Key Takeaways
- Tenant screening is a process used by property owners and managers to find the best possible renters.
- Be sure to understand both federal and state laws that protect landlords and tenants throughout the screening process.
- There are at least six steps involved in a basic tenant screening process.
If you already have some experience as a rental property owner under your belt, you should support the argument that finding good renters is a crucial aspect of protecting your business. Great tenants will abide by your policies, pay rent on time, and treat your property with care. These are all qualities that mitigate the risk of property damage, strained landlord-tenant relations or— even worse— legal complications. As a result, all rental property owners need to have a solid, legally compliant tenant screening process in place.
What Is Tenant Screening?
Tenant screening is a process that assists rental property owners and managers in finding the best possible renters. The process typically includes establishing qualification criteria, showing the property or unit, and accepting tenant screening applications. Although there are no hard and fast rules as to how extensive the screening process should be, all rental property managers are required to abide by state and federal tenant screening laws.
Tenant Screening Laws
There are regulations protecting both landlords and tenants in a variety of scenarios, not excluding the tenant screening process. The Fair Housing Act, enacted by the U.S. Department of Housing and Urban Development in 1968, legally protects applicants against discrimination during the screening process. Property owners and managers are advised to memorize the seven classes of protection:
- Race
- Color
- Religion
- National origin/ethnic background
- Gender
- Family status
- Mental/physical disability
Landlords should also know the Fair Credit Reporting Act (FCRA), which is designed to protect applicant information while background and credit checks are conducted. Compliance guidelines include verifying the applicant’s signature, completing a credit access application and properly disposing of consumer reports.
As a rental property owner, you should be aware that ignorance or even “honest mistakes” are no excuse in the eyes of the law. Non-compliance can result in thousands of dollars in fines and legal fees that can severely damage your business. Creating a fair screening policy for your rental property business is a best practice that will help you comply with these regulations. Be sure to familiarize yourself with state laws as well, which often provide tenants with additional protections. Visit this helpful resource on tenant laws, organized by state. As always, consult a legal professional when establishing processes and policies for your business.
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How To Screen Tenants In 6 Steps
Once you’ve understood the common laws that protect both landlords and tenants, it’s time to design your tenant screening process. The steps below will help you find the best tenant possible:
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Create Your Criteria: Establish a set list of criteria, such as income level and credit score, that will apply equally to all applicants.
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Pre-Screen Renters: Before showing your property, save time by pre-screening interested applicants to ensure they meet your eligibility requirements.
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Show Your Property: Decide whether you will host a rental open house or schedule individual showings.
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Collect Applications: During your property showing, inform all interested applicants of your screening process and application deadline so that everyone is given an equal opportunity to submit their application and meet your requirements.
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Mind Your Due Diligence: Be sure to thoroughly verify the information provided on each application by running reference, background and credit checks.
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Choose The Right Tenant: After verifying applicant information, proceed to select your tenant. Many landlords elect to select tenants on a first-come, first-served basis. The first qualifying tenant is typically selected for the rental.
Create Your Criteria
First, create a list of eligibility criteria that will be applied uniformly to all interested applicants. Common criteria include a verifiable income level, minimum credit score, a copy of government-issued identification and no prior evictions. Having a set list of criteria will help you save time by limiting your pool of applicants, and will help protect you in case of a discrimination claim. Rentec Direct provides a detailed discussion on how to best design your tenant screening criteria in a way that is legally compliant.
Pre-Screen Renters
Upon advertising your rental unit or property, the fielding of tenant inquiries will begin. If you showed your property to every interested person, especially in competitive markets, you could end up wasting a lot of time. That’s why you’ll want to use this guide to writing effective, high traffic rental ads, including ads on Craigslist. This is where pre-screening becomes helpful. Applicant inquiries usually take place in the form of phone calls or emails, based on the contact information you provide. This is an opportunity to ask questions and verify that interested persons meet your predetermined criteria, thus helping to limit your applicant pool to a manageable amount.
Show Your Property
Once you have a size-able pool of interested applicants, schedule your property showing. Some landlords choose to schedule blocks of appointments, or even individual showings. Many landlords, however, will host rental open houses instead. By allowing prospective tenants to see their competition, they will be encouraged to complete and submit their applications in a timely manner. Property showings are also a crucial aspect of getting to know your applicants in person, helping you to start establishing a strong landlord-tenant relationship with the tenant you’ll eventually select.
Collect Applications
After your property showing, set a deadline to collect all applications. Although it’s ultimately your decision to pick the best tenant for your property, do your best to remain as objective as possible. Remember, it’s the law to use the same screening criteria for all applicants. Designing a tenant screening checklist that you use as standard practice for each and every applicant will help protect you in case any applicants accuse you of unfairness or bias.
Mind Your Due Diligence
Be sure to mind your due diligence and carefully review each application in detail to ensure that the provided information is accurate. It’s common practice for rental property owners to check references, run background checks and pull credit reports to verify information. Keep in mind that, through this process, you may come across points of concern. Always be sure to give applicants an opportunity to explain any issues before you write them off, and that your decision-making process is compliant with the law.
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Check References: When collecting rental applications, you can also ask for references from past employers and landlords. Checking references can help you verify applicant information, but also look for potential red flags such as past evictions. Most employers will have information disclosure policies, so be sure to only ask questions that verify information that was already provided. Using a script can help you ask the right questions each time.
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Run Background Checks: Background checks are typically used to screen for criminal and sex offender history. Make sure to give the applicant an opportunity to explain their circumstances, and be sure to double-check federal and state laws regarding tenant rights pertaining to criminal records. Because background checks can be tricky to navigate, be sure to read more on how to screen renters through a background check.
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Pull Credit Reports: When pulling credit reports, pay close attention to an applicant’s payment history, credit scores and past evictions. These are all indicators of a tenant’s ability or inability to make rent payments on time. Again, the applicant should be given a chance to explain any points of concern before they are crossed off your list.
Choose Your Tenant
After verifying applicant information, you are finally ready to select your tenant. Many landlords elect to select tenants on a first-come, first-served basis as they collect applications. In this case, the first tenant whose application information is verified and who passes the eligibility criteria is selected for the rental. You can protect yourself by putting a time and date stamp on applications as they are submitted, in case your fairness is ever called into question. Sharing your selection process with all applicants in advance can be helpful, so that they know what to expect.
When you have made your tenant selection, the next step is the on-boarding process. Schedule an appointment to review property rules and regulations, conduct a property walkthrough, and sign the lease and rental agreement. Be sure to collect the security deposit and first month’s rent at the time of signing, and provide a copy of the signed lease to the tenant for their records.
Tenant Screening Questions You Shouldn’t Forget To Ask
At this point of the process, you should have taken care of important screening items such as obtaining references and obtaining permission to run credit and background checks. As you get ready to make your final selection, you’ll also want to ask your candidates some important housekeeping questions. Consider adding the following to your list of tenant screening questions:
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Why are you thinking of moving? You will want to make sure your tenant has legitimate reasons for moving, such as living closer to work or wanting a larger space. However, reasons such as getting evicted or having legal issues with prior landlords or neighbors can be a red flag warning.
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What’s your ideal move-in date? This question is helpful for logistical reasons, such as listing move-in and move-out dates on the lease, scheduling a property walkthrough, and coordinating professional cleaning and repairs. Move-in dates are made typically a few weeks to one month in advance.
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What is your monthly income? Knowing the tenant’s current income is an important factor for determining whether or not they will be able to reasonably afford the rental rate. Many landlords will require for a tenant to make at least two and a half times more than the monthly rate. Running a credit check will also help provide a better picture of a candidate’s financial circumstances.
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Will you be able to pay the security deposit and first month’s rent at the time of lease signing? You will also want to verify that a potential tenant can afford to pay the security deposit and first month’s rent upfront. If they are unable to afford this amount, it could signal that they may have trouble paying rent in future months. It may be tempting to make exceptions for seemingly stellar candidates, but keep in mind that the security deposit is a crucial protection that will help cover the cost of damages or financial loss.
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How many people will be living in this unit? Be sure to check your local laws on the maximum occupancy for rental units. Not only can too many people living in one unit cause excess wear and tear on your property, it is an issue that can pose health and safety risks.
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Do you have any questions for me? Keep in mind that the tenant screening process should go both ways. Although you will have a list of questions you’d like to ask of applicants, future tenants will also want to feel satisfied and reassured that they will have a good experience living in your property. Be sure to provide candidates with plenty of opportunities to ask questions or address any concerns they may have.
Summary
The tenant screening process does not have to be approached as an unpleasant, tedious chore. Both rental property owners and tenants are encouraged to use this experience as an opportunity to establish a positive relationship from the get-go. Finding great tenants is an important aspect of safeguarding your rental properties, and thus the bottom line of your business. If you are just getting started in rental property investing, be sure to get our tips on how to start a successful rental property business.
Do you have any pro tips on how to find amazing rental property tenants? Help out beginner rental property owners by sharing your industry knowledge in the comments below:
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