Tenant Screening Our Guide to Finding the Perfect Tenant

Your Goal In Tenant Screening: Avoid Eviction

From time to time, we get to hear our customers’ complaints about going through eviction process. Eviction is every landlord’s biggest nightmare because it generates major cost and loss of income at the same time. If you want to prevent spending thousands in legal costs, repairs, and unpaid rent, detailed tenant screening is the cheapest insurance you can get to secure your assets. Additionally, most landlords have tenants pay for their own background checks as an application fee so there is really no reason not to check your tenant thoroughly.

Avoid Discrimination: The Fair Housing and Fair Chance

By following the tenant screening laws, you can avoid tens of thousands dollars in discrimination penalties. We suggest not even asking about the following information and therefore not making your leasing decision based on it:

  1. Race;
  2. Color;
  3. National Origin and Ethnicity;
  4. Gender and Sexual Orientation;
  5. Familial Status and children;
  6. Any disabilities;
  7. Religion;
  8. In some *locations, even criminal and eviction history  *Locations include: Seattle, WA; Detroit, MI; Cook County, IL; and possibly others.

Set Your Tenant Screening Criteria

Before you start screening your prospective tenants, spend some time creating your tenant screening criteria. This will help you protect yourself in case any of your prospective tenants file a discrimination claim against your decision. Evaluating your local rental market and the quality of the housing you offer will help you with setting your criteria. Your ideal tenant should be able to pay your rent on time, still have disposable income for other necessities and luxuries, and be reliable to follow your lease terms. Here are some criteria you can include in your evaluation of your prospective tenant:

  1. Minimum combined gross income. The rule of thumb is the combined income should be at least three times the rent amount.
  2. Minimum credit score. An average credit score for a renter is between 600 and 650. Higher the score, the higher the probability your rent will be paid on time.
  3. Minimum length of the lease. What lease length works the best for you? 6-month, 1-year, 2-year? The length of the lease may vary.
  4. Criminal history. Not all criminal records are equal. Your applicant may have been charged with an open container misdemeanor or an armed theft felony. You may want to decide whether all criminal records or only violent criminal records are a deal breaker. Obtaining a criminal report on your potential tenant is essential.
  5. Eviction history. You could potentially predict the future by looking back to the past. The eviction report reveals any eviction filings on your prospective tenant in the last 7 years.  Decide whether an actual eviction or just an eviction filing, which may have been settled without proceeding with eviction is grounds for rejecting your applicant.
  6. Pets. Do you not allow pets? Are pets negotiable for a pet fee? A pet may disqualify your applicant regardless of any other conditions your applicant meets. Create your pet policy and include it in your ad but know the laws on service animals.
  7. Smoking. Same as pet policy, smoking policy can also be communicated in the listing ad and can disqualify any applicant if they are looking for a smoking rental property.
  8. Late payments. The number of late payments on the applicant’s credit reports can indicate the probability whether your renter will pay your rent late or on time. The credit report includes last 7 years of credit history. Ask yourself: how many late payments in the last 7 years are too many to disqualify your applicant?
  9. Bank account average balance. Carrying a bank account balance is not “in” amongst most renters. However, your renter should have enough available funds to cover your rent amount at any time of the month. If this criteria is important to you, and it should be, you will find our Financial Profile helpful to evaluate cash trends of your applicant’s bank account.

Post Your Ad for Rent

Timing of your ad is key to finding a good tenant.

Ideally, you want to post your ad about 45 days before the new lease start date. This is because most states have 30-day Notice To Quit law in place and tenants who follow the lease terms, i.e. good tenants, will want to secure their new rental property before the 30-day period starts. This will allow them to give their existing landlord a 30-day notice. 

If you post your ad within the 30 days from your preferred lease start date, you may still find great tenants but one of these risks may arise:

  1. Your new tenant might want to start their lease later then your desired lease start date and you will end up with vacancy.
  2. Your new tenant might be rushed and lease your unit without it being ideal for her needs and less likely to renew at the end of the lease term.
  3. Your prospective tenant might be getting evicted from their current rental and needs housing fast.

Pre-Screen Your Applicants (optional)

Prior to screening your potential tenants, you can also pre-screen them. This step is optional but it may eliminate some cost and effort.

This means you can ask your prospective tenants a couple of questions that will give you a good idea if your applicant is a good candidate for your rental property and eliminate candidates that don’t meet your deal-breaker criteria. In most locations, you can ask questions like:

  1. Do you smoke?
  2. Do you have pets?
  3. What is your monthly income?
  4. What is your approximate credit score (if known)?
  5. *Do you have any criminal records from the last 7 years?
  6. *Have you been evicted in the last 7 years?
  7. How long of a lease are you looking for?

* Some locations like Seattle, WA; Detroit, MI; D.C., or Cook County, IL have already ruled that asking applicants about their criminal or eviction history is discriminating against Fair Housing and Fair Chance. Please know your local tenant screening rules.

Your list may be different or you may choose to simply send your tenant a rental application, which covers most of these questions. The pre-screening questions should only eliminate the obvious deal-breakers before having each of your rental applicants going through the tenant screening process.

Screen Your Prospective Tenants

Before you approve anyone to live in your investment property, you absolutely have to screen them. By screening your tenant you are trying to make sure your tenant

  1. can pay the rent on time (good credit, bank account balance)
  2. has not been evicted or is not being evicted from their current housing
  3. is not going through a bankruptcy
  4. has no criminal history or any violent criminal history
  5. is who he says he is (verified identity)
  6. has sufficient combined gross income (at least three times the rent so your renter will be able to afford your rent)

To get started with tenant screening, collect all applicants’ names and email addresses to start your tenant screening process.

Your Tenant Screening Process

LeaseRunner is very flexible and will accommodate any screening process you may have. We have outlined a couple of processes you can follow to successfully find the perfect tenant.

Pre-screen, Show Property, Screen

If you want to minimize the impact of showings on your renters currently living in your rental property and only show the home to the most qualified renters, you can ask the key questions prior your showings or even before having your prospects fill out a rental application. Some applicants may eliminate themselves when you communicate your screening criteria early on. 

Pros: This process saves time for you, your current renters, and disqualified prospective renters

Cons: Smaller pool of applicants.

Show, Pre-screen, and Screen

Another option is to show the property to all interested parties. Collect their names and email addresses at the showing or even email the rental application to your prospects at the time of the showing. How fast your rental applicants return the completed application to you is often a measure of their interest in your rental property. Once you review the rental application and you think your applicant will check all your screening criteria, email him a screening request

From your account, simply select the background check services you require and specify who should pay for the service. LeaseRunner will email the request to each applicant separately. Each prospective tenant has to authorize her own background check release for you to view. 

Pros: This process allows you to carefully select tenants you want to screen further and save money to applicants who are likely to get disqualified due to screening criteria. 

Cons: This process may be slow as it takes multiple steps.

Your applicant does not need an account with LeaseRunner. Applicants always complete your requests from their email once you send it.

Show and Screen

This process is probably the most common one. It is one to follow when you are in a competitive market or short on time. Most applicants will want to see the property before paying the tenant screening fee. After the showing, select all desired tenant background checks in your LeaseRunner account along with the rental application. This process will discourage those applicants who are not entirely sure about your rental property and therefore spending the money on the application fee. 

Pros: You will be able to get an excellent idea about the tenants’ ability to follow your lease terms, compare them, and select the best tenant based on the results.  

Cons: You will have to decline multiple great candidates and send them an Adverse Action Letter (possible new page). 

Approving and Declining Prospective Tenants

Once you compared the screening results and found the perfect tenant for your rental property, it’s time to notify them about the approval. That’s the easy part.  

The Adverse Action Letter is not only a compliance step of the Fair Credit Reporting Act (FCRA) , but it can make declining tenants who did not make the cut easier. The letter should state the reasons for the denial. Often, multiple applicants meet the screening criteria but one can still be better than others. 

Signing a Lease Agreement 

For many, obtaining a lease agreement is the most daunting part of the leasing process. You know that a lease form from Office Depot won’t make it in case it gets in front of the judge but custom lease agreement from your in-state attorney will cost hundreds if not a thousand dollars to prepare. Your lease must be state-specific, following the laws in a given state, or even a city. Tenant-landlord laws change every year and LeaseRunner provides state-specific lease agreement templates that you can execute via e-signature. The end result is lease agreement PDF that is emailed to all parties automatically after signing.

Collecting Security Deposit

You are almost there. It is important to say that you don’t have a tenant until their security deposit settled in your bank account. Security deposit is due at signing the lease, which may be harder to follow through when the lease is signed electronically. 

Here are the steps you can take if you are signing the lease and collecting security deposit electronically:

  1. Send the lease for e-signature via LeaseRunner
  2. Send the Rent Payment Instructions to your new tenant from your LeaseRunner account.
  3. Tenant signs the lease, creates TPC account, and pays the security deposit.
  4. Once you see the security deposit in your bank account (in 5 business days), you e-sign the lease that was sent to you. If you get the notification that the security deposit bounced, do not sign the lease and allow your tenant to remedy the situation. If no action is taken by your tenant, you may want to consider finding a new tenant.