Smart landlords always run tenant credit checks and prescreen tenants.

For example, Wendy has been a landlord for many years, and has “seen it all.” She says that tenant credit scores are as volatile now as she can remember. “Some people with six-figure incomes have been forced to short sell their homes, and have lower credit scores as a result,” she said recently. “I’ve had to look more closely at their credit card and car payment history, and not just their credit score.” For Wendy, renting to people who recently owned and lost a home is less risky than renting to those who are continually late with rent payments or have history of evictions.

Mike, on the other hand, looks at credit scores and collection reports closely; he considers student loans collection activity to be a deal-breaker, but thinks medically-related collections reports are acceptable. “People can’t help what happens to their health,” he said. “Medical costs are outrageous and so many people don’t have insurance. I try to work with people who have had medical concerns.”

For most landlords we know, any eviction or rent collections activity on a prospective tenant’s credit report is not okay—even in these tough times. Bob is a fairly new and cautious landlord, who has been seeing more rent issues on credit reports. He always checks work references and tries to talk to as many landlords as he can. “Landlords usually tell me the real deal on their tenants. At first, I thought they’d give only good references, just to be done with a poor tenant, but I’m finding that they don’t want me to inherit their problems.”

Bob shared that he also talks to tenant applicants about any issues he finds on their credit reports. “I ask them why they didn’t pay their student loans, or what happened with the late car payments. Some will make excuses. Some will blame others. And a few own their credit problems and explain how they’re making them right.”

While credit scores are an important indicator of whether or not a tenant will qualify for a lease, many landlords indicate say that it’s not the only factor they consider. “A good rental and work history means more to me than a number,” says Brian. “I’m careful, but I prescreen and talk to work and landlord references before I make my decisions.”

If you’re landlord

Of course, every situation is different, but the short answers to the above questions are “yes” and “not necessarily.” Tenants move at all times of the year, and depending on their circumstances, plenty of people move just before or after Thanksgiving, or the week of Christmas, or even on New Year’s Eve.

If you have a rental property ready for your first tenant, you should create a plan for marketing the property right away. Here are a few tips for filling a vacant rental property fast, no matter what time of year it is:

Remember you may not screen out any tenants on the basis of race, color, religion, marital or family status, gender, or disability. New landlords should become very familiar with the Fair Housing Act and all state and local rental ordinances.

Define your best-fit tenant: Who do you want living in your rental unit (staying within the FHA, of course)? Is it a high-end property with a higher rent, or is it middle- or low-income? Will you seek out Section 8 tenants? Is it perfect for students? What is the income requirement to rent your property? Who can afford it?

Post plenty of signs: Place “Now Leasing” or “For Rent” signs in the windows and on the lawn. If possible, put “For Rent” directional signs at intersections, pointing the way to your rental property. Your signs should include the number of bedrooms and bathrooms and your phone number, along with a website where prospective tenants can view photos.

Put up a few fliers: Post fliers where your best-fit tenant will see them. This could be a coffee shop in the neighborhood, a Laundromat, a grocery store, or a community center bulletin board. Include a thorough, well-written description of the unit, and provide tear-off tabs with your contact info. Highlight any features that will sell the tenant on living there. Is it bright and sunny? Are there details like a fireplace or hardwood floors? A patio? A view? Close to trails, the grocery store or library?

Advertise: CraigsList.org is probably the most popular rental advertising site, although you can also post on Rentals.com, ForRent.com and ApartmentFinder.com. The more you advertise, the more exposure you’ll get and the faster you can fill the unit. Write a good ad that appeals to your best-fit tenant.

Incentivize: When you get closer to the holidays, you may find it tougher to get prospective tenants to agree to move. You can always offer an incentive, such as half off the first month’s rent, waiving the application fee, or offering an appliance upgrade if they sign a one-year lease before Thanksgiving.

Pre-screen tenants: Don’t get so antsy about filling the rental unit that you skip the tenant screening process. Background checks and tenant credit checks are vital to starting the landlord-tenant relationship off well. Protect yourself, your property and any other tenants you may have by properly screening each prospective tenant.

Landlords approach apartment or rental house rehabs differently

Other landlords invest in major improvements to their properties in order to charge higher rents and attract higher-income tenants. Still others make small improvements each time a tenant moves out, to slowly but surely increase the appeal and attract the best tenants.

There is no right or wrong approach – just the one that works for you. Here are some pros and cons to each approach:

Leave Your Rental Property as Is and Make No Improvements
Pros:

• You save money.
• You can turn over the rental to a new tenant more quickly.
• You avoid the possible frustration of seeing improvements damaged or ruined by tenants.

Cons:

• You probably won’t be able to increase rents unless vacancy rates decline.
• You could easily find your rental property losing value.
• You may attract only tenants who are okay with living in less-than-attractive housing.

Invest in a Major Rental Rehab
Pros:

• The result is usually worth the effort.
• You can often charge a premium rent to increase your return on investment.
• You can attract more desirable tenants.
• The value of your rental property may increase.

Cons:

• Remodeling can be very expensive.
• There is no guarantee your work will be valued or respected by tenants.
• Your rental property value may not increase, due to current market conditions.

Make a Few Improvements Each Time a Tenant Moves Out
Pros:

• Your investment is spread out over time.
• You may increase the value of your rental property.
• You can gradually improve the quality of tenants your attract.

Cons:

• It can take much longer to see real improvements.
• You may not keep up with the market at a slower pace.
• There is risk in subjecting your property to less desirable tenants for a longer period of time.

Remember, attracting desirable tenants is a worthy goal, but it’s not for every landlord. If you’re fine with minimum investment in your rental property, just beware of starting down the slippery slope to slumlord status!

No matter how nice your rental property is, you can’t be sure that tenants are going to keep it that way. Minimize your risk by conducting tenant credit screening and tenant criminal background checks.

When a landlord leases a rental property

Some landlords make the mistake of splitting a $1000 monthly rent so that each tenant is responsible for $500—and accepting that amount from each tenant, month after month. When one tenant leaves, they worry about finding another tenant so that the remaining one can continue paying their $500.

However, the tenants are together responsible for ensuring the rent is paid in full; therefore, when one tenant moves out, the remaining tenant or tenants must continue paying the full rent on time every month. For example, if the lease runs through September and a tenant moves out in June, both tenants are still responsible for full rent until the end of September—whether that means the tenant who moved keeps paying their half on a rental they no longer live in, or the remaining tenant pays the entire rent.

In most cases, the lease will be in the names of each tenant, and each tenant is responsible for upholding its terms—including whatever penalties are in place for breaking the lease early. It is up to the tenants to work out how the full rent will be paid until the end of the lease.

Another issue some tenants raise is the security deposit. Would a tenant who is leaving early be entitled to a pro-rated portion of the security deposit they paid at move-in? Most landlords would say “no way.” It is standard practice to tie the security deposit to the rental unit. Only the tenants still living in the unit at the end of the lease would be eligible for any return of the security deposit.

Remember, if your tenant finds a new roommate, follow your standard procedures for any new tenant. This should include a lease application, thorough tenant screening and credit check, and checking all work and former rental references.

If one of your New Year’s Resolutions is to increase your cash flow, one way to do so is through application fees. Landlords and property managers use these fees to recover their expenses for background screening, credit checks, and the time it takes to vet a potential tenant.

If you’re really lucky and have several applicants for the same unit, you may opt to screen the best (on paper) applicant first and, upon approval, refund the fees to the remaining applicants. Or, you can screen all at once and choose the strongest applicant. In this case, the other applicants would not receive refunds, since the background check on each was conducted.

If you decide to keep tenant application fees to cover expenses, avoid issues with applicants by stating very clearly both verbally and on the written application that fees are non-refundable. You’ll also want to determine your policy for refunding fees in the event the tenant changes his or her mind about going through with the rental agreement.

Obviously, a landlord would want to avoid accepting any deposit funds until all background screening has been completed and the tenant’s application approved.

Check your state and local laws for guidance—laws vary greatly and you could face limitations on keeping fees and/or time constraints for returning them. If your application fee policy is questioned, be ready to prove expenses with accounting records. Keep the application fee on a different line item from security deposits and rents in your books.

Smart—and honest—landlords also avoid questions of integrity around fees by only accepting applications for rental units that are truly available, and by doing some initial screening prior to running the tenant background check. If the applicant’s income is below your minimum, do everyone a favor and just turn down the application.

Tenant screening

Here are some dos and don’ts to consider when making the decision to screen tenants:

• Do keep the screening process consistent: screen every applicant, every time.
• Don’t make yourself vulnerable to discrimination suits by screening applicants based on appearance or other subjective attributes.
• Don’t skip the tenant screening for an applicant who speaks well or dresses nicely, or the tenant applicant who drives a nice car—again, these are subjective observations that do not mean they will pay rent on time.
• Do protect your other tenants and the neighbors surrounding your rental property by including criminal history in your background check process.
• Do choose your screening service carefully. Are they a Better Business Bureau Accredited Business and Fair Credit Reporting Act (FCRA)-Compliant Consumer Reporting Agency? Is the staff FCRA Certified and Bonded?
• Do ensure that your screening service employs high security measures, such as fingerprint scanners, controlled access, monitored facilities, and proper disposal techniques.
• Don’t use a screening service without nationwide coverage and access to all three credit bureaus.
• Do keep all information learned from a tenant credit report in strictest confidence.
• Don’t neglect to provide a tenant applicant with a copy of the report, and to advise them in writing if you reject them for credit reasons.

Why bother with a tenant credit check when it’s going to be bad? Besides, if I skip it, I save money, right? Actually, the money you invest by doing thorough tenant screening will more than pay for itself when you consider the long term cost of evicting and/or cleaning up after bad tenants. And believe it or not, lots of folks are making it through the down economy by spending less, saving more, and keeping their credit records clean.

Should I lower my standards? This is a tough rental market, with rents down and vacancies up. You must decide whether to keep your qualifying standards high—and face empty units—or take a chance by lowering them in order to fill your properties. Experienced landlords say that empty units are far better than renting to bad tenants. It all depends on your tolerance risk, your cash flow—and a lot of luck.

Can I ask why a prospective tenant has had a bankruptcy? Yes. There is no time like the beginning to start communicating clearly with your tenants. If there is a bankruptcy on the credit check, ask what happened. You may find out that medical bills forced the tenant into bankruptcy, or that an ex spouse was actually the cause. Of course, if the tenant has other red flags on the credit report, you must take them into consideration, too.

Take a wide-angle view of the tenant’s credit history. If a bankruptcy is several years in the past, and everything else checks out, they may be an acceptable risk. If the bankruptcy was due to a business failure, the economy could be to blame—not the tenant. Past evictions and utility judgments are a higher risk indicators to many landlords than bankruptcies.

Do not ignore your gut instinct. If someone seems untrustworthy, they very well might be. Only you can decide whether a poor credit score or bankruptcy is worth the risk. The important thing is to perform consistent tenant credit checks!

Pre-qualifying tenants

• Pre-Qualifying is about finding the people who fit the minimum requirements you set for income, references, job and credit history. Proper tenant screening will further narrow the field by giving you solid background check results to base your decision on.
• Pre-Qualifying is not about discrimination. As a landlord, federal law prevents you from using a person’s race, color, religion, nationality, familial status, age, gender, or disabled status to determine housing eligibility. Your state may have additional guidelines.
• Pre-Qualifying is about laying the groundwork for a great landlord/tenant relationship by communicating clearly and effectively from the start.
• Pre-Qualifying is about reducing tenant turnover by avoiding broken lease agreements and evictions.
• Pre-Qualifying is not about judging applicants based on personal appearance, the car they own, or the number of people in their family unit.
• Pre-Qualifying is about applying the same rules and requirements to all applicants.
• Pre-Qualifying is a way to reduce your risk by keeping tenants with previous criminal convictions or negative rental histories out of your rental properties.
• Pre-Qualifying is started by advertising your property for rent in the right publications, including enough information to weed out individuals who are not a good fit for your rental.

Every landlord should consider pre-qualifying tenants. While it takes effort to begin any new procedure, it will soon be a habit—and this is a habit that will pay off through better relationships with your tenants and increased profits for you!

What are your risks when considering applicants

The federal Fair Housing Act prohibits discriminating against tenants on the basis of race, religion, sex, disability, or national origin. Some states have laws making it illegal to discriminate based on sexual orientation or marital status.

Of course there are legitimate reasons to turn down an applicant. Just be sure to document your process thoroughly and to be fair and consistent with each applicant—so you are well prepared if you’re ever accused of discrimination.

Here are some legitimate reasons to turn down a rental applicant:

Income level: It is legal to use a prospective tenant’s income as a basis to approve or reject their application. Be sure to check the income of all tenants on the application to avoid any potential problems.

Bad Credit History: Prior bankruptcies or low credit score are objective criteria for rejecting tenants.

Exceeding Occupancy: You do not have to rent to a family of six applying to rent your one-bedroom apartment.

Inadequate Rental History: You may require a reasonable number of positive rental references, and reject an applicant based on a negative reference from a previous landlord.

Past Eviction: If an applicant has ever been evicted, you may reject the application. However, if he or she won an eviction lawsuit brought by a previous landlord, you cannot hold the lawsuit against them.

Criminal Record: If an applicant has been convicted of a crime, it is probably enough reason to reject their application. Take care, however, to make a distinction between an arrest and a conviction.

Pets: If you do not allow pets in your rental unit, you may reject a pet-owning applicant. However, be aware of how the Americans with Disabilities Act (ADA) views therapy pets. You may have to make an exception to your no-pet rule to accommodate a disabled tenant.

As always, staying consistent with procedures is extremely important—especially when considering whom to approve or reject as tenants. Keep your paperwork in tip-top shape, and follow the same process with each applicant. Favoring any person or type of person over another is a lawsuit waiting to happen.

Your best practice is to run credit and background checks on each applicant. Screening tenants is quick, easy, and inexpensive—and it could potentially save you thousands in legal fees. Use the facts—just the facts—to determine whether or not you approve an applicant.

When it comes to written communication, the “Two Cs” should be top-of-mind: Clear and Concise. This is particularly important when composing an ad for a rental unit. Follow these steps to an easy, effective ad:

1. Attract attention. Make your newspaper ad stand out by adding a border or bold headline. On Craigslist, the descriptor is short, so use creative language: “Amazing house in Oak Tree neighborhood,” “Best $500 apartment in town,” or “Hardwood floors, 3BR, super-quiet” are all ways to capture attention quickly.

2. Be clear.  At a minimum, list the number of bedrooms and baths, the neighborhood, parking information, and the monthly rent. State that you check previous landlords, criminal background, and credit history. You can eliminate unqualified tenants easily with a well-worded ad. 

3. Use photos. A picture is truly worth a thousand words. A photo can instantly tell a prospective tenant whether your rental property is the right place for them. 

4. Don’t skip the details. Do you include utilities with the rent? Say so! Are you okay with pets? Put it in the ad. Are you completely against smoking in your rental home? Tell us! Tell readers about the schools, whether a grocery store is close by, and all about the beautiful landscaping. Brag about your place, and you’ll get enthusiastic responses. You want the most qualified tenants to act upon finding your ad. 

5. Make it easy to respond. Put your primary phone number in the ad, as well as an email address. For Craigslist ads, all responses will be through the site’s secure email unless you add a telephone number in the ad. 

6. State a good time to call. You can certainly list what time you will accept telephone calls from prospective tenants. And if a call is made outside that time, the caller either didn’t notice, or didn’t care that you requested otherwise. It’s a good screening mechanism to find the tenants you’ll get along with best.

An effective ad is the first step in prescreening tenants. You can eliminate the ones you don’t want and attract the ones you do by being clear, descriptive, and detailed in your newspaper or online For Rent ad.