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Tenant screening is one of the most fundamental things every landlord or property manager will need to do when keeping an investment property full and cash-flowing.
A tenant (or group of tenants) can earn monthly profit and help to ensure the property stays in good shape for long-term appreciation with less maintenance costs down the line. An ineffective screening process can fail to block a renter who is a potential threat to an investment property.
Landlords could also set themselves up for accusations that they violated fair housing laws depending on how they screen tenants.
Inman reached out to two experts in the process to hear what landlords should consider when screening tenants, and tools for getting the job done.
“What most people don’t realize is that screening is not just generating a credit report on someone,” RentSpree CEO Michael Lucarelli told Inman. “Screening is a process.”
Think of it like a sort of investigation with the goal of assessing how likely someone is to pay rent on time and in full while taking care of a property. Here’s what experts said landlords should consider.
Cover the basics
Some things are considered standard practice for landlords and property managers as they screen tenants.
“Generally speaking the pieces of screening, it’s going to be the rental application, then usually a credit check, credit report and credit score,” Lucarelli said. “From there eviction report and background check.”
Michael Lucarelli | CEO of RentSpree
Those basics make up the bulk of what landlords will want to check for.
RentSpree offers to handle that type of screening on behalf of landlords, who can also work with a number of online screening tools for background checks.
Call a previous landlord (not the current one)
When screening tenants, asking for references is a given. And talking with an applicant’s previous landlord can give some insight into how a renter’s history.
Nathan Gesner | Broker/owner of American West Realty & Management
But contacting a current landlord may not be the best source of information, said Nathan Gesner, broker/owner of American West Realty & Management, which manages about 400 rental units and another 350 storage units in Wyoming.
“Sometimes landlords will give you false information in an effort to get the tenant out of their rental,” Gesner said. “You have to be careful with what you accept as a reference.”
Lucarelli suggested asking for contact information for previous landlords as part of the screening process.
“The previous landlord is the best person to get in contact with,” Lucarelli said. “If there is a bad tenant, the current landlord of that tenant has a vested interest in the outcome of your decision.”
Create a rubric
Landlords can make things easier for themselves and avoid even the threat of fair housing accusations by creating a kind of rubric during their screening process.
Setting a minimum credit score, maximum debt-to-income ratio and other requirements applicants must meet to qualify to rent a property can help.
“I use a scoresheet, and we evaluate a person on 15 different categories,” Gesner said. “Each category they could score from 0-3 points. We add those up and that total score determines if they’re denied or if they’re approved.”
A lower credit score can represent a higher risk to a rental property, Gesner added.
“The higher the risk, the higher the security deposit they have to pay,” he said.
Landlords can even share that with the rental listing to provide transparency to prospective tenants and allow applicants to avoid applying if they don’t qualify.
“You’re trying to evaluate the level of risk the person presents to your business or the property,” Gesner said. “With most things you identify risk and then find a way to mitigate risk.”
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