Blogger’s Note – The son of a good friend of mine is looking to get started in real estate investing. He would like to become a landlord and find properties that offer positive cashflow to replace his current income. His goal is to ultimately become a full time real estate investor. I have been giving him some advice as he tries to liftoff his real estate investing and I thought it would be interesting to share some of his questions and my answers on this blog as I’m sure there are others out there who have the same questions. I hope to publish more questions and answers in the future. Click here to see the previous question and answer: Is my market a good place to start?
Question: How Do You Know You Have Picked The Right Tenant?
Answer: You Will Not. But Proper Tenant Screening Will Tip The Scales In Your Favor.
The simple answer is that you really never know if you have picked the right tenant until they move in have lived in your property for a while. Until you have a track record of on-time rental payments and a lack of complaints or unnecessary repairs, you never really can know.
That said, you can tip the scales in favor of you picking the right tenant with proper tenant screening.
What Is Proper Tenant Screening?
Proper tenant screening is made up of a lot of different ingredients. These ingredients are going to vary based upon the landlord, the type of property, the local market and local laws.
Proper tenant screening is also perhaps the most important thing landlords do because bad tenants are extremely costly in terms of money, time and stress. So you want to avoid them. Instead you want to attract and screen for tenants who will pay, stay and respect your property.
To begin thinking about how you might properly screen your potential tenants you should first do two things.
- Learn about federal, state and local fair housing laws.
- Develop a set of rental qualification criteria that you will use to screen and choose potential tenants.
Fair Housing Laws
Federal legislation from the 1960s onward has designated several protected classes. You may not use these classes in any way as a basis for tenant selection. These federally protected classes are: race, color, religion, national origin, sex, disability and familial status. States and local jurisdictions may add more classes, such as age, veteran status or sexual orientation, to the list. Check your local laws to be sure.
You may not deny housing to someone because they are black or from India for example. You cannot deny someone housing because they have children or are unmarried. In fact, you cannot even ask about these items. Why? Because being black or unmarried or from India has no bearing on someone’s ability to pay, stay and respect your property.
Rental Qualification Criteria
There are however many other types of measures available for you to use that do reflect a potential tenant’s ability to pay, stay and respect your property. These measures are what you should use to develop your rental qualification criteria that I mentioned in point two above.
What types of measures might these be? Here are just a few examples.
- Tenant must have income equal to three times the amount of monthly rent.
- No evictions in the past 5 years.
- A credit score above 600.
- No felonies in the past 10 years.
- Not moving every year.
- Not being rude or disrespectful.
- Being truthful.
- Being neat and clean.
There are many more that you may choose to utilize. This is because these few rental criteria examples that I mention may or may not work in your local market or for you. You may want to have tenants who have never been evicted for example. Credit scores may not be good indicators in certain areas. In others, like those near military bases, people may move all of the time.
Remember too that liars, jerks and slobs are not protected classes. You do not (and should not) have to rent to someone who has provided false information on your rental application. You do not have to rent to someone whose car is full of trash or has food spilled down the front of their shirt (guess where all of that trash will end up). Nor do you have to rent to anyone who is rude or disrespectful to you.
You do however need to write your rental qualification criteria down, keep that written list in a handy to find file and use them to rank each and every potential applicant in the exact same manner. If, for example, one of your criteria is a credit score above 600, you cannot break that rule “just this one time for this one person.” The criteria must be applied consistently.
There is a lot more to tenant screening than I can write here in this short post and I am actually developing a lot more future material about this topic. For now, use the above advice as a start and download my report on 22 Tenant Screening Red Flags by entering your e-mail address in the link directly below this post.
What criteria do you use to screen your tenants? What works and does not work in your local market? Please share with your comments.
