the property or miss too many payments. While it’s impossible to prevent all of these issues, properly screening tenants should make it easier for you to filter out the worst applicants.