Using Tenant Screening to Empower Your Rental Business – Part 1: Background Checks

Are you tired of chasing down monthly rent payments or dealing with unreliable tenants? We get it; it’s a hassle that can cost you time, money, and even your peace of mind.

The answer is better tenants through tenant screening. Good tenants pay their rent on time and take care of the property as if it were theirs. This is why screening for reliable tenants is so crucial to empower your business. It sets the stage for a smooth-running operation and minimizes the chances of running into issues down the line.

Don’t worry; we’ve got your back. We’ve been in your shoes and have helped countless landlords navigate this challenge. Stick with us, and you’ll learn how to screen tenants effectively, ensuring:

Smoother monthly rent collection,
better long-term relationships, and
fair screening and compliance with fair housing laws.

Along the way, you will also find out:

What are some of the best characteristics of great potential tenants?
What are some of the red flags to watch for in prospects?
What real value do you get from the effort to find great tenants?
How to use online tools for applications and credit checks to make it all easier.

Ready to dive in? Let’s go!

Identifying Ideal Tenants: More Than Just Credit Checks

Credit checks are often the go-to method for tenant screening. We recommend credit reports, but seeing a bunch of numbers is not enough. It’s about understanding the tenant as a person and recognizing the long-term value they can bring to your rental business.

Good tenants mean:

easier, on-time rent collection,
renters who take better care of your property,
less time and effort dealing with tenant issues,
better long-term relationships, and
savings, in time & money, from reduced turnover.

Every landlord and property manager wants these things, but how do you find them? Look beyond credit history. Utilize ways to look beyond the numbers. You also have to look at things like:

employment history,
landlord references, and
personal interactions through the application and showing processes.

Use the application and onboarding processes to note applicant behaviors and look for renters who:

are responsive and responsible in their communications and payments of fees
are not overly, or inappropriately, picky or critical, and
who show appreciation for the property.

Conduct thorough background checks, trust your instincts while staying within fair housing laws, and communicate openly to gauge compatibility and expectations. We discuss all of this below, but remember to look at the renter as a person during the process.

Red Flags in Tenant Prospecting: Spotting the Bad Apples Early

OK, we have some excellent ideas of what we are looking for in our ideal tenant, but recognizing red flags in prospective tenants is also crucial. Spotting warning signs early can save you time, money, and stress.

Check for criminal history, inconsistencies in rental application forms, and signs of financial instability. Talk to previous landlords, watch for inconsistencies, and assess financial stability through credit checks and employment verification.

Recognizing red flags early in the screening process is crucial. Let’s look at the details of some of the characteristics mentioned above.

Financial Instability

Red Flag 1: Frequent job changes can indicate instability.
Red Flag 2: A low credit score and a high debt-to-income ratio can be a warning sign.

Poor Rental History

Red Flag 1: Previous evictions are a significant concern.
Red Flag 2: Negative feedback from former landlords should be taken seriously.

Criminal Background

Red Flag 1: Violent offenses or property damage are serious concerns.
Red Flag 2: Multiple offenses over a short period can indicate a pattern of behavior.

Inconsistencies and Lies

Red Flag 1: If the information on the rental application form doesn’t match what you find in background checks, that’s a red flag.
Red Flag 2: Be wary of applicants who avoid answering questions directly or seem to be hiding something.

By understanding these red flags, you can save yourself time, money, and potential legal issues down the line. Each of these red flags can be spotted through:

thorough background checks,
detailed application process,
impromptu interviews during showings, and
reference checks.

So, please take the screening process seriously; it’s your first defense against problematic tenants.

Comprehensive Background Checks: The Cornerstone of Tenant Screening

When it comes to tenant screening, background checks are a cornerstone. They provide a hard, fact-based view of a prospective tenant, helping you make an informed decision.

Credit history is the most common background report item and can reveal a lot about a prospective tenant’s financial responsibility. Late payments, bankruptcies, and high debt can be red flags. However, remember that a credit report is just one piece of the puzzle in tenant screening reports.

Let’s break down the types of background checks you should consider:

Credit Report

A credit report is a snapshot of a person’s financial responsibility. In the information, look for:

late payments,
bankruptcies, and
high debt-to-income ratios.

When it comes to credit checks, understanding the credit score levels can provide valuable insights into a prospective tenant’s financial responsibility. Generally, a credit score:

above 700 is considered good and indicates a lower risk for landlords,
between 600 and 700 are considered fair but may warrant a closer look at other financial indicators like income and employment stability;
anything below 600 is usually a red flag and should prompt you to dig deeper into their financial history.

However, it’s crucial to note that a low score shouldn’t be the sole reason for rejecting an application; it should be considered alongside other factors discussed here, and always keep Fair Housing Laws in mind.

Criminal History

A criminal records background check can reveal past offenses for a prospect, which may or may not be relevant to their potential as a tenant. However, it’s crucial to consider fair housing laws when considering this information.

‍When evaluating criminal background checks, you must stay within the guidelines of Fair Housing Laws. This means you cannot implement a blanket policy that automatically disqualifies anyone with a criminal record. Instead, you must consider the nature, severity, and recency of the criminal activity in question. Discriminating against prospective tenants without these considerations could put you at risk of discrimination.

Eviction & Rental History

Some background check agencies also provide rental and eviction history reports. Rental history data is typically generated from many sources to comprehensively profile a tenant’s past behavior. Public records play a significant role; eviction proceedings, for instance, are a matter of public record. In addition to this data from legal proceedings, many sites exist where landlords can submit information about a tenant’s rent payment history, lease violations, and other relevant details. Some databases also gather information from consumer reporting agencies that collect rental history data.

It’s worth noting that the quality and comprehensiveness of the data can vary depending on the database and its sources. Therefore, using this information as part of a broader tenant screening process is advisable rather than relying solely on it.

On top of all these data sources about rental history online, you should take advantage of the most direct way to get background rental history: call prior landlords listed as references. While this is certainly more time-consuming, it can provide valuable insights into the tenant’s behavior, payment history, and adherence to lease terms. Previous landlords can offer an unfiltered view of what it’s like to have the prospect as a tenant.

Common Practices in Background Checks

It’s standard practice in rental applications to pass the cost of these checks onto the applicants, usually as part of an application fee. This not only offsets your costs but also: