Smart landlords and property managers do a very thorough job of screening tenant applicants. They check references and work places, former landlords and addresses. And of course, they have a background check and tenant credit check done.
But how many of your prospective tenants are checking YOU out? And what do you need to do to ensure you’re attracting the type of tenant you want—who will be as choosy about you as you are about them? After all, if you each choose the other, the landlord-tenant relationship will have a better chance of success!
What Great Tenants Look for in a Landlord:
- Professional behavior and associations. Tenants want landlords who are professional businesspeople. Who take their business seriously enough to belong to professional associations. If you belong to your local apartment association, the National Association of Residential Property Managers, or other group, say so on your website!
- Organization: Tenants are impressed when paperwork is ready to be signed, and when processes are documented. Do you have lease applications, background check authorizations, receipts, leases, move-in and move-out lists, emergency contact information and other forms ready to go at all times? Or are you fumbling around looking for forms? It never looks good to tell a prospect that you’ll need to get back to them for necessary paperwork.
- Great reputation: People will talk, and if your applicant asks current or former tenants about you, what will they hear?
- Reliability: Are your leasing office phones answered promptly? Even if you’re a one-person operation, it matters. If you miss calls, do you return them right away? Can tenants count on you to be available when they need you?
- Honesty: Be truthful at all times, even if that means pointing out issues with the rental apartment or house. Better that prospects know up front and make an informed decision, than starting out the relationship on a negative note.
- Communication: As in every relationship, it comes down to communication. If your skills are sub-par, good tenants will know it.
You may not realize that tenant applicants are checking you out, but it never hurts to put your best foot forward, just in case!
The rental market is going strong in most areas of the country, as more folks are renting instead of buying. While many landlords are enjoying high vacancy rates, they still need to be cautious; the economy has really hurt the credit scores and bill-paying ability of millions of Americans.
Every landlord has a different standard for accepting new tenants, but the importance of conducting thorough credit checks and tenant background checks is clear. This is the one area that experienced landlords will tell you not to skimp on, because if you do, you will more than likely regret it!
Tenant credit checks and background screening doesn’t take long, and can be inexpensive. Most landlords pass the fee on to the prospective tenant, and most tenants are accustomed to paying the fee. If you have an applicant who has a problem with paying the fee or signing the authorization to conduct a background screening, then you probably don’t want them as a tenant, do you?
The screening process begins with the lease application, where you may ask questions about the applicant’s address history, work history and credit history, and obtain contact information for previous landlords and personal references. You may ask if the applicant has ever broken a lease, if they paid rent on time, why they are moving now, and about their income.
You may not ask a potential tenant about race, religion, family status, disability, or any other information that might indicate a breach of the Fair Housing Act.
Be sure to obtain the applicant’s signature on a separate notice that informs him or her that you will be running a credit check and background screening, based on their name, date of birth and Social Security Number.
Most experienced landlords will also phone references and previous landlords. Be careful how you phrase your conversation, because too many tenant applicants will provide the phone numbers of friends who have agreed to pose as a landlord or employer. Simply identify yourself and ask the person on the other line, “How do you know Joe?” The correct answer may be “I’m his landlord,” or “He used to work for me.” If Joe gave you Tom’s name as a previous landlord, and Tom answers, “Joe and I are on a bowling team together,” you may have spotted an inconsistency in Joe’s story. Be on the lookout for more of them!
Finally, you should run a thorough tenant screening credit check to find out how the applicant pays bills, if they’ve filed for bankruptcy, and what their credit score is. A criminal background screening will reveal whether or not you have a convicted felon or sex offender applying to live in your rental property.
Don’t forget to trust your gut when screening tenants. You don’t have to give a reason for rejecting a tenant in most areas (check your state and local laws)—but do be careful and apply the same criteria to every applicant, or you could be accused of discrimination. You can’t reject an applicant solely for the color of their skin, but you can reject one because their credit score did not meet your minimum requirements—along with the bad feeling they gave you when you met them!
Why Pre-Screen Tenant Applicants?
There are several advantages to screening tenants prior to signing a lease. One is that you can avoid discrimination issues by applying the same approval standards to every lease applicant—including a standard background and credit check. Another advantage is the reduction of risk. Why take a chance on a tenant who could have a history of evictions or an income that cannot support the rent? Mitigate risk by conducting a thorough credit check on every tenant.
What Will I Learn From a Tenant Credit Check?
You can learn at a glance if your prospective tenant pays credit card bills and loans promptly, as well as if there are any outstanding judgments against him or her. Previous bankruptcies are also typically reported. or bankruptcy filings. You can determine the minimum level of approval for your applicants, based on a good record of responsible finances and living within their means.
Be sure to compare the report’s list of an applicant’s previous addresses with those provided on the lease application. Are there inconsistencies? If so, the tenant is hiding something, or there is a legitimate explanation. Either way, you need to know before you sign a lease.
The information you gather from a tenant credit report must be held in strictest confidence, and never shared with third parties. Your applicant may have a right to the report—check your state’s guidelines and the Fair Credit Reporting Act (FCRA) to be sure you are compliant. If you reject an applicant for credit reasons, you must advise them in writing. Your best and easiest way to screen tenants is through a reputable, professional tenant screening service.
Consistency Counts When Screening Tenants
It’s important to be consistent when it comes to pre-screening tenants.
- Screen all lease applicants, no matter how they look, dress, or what kind of car they drive.
- Use the same screening procedures for each prospective tenant. Exceptions could be interpreted as favoritism toward or discrimination against a certain group.
- Establish a clear policy of background checks on all applicants to protect your rental property business.
Remember! Use a screening service with nationwide coverage and access to all three credit bureaus.
The Fair Credit Reporting Act (FCRA) established rules to protect privacy and guarantee report accuracy when businesses, banks, and rental property owners check consumers’ credit histories. Landlords are allowed to obtain tenant credit reports as long as they follow the FCRA’s provisions.
Specifically, when landlords obtain information about a potential tenant’s credit history, rental history, previous evictions or a variety of other pertinent personal information, and they use that information to determine what they require from the tenant, they must give the tenant an “adverse action notice.”
For example, a low credit score might mean the landlord requires a co-signer on a lease application. Or, a previous eviction may mean the tenant’s application is denied altogether. Even requiring a higher rent deposit is considered an “adverse action,” if it is based on information obtained in a consumer credit report. And really, if a landlord requires a higher deposit from Tenant B than from Tenant C, the only grounds he or she could base that decision on would be a tenant credit report—or else a discrimination claim under the Fair Housing Act could be in that landlord’s future.
When a landlord takes adverse action against a tenant applicant, the FCRA requires a notice to be supplied to the tenant. The notice must include:
- the name, address and telephone number of the Consumer Reporting Agency (CRA) from which the report was obtained;
- a statement that the CRA did not make and cannot specify the reasons for the adverse decision;
- a notice of the tenant’s right to dispute the accuracy of the information the CRA supplied;
- notice of the tenant’s right to a free credit report upon request from the CRA within 60 days.
The adverse action notice can be given verbally; however, a written notice is advised, since the landlord would then have proof of giving the notice to the tenant.
Even if the CRA is checking information that has nothing to do with the tenant’s credit, such as verifying tenant employment or income—an adverse action notice is required if that information is the basis of a denied application, higher security deposit, or other action required by the landlord.
There are serious legal ramifications for landlords who fail to supply notices required by the FCRA. Check with your attorney if your procedures are called into question, but in the meantime, educate yourself about your responsibilities under the law.
The Fair Credit Reporting Act is available online, so it’s easy to familiarize yourself with its provisions and updated requirements. And updates are done frequently, so it’s up to every rental property owner to stay informed on a regular basis.
More Homeowners are Hanging This Sign
The economy is making landlords out of homeowners in ever-increasing numbers. For some, their home’s value has plummeted, and they are reluctant to sell at current prices, believing their home is worth more. Sellers are riding out the market, renting their homes until values increase again.
Others turn to renting because they cannot keep a house on the market indefinitely, while paying mortgage, taxes, and insurance. Renting becomes a way to cover out-of-pocket expenses.
Still others become landlords as a way to supplement income in retirement or while still employed. As times get tougher, investments trickier, and jobs uncertain, owning income-producing real estate makes sense to more and more people.
If you have decided to rent your home or invest in rental property, you now face another decision: to manage your property yourself, or hire a property management company. Ask yourself these questions to help you decide:
Are you a people person? Do you enjoy helping people solve problems—without much appreciation? Landlords cannot be shy or guarded—they should enjoy working with people from all backgrounds and personality types.
Are you patient? Do you convey a professional demeanor? Landlords must be tough, fair, and not easily ruffled. Some tenants will try to manipulate you; others will need more attention; still other tenants will require a firm hand. Landlords must be consistent with the rules, applying them equally to all tenants. Are you ready for this challenge?
Can you easily separate personal emotions from business decisions? If you rent your home, it becomes a business venture—some people cannot see it that way. If you manage tenants, their personal problems cannot become yours.
Are you well organized? Property management requires excellent record keeping skills, bookkeeping, and time-management. You must become familiar with housing laws and contracts, too.
Do you have maintenance and repair skills? Or can you manage someone who does?
Finally, are you willing to commit the time, effort, and stress involved in becoming your own property manager?
If you answered “yes” to all of these questions, then rental property management could be a good fit for your skills. If not, you might still consider it, knowing which areas need work, and where you need to be more flexible.
If your answers are all “no”s, then you might turn your attention to ventures other than managing property. Still, owning income property is not out of the question, because you don’t have to manage it yourself.
Start the decision-making process by being honest with yourself. Know your strengths and weaknesses. If you are truly up for the challenge, educate yourself to ensure you are not stepping over legal boundaries or into unfamiliar territory. The better prepared you are, the more successful you will be.
Managing rental property on your own does not have to be a completely solo venture. Seek out the resources that will help you do a better job, such as educational opportunities, maintenance service providers, and tenant screening services.
For more landlord resources
, including everything you need to know about tenant screening,
turn to E-Renter.com.
You’ll know that you have the best possible tenants when you prescreen.