When you own rental property, one of your most important tasks is screening and selecting tenants. Because the process of screening tenants is time consuming, you need to have a system in place for doing it efficiently.
Basically, with tenant selection and screening, you develop and use objective, written tenant selection criteria, consistently screen all rental applicants against these minimum criteria and select the most qualified tenant based on your review.
With a system, tenant screening really isn’t that difficult; it just requires assertiveness, diligence and patience. Even after you’ve been managing your rental properties for many years, you still won’t be able to just look at a rental application and know whether the applicant is qualified. You have to check the prospect’s references, credit history, employment, income sources or assets, job stability and tenant history. And you can’t cut corners. Selecting a bad tenant is much worse than having a vacant rental unit. So choose your tenants wisely and profit in the long run.
Another critical part of choosing your tenants is making sure you handle the selection process without bias, abiding by all Fair Housing regulations. This concept can be a murky issue but it is an important one you need to pay attention to no matter what your situation so that you’re not slapped with a discrimination lawsuit.
Understanding the Importance of Screening
If you’re like many rental property owners, you may be thinking, “Screening? Isn’t that just a waste of time? After all, I trust my gut instinct when I meet people. I know which ones are good and which are just trouble.”
Although it does take time to verify all the information on your prospective tenant’s rental application, it’s time well spent. Relying on your instincts is very inaccurate, arbitrary and above all, illegal.
In order to increase your chances of finding a long-term, stable tenant and avoid charges of discrimination, your tenant selection criteria and screening process should be clear, systematic and objective. Put this process in writing to ensure it’s applied consistently and fairly to all rental applicants.
Establishing solid tenant selection criteria and performing a thorough tenant screening process doesn’t guarantee a good tenant, but it does significantly improve your odds of finding one.
Setting up a systematic screening process is particularly critical if you only own a single rental or small, multi-unit property. Professional tenants (people who go from property to property damaging the units or not paying rent) are experience and shrewd. They know the large, professionally managed rental properties have detailed and thorough screening procedures that attempt to verify every single item on their rental applications. Professional tenants know that small rental property owners are easier targets because the novice property owner is more likely to bend the rules than the professionals. [Use AOA’s form 100S – the Applicant Screening Package to organize your screening process.]
Establishing Tenant Selection Criteria
Tenant selection criteria are written standards that you use to evaluate each prospect’s qualifications as a tenant. Determine your exact minimum qualifications and adhere to them. Of course your written criteria can’t be discriminatory or violate and federal, state or local Fair Housing laws. These criteria can help you treat all rental applicants fairly to avoid claims of discrimination. Making the effort to develop written guidelines can also be useful as an objective evaluation technique to maximize the chance that you may be swayed by a charming prospect and find yourself lowering your standards and allowing a not-so-desirable tenant to occupy your valuable rental property.
Why Having Criteria is Important
Giving all prospective tenants an overview of your rental screening procedure and requirements up front lets them know exactly what you’re looking for in a qualified rental applicant. Because these criteria are the minimum standards you accept, prospective tenants thus know why their rental application may be rejected.
How to Create Your Criteria
In order to establish your tenant selection criteria, review what you’re looking for in a tenant. Your notion of the ideal tenant may be different from someone else’s, but here are five important traits to look for. Someone who will:
- Be financially responsible and always pay his rent on time
- Respect and treat the property as if it were their own
- Be a good neighbor and not cause problems
- Be stable and likely to renew his lease.
- Leave the premises in a condition the same as or better than she found it.
Your [written criteria list] should be given to each and every applicant with the rental application. You must offer all prospects rental applications and process each one received and you can benefit when prospects make their own decisions not to apply for your rental based on the criteria you’ve set up. The key is to follow these criteria without exception and have the information available if you’re challenged. [AOA members can find a sample copy of a written criteria list on www.aoausa.com in the forms section.]
Some rental property owners feel more comfortable discussing the tenant selection criteria right from the first rental inquiry call whereas other wait and distribute copies only to those individuals who actually apply. You need to decide which policy works best for you and then apply it consistently.
Always be thorough when you perform tenant screening and use the same process with all rental applicants. You run the risk of being charged with illegal discrimination if you deviate from your written standards for certain applicants. Many legally acceptable reasons to deny a rental application exist but be sure that your requirements are clearly understood and followed just to be safe.
Robert Griswold is a hands-on property manager with more than 30 years of experience, having managed more than 800 properties representing more than 45,000 rentals. He owns and runs Griswold Real Estate Management, Inc. with offices in southern California and southern Nevada. This article is an excerpt from his book, Property Management for Dummies which is available at www.LandlordBooks.com For more information, visit www.griswoldremgmt.com