Wow! The inquiries about my rental property are flowing in within one afternoon of my listing being published.The rental market is hot, hot, hot! I will be able pick and choose a tenant easily!
Are these thoughts familiar to you? Well, good for you! There is no better position for the landlord to be in than being able to carefully select the perfect tenant for your rental and even be picky about it. It’s even worth not charging the premium rent in a less competitive market.
As you may know, following the Fair Housing Act can keep you out of court. But how do you ensure that you’re always in compliance with this sensitive topic?
Avoid Discrimination in Housing
You have probably read about discrimination in housing many times, but here is a quick reminder of which factors may constitute discrimination and showing preference when selecting your tenant.
- Familial / marital status
- Handicap status
- National origin
Obviously, the issue of potential discrimination typically arises with a denial of a rental to an applicant. (You can still be accused of discrimination when accepting an applicant but under certain conditions, such as steering families with young children to units in the back of a complex.) So, how do you go about declining rental applicants that don’t seem to make the cut?
Set and Communicate Your Tenant Criteria
Every fair game starts with clear rules and stating the criteria of the winner. Treat the leasing process like a fair game and clearly communicate your expectations to your prospective renters. This may help your prospects to disqualify themselves, which will save you time and effort, and at the same time you will set the bar for your applicants to achieve. Let them be the judge if they should spend the time, application fee, and effort completing the rental application and tenant screening.
Here is an example of tenant screening criteria. But be sure to create your own based on your rental market conditions, expected rent amount, and quality of the property.
A good baseline is for the group of tenants renting the property to have combined income of at least three times the rent. Be aware though, unrelated tenants / roommates should each have sufficient income to somewhat afford the whole rent amount because every party to the lease is responsible for the whole rent amount. This is what “joint and severally liable” refers to in the rental agreement. If only one tenant stays in the property and the others leave, the remaining person must be able to pay the full rent amount until the end of the lease term. This situation is more likely to occur with roommates, but it can still happen with families.
Monthly Liabilities + Rent
The tenant must have sufficient disposable income for any other expenses like groceries, phone, utilities, gas, insurance, etc. after paying the monthly rent and other monthly payments that appear on her credit report. At least 30% of the applicant’s income should remain available as disposable income.
Credit History Criteria
- Credit score 600 and up
- No collections in last two years
- No outstanding past due payments
- No liens and judgments
While a credit score is just a number, it reflects on the payment history of the applicant. Consider all of the variables that affect the score. Was my prospective tenant late on payments? How many times? How recent were any late payments? How late? Were any accounts closed with a balance? Are there any collection accounts? Are there any open liens, judgments, or bankruptcies?
Clean Criminal Record
- No sex-offender record
- Other criminal records will be carefully evaluated
Clean Eviction History
Last 7 years of eviction history will be evaluated.
$50 per applicant 18 years and older
- Dogs - up to 100 lbs, no pit bull or rottweiler breeds. No puppies.
- Cats - Litter trained. No kittens.
- Two pets maximum.
Meeting all above criteria does not guarantee placement in the property.
Don't Skip Tenant Screening
If you’re still not sold on the importance of tenant screening then let's discuss another point that you should strongly consider. If you are trying to avoid discrimination, and who isn’t, screening your tenants will not only provide you with great insight on your prospective renters and their ability to comply with your lease, but it will serve as ”the body of evidence” regarding your final decision. If you were to make your choice solely based on the rental application, it will be harder to prove that you didn’t make your decision based on any of the discrimination factors previously mentioned.
Be Picky! Be Careful!
Ultimately, the decision is yours. Don’t accept just any tenant for fear of discrimination. As long as your decision is based on solid information that is in your business’ best interest and you state your criteria clearly, you won’t have to worry about being charged with housing discrimination.