Finding a great tenant is the goal of every investment property owner. You provide a clean, comfortable, fairly-priced home. In return, your tenant pays rent each month, which helps defray your holding costs. Under the right circumstances, this is a win-win relationship for both parties. Unfortunately, finding a great tenant isn’t always so easy. As a result, property owners must often deal with tenants who damage their rental homes, don’t pay rent on time, or make unreasonable demands. That’s why using a tenant screening process is an important step when choosing who will live in your home. Here are a few guidelines to follow.
Follow the Law
As part of the landmark Civil Rights Act of 1968, Congress passed the Fair Housing Act (FHA), barring housing discrimination based on certain factors. They include:
- Race or color.
- National origin.
- Families with children.
In addition to federal law, many local governments have specific housing regulations property owners must follow when selecting tenants. As a result, property owners must be familiar with all applicable laws and understand what type of screening questions might violate these regulations. Property owners should also create their own set of rental criteria which abides by federal and local tenant laws. That way, if you ever deny a potential applicant based on your criteria, your decision will be well-documented and justifiable.
Perform a Tenant Credit Check
Have you ever heard the adage, “the best predictor of future behavior is past behavior?” This saying is certainly true with tenants. That’s why it’s a smart idea to perform credit checks as part of every application. These screenings will give you insight into a candidate’s ability to afford their monthly rent. They’ll also reveal how the candidate has handled monthly payments in the past. A credit screening usually includes two separate verifications:
- Income Verification: Asking for pay stubs or a recent tax return will show how much money an applicant earns each month. Ideally, a candidate’s monthly income will be three times the cost of their rent. Property owners should take the additional step of calling the prospective tenant’s employer to verify they currently have a job.
- Credit Check: By running a credit check, you’ll verify that a potential tenant has a history of paying their bills on time. Credit checks will also reveal negative events like bankruptcies or evictions which might violate your rental criteria. These screenings will also show your potential tenant’s debt to income ratio, which provides a glimpse at their ability to afford their monthly rent. For example, a possible tenant might earn $10,000 per month, but if they owe $8,500 in debt each month, they might have trouble paying even a small rental payment.
Performing a credit check costs money, which is why most property owners charge a non-refundable processing fee as part of a rental application.
Perform a Criminal Background Check
As a property owner, you want to ensure your next tenant is a good citizen who will be a considerate neighbor to other people in the community. One way to find this out is through a comprehensive criminal background check. Criminal histories are public records and are viewable at local courthouses. Keep in mind, however, that there is no nationwide criminal database, so, a thorough check should include:
- Federal court records.
- Statewide criminal records.
- County criminal records.
- A Department of Corrections offender search.
- Sexual offender database search.
Checking all these databases is a time-consuming task, which is why most property owners hire a service to perform these screenings. Some states prevent property owners from denying housing based on certain crimes. So, familiarize yourself with local law. It’s also important to note that these checks will turn up both major and minor crimes. While it may be justifiable to deny an application based on violent or sexual crimes, it may be more difficult to do the same based on minor offenses.
Obtain a Rental History
The final step in your screening process is obtaining a rental history for all potential tenants. This step gives you insight into the person’s past behavior as a tenant and reveals potential problem-spots like evictions, noise complaints, late payments, and more. If your prospective tenant doesn’t have a long rental history or is a first-time renter, you might decide to require a co-signer. In those cases, you’d put the co-signer through the same screening process as the potential tenant.
Watch for Warning Signs
Even applicants who look good on paper could be bad tenants in disguise. So, watch out for potential warning signs like frequent moves, referrals from only family members and friends, or tenants who are in a big rush to move in. All these could indicate more significant problems beneath the surface that you should investigate further. Perhaps most importantly, trust your gut. Follow the law and trust your screening process, but don’t ignore those instincts. They could be pointing to something meaningful.
Hire the Portland Property Management Professionals
If all this all sounds a bit overwhelming, you’re right. Screening tenants is one of the most critical steps in managing an investment property. It’s also one of the most difficult. You don’t have to do it alone, however.
By hiring professionals, like the experts at Rent Portland Homes by Darla Andrew, you don’t have to worry about all the details that come with renting your home. Our team handles everything, so you don’t have to. To learn more, call or text Darla today at (503) 515-3170. Or, you can fill out the contact page on our website, and we’ll get right back to you.