A seasoned landlord knows that a respectful tenant who keeps up with rent makes their job run smoother. They also know how frustrating and costly it can be to deal with a tenant who is constantly behind on rent, damaging the property, and racking up complaints from neighbors.
Any applicant can seem great during the first walk-through, but it’s near impossible to know if someone will be a good tenant before conducting the proper credit checks. That is why it’s crucial to screen every potential tenant thoroughly before allowing them to sign a lease. We conduct comprehensive screening on all tenants, but if you’re a DIY landlord, we highly suggest following a uniformed screening process.
We’ve detailed some important steps to take when conducting your own tenant screening.
Create a Rental Application
Require all potential tenants to fill out a detailed rental application. We provide a comprehensive rental application and in-depth screening process, but if you would like to create an application yourself, you can hire another company or use an example from the internet. In California, the cap on a tenant application fee is $50. The application cannot exceed the landlord’s costs of gathering information. These costs can include both the price of a tenant screening service and the “soft costs” of the landlord’s time.
Quick List of Questions to Ask
Personal Information Verification (Photo IDs, References, Contact Information)
Financial Information (Landlord Debt/Bankruptcy/Foreclosure/Tax Liens/Collections, Credit Checks, Bank Statements, Proof of Income)
Employment History – How long has the tenant been at their current job? Have they switched jobs multiple times in the last few years?
Previous Rental History (Reasons for Leaving, Gaps in Rental History, Landlord Contact Information)
Pet Information (Service Animals, Note Any Breed Restrictions)
Before proceeding further in the application process, ask every potential tenant for a photocopy of their government issued ID, like a driver’s license.
Screen Co-Applicants and Co-Signers
Be sure to check if there are any potential co-applicants. If additional people over 18 years of age are going to live in the unit, they should be considered co-applicants. Make sure to gather the same documents as required for the primary tenant. If the potential tenant does not have enough credit or rental history, you can require a co-signer (ie. parent or guardian). Even if the co-signer is not planning to live on the property, require a credit check for them as well.
A credit score or credit report can be an indicator of whether a prospective tenant will pay their bills on time. Assessing their credit history will tell you if they have consistently defaulted on payments or debts in the past. We recommend establishing a specific credit score range as criteria for your potential tenants. When requesting credit reports, make sure they come from the top three credit reporting agencies―TransUnion, Experian, or Equifax―or in the form of a FICO or similar score. Ideally, data from all three services will be included in the report.
Anyone requesting credit on another person must adhere to the federal Fair Credit Reporting Act (FCRA). The FCRA covers how a consumer’s credit information is obtained, how it is shared with others, and how long it is kept. Credit reporting agencies require companies, including landlords, accessing credit data to be deemed accredited. This is intended to certify a business, or landlord, has a valid reason to pull other’s credit reports.
While it is important to check credit, remember, credit scores don’t always tell the full story. Look at multiple factors when screening tenants and ask why a credit score may be low.
You’ll want to confirm your prospective tenant has a means of consistently paying their rent in a timely fashion through a reliable income source (ie. their job). Ask for copies of pay stubs or a letter from their employer to verify income and employment status. If they have recently switched jobs and do not have a history of pay stubs, you can request their offer letter, which includes their proposed salary. You can use the two and a half-times rule as a guideline for determining if a prospective tenant can afford rent. If the applicant’s gross monthly income is two and a half times the rent, they likely can afford it.
You can also look at their past 3-6 months of bank statements. If they only have a few months’ worth of rent in their accounts, they may not be able to consistently pay their rent, leaving you to cover the expenses. If this issue persists, you might find yourself spending lots of unnecessary time and money in eviction court.
Handling Negative Results
Screening tenants is a must for every landlord: there is just too much at risk if you don’t. You don’t want to deal with renters who can’t pay and then go through the hassle of eviction court. On the other hand, the screening process doesn’t mean you have to become a detective. Trust your potential renters, but always verify.
At Palomar Property Management, we perform comprehensive screening on every tenant and handle all aspects of getting your investment rented in the shortest time possible.
If you have questions about your Tenant Screening Process, give us a call - we would be happy to help!