Landlord passing keys to his tenant

Investing in rental real estate is a serious financial decision. Whether you are an independent owner or run a real estate investment business, each property represents a high value that only rises if well-kept over the years. Renting properties to tenants is part of that value, giving you an easy way to get a return on investment for each purchase.

However, choosing your tenants is an investment as well. These are people who will be living in the buildings you have purchased to preserve and grow their value. You need people who are respectful and treat a house well. You need to know who your tenants are and that they are reliable people who can be trusted to spend a great deal of time alone with your investment property.

That is where tenant screening comes in. Thorough and complete tenant screening can give you insights into your new tenants, help you comply with landlord regulations, and ensure that you politely decline any tenants who would not be safe in a rental home. Here are nine steps you should take when considering tenants for one of your properties.

Require Rental Applications

First and foremost, require an application. The tenant application is very much like a resume when applying for a job. It asks potential tenants to organize a stack of useful information in a way that is easy for you to read. The rental application ensures that each new potential tenant reaches out to you in the same way and you are comparing the same facts one-to-one.

This ensures both that you are starting with good information and that you are fair when you must choose between two competing resident applications.

Include Co-Applicants and Co-Signers

Make it easy for families, couples, and roommates to move in together by including co-applicant sections on the application form. If you require a separate application for each adult (a smart choice) consider making it easy for applicants to link co-applications together and copy some information between them.

If you choose to, you can also welcome co-signers. This allows a more financially stable or responsible person to help another get a house or apartment. A co-signer backs the applicant to promise their financial obligations will be met, even if they might not otherwise financially qualify.

Ask a Specific Pertinent Questions

Depending on your rental policies, there may be some specific questions you want to ask both in the application and during initial communication with each applicant. These questions can be asked over the phone or in email.

  • Pets
  • Smoking
  • Schedule
  • Noise
  • Parking

Verify Income and Employment

To rent a home securely, a tenant-household needs to earn at least three to four times the monthly rent amount per month. This means that rent should not amount to more than 1/3 of the tenant’s household income.

To be sure each applicant is capable of paying their rent monthly, it’s important to verify their employment and that reported income is real income. This is usually done with a tax return or a bank statement. If the tenant is moving for a new job, ask for a copy of their offer letter that confirms their wages.

Run Credit Checks on Each Applicant

A credit report will tell you how financially responsible a person has been with money in the past. Credit scores are not always fully indicative of a person’s financial success – medical debt, for example – but it can be a clear sign if someone is truly irresponsible. A couple of large, slowly-paid debts or old student loans may not be important. But a sheet of missed payments and derelict accounts is a sign that a tenant is financially bad news.

Perform a Criminal Background Check

A criminal background check is also essential. Landlords and property managers absolutely must know if there is someone potentially dangerous renting the house. If there is a violent or property-damaging history, of course you would want that information before choosing to rent. If there is a reason for your neighbors to be afraid, this might influence your decision as well.

What To Do About Criminal Results

So what do you do if an applicant does have a criminal history? It depends on the crime and circumstances. In many cases, small crimes years back will have long-since been reformed and matured out of. Petty crimes and small financial crimes for which a person has served their time may also be no threat to you and they may still be a great tenant. Give your applicant a chance to explain any results on the background check, it might even be an unfortunate record for an understandable circumstance.

Perform an Eviction Background Check

You also want to check and see if your applicants have run into any past trouble with rental homes. Do a check of addresses, previous landlords, and any past eviction history. Evictions are an extreme step for most landlords. With the exception of some real estate management companies who evict at the drop of a hat, most people with an eviction on their record did something extreme to earn that record.

You can ask, but it is industry-standard to reject someone with a recent (past 5 years) eviction record.

Contact References

When you have run background checks and are feeling confident about an applicant, call their references. Make sure you are dealing with someone who has people who will speak for them. Some people are very short on references due to personal circumstances, so be understanding if you speak to the occasional neighbor or coworker. Most will have relatives, friends, past landlords, and more to speak for them. Confirm your applicant’s identity and ask a few polite questions to verify your facts.

Conduct a Face-to-Face Interview – Live or Video

Finally, you’re ready to interview your tenants and make sure they are ready to sign the lease. This is your chance to get a real in-person read on your applicants, even if you’re not in-person. Post-COVID, it’s important to consider the need for remote video meetings and the occasional home tour conducted from 6+ feet away at all times.

Speak warmly to your future tenants and have a human conversation about how they plan to live in and enjoy the home. Let them tour the house and discuss any changes, repairs, or projects that come to mind along the way. Make sure you feel right with these tenants and comfortable with them renting your investment property.

Formally Accept or Reject Tenants

When everything is done, you should know which tenants you plan to accept and be confident that they are safe to move into your rental house. The final step is to formally let everyone know of your decision. Send over the lease to the tenants you have accepted and send a polite email to those who were not selected.

Tenant screening is a vital part of being a smart investment property owner. The good news is that you don’t have to handle the whole screening process yourself. You and your property managers can rely on private investigative services that specialize in real estate safety. Let us handle the hard part of your tenant screening services so you can focus on choosing the right people with all the information in front of you. Contact Beau Dietl for tenant screening services.