Many landlords wonder if their tenant screening procedures are up to par, and for good reason. If you don’t properly screen tenants, you could end up with property damage, skipped payments, and anywhere from $3500-$10,000 in eviction costs.
Clearly, tenant screening is an important process with a direct influence over the future of your business. So how do you find loyal, qualified tenants?
You should start with the basic components: credit reports, criminal and eviction histories, income verification, and a solid rental application. But beyond these elements, there are other tips and tricks you can use to ensure you get the most out of your screening process.
Here are five tips for effective tenant screening.
Know the Fair Housing Act.
If you rent residential properties, you should be well acquainted with the Federal Fair Housing Act. Signed into law in 1968, the Fair Housing Act is the single most important legislation for landlords.
The law prohibits unlawful discrimination in renting or buying housing for seven protected classes: race, color, national origin, religion, sex and gender, familial status, and disability. As a landlord, you should be aware of these classes and be careful not to ask about them anywhere on your rental application.
Consequences for a discrimination lawsuit are severe, for both you and your business. As a precaution, make sure you have a legal expert review your application and address any questions that could be a potential liability.
Use a Tenant Scoring System.
You need to ensure your application is fair and equal for all applicants. So how do you do this?
A tenant scoring system is one solution. A scoring system is a weighted point system for calculating numerical scores that represent each applicant’s level of qualification to rent your properties. It is generally a comprehensive calculation based on a variety of factors (credit score, income, eviction history, etc.) that you assign weights depending on your individual preferences.
A tenant scoring system is one to protect your business from legal liability. If you have clearly documented numerical justification for accepting and denying tenants, you are less likely to be accused of favoritism or discrimination.
Likewise, a tenant scoring system keeps you accountable as you consider your applicants. It may be difficult to weigh multiple candidates in your head without a comprehensive, objective structure. A scoring system provides just that.
Use a Holistic Credit Approach.
A credit score, a number ranging from 300-850 representing creditworthiness, is often used by landlords to distinguish high-quality tenants. Typically, a score anywhere between 700 and 850 is considered creditworthy.
While it can be tempting to focus on this one number, this is a mistake. Remember to look for all five components of a credit report: basic information, fraud indicators, tradeline summary, inquiries, and credit/resident score.
Particularly, you’ll want to pay attention to the tradeline summary section. Knowledge about an applicant’s other monetary responsibilities (significant debt, credit cards, active accounts) can tell you a lot about how prepared a tenant is to pay rent, no matter their income.
Use Passive Screening.
Passive screening is a natural way to attract tenants that already meet your standards. Passive screening techniques include employing strategic marketing that targets advertisements toward the locations and platforms where your ideal tenants already are.
For instance, if your target population is commuting professionals, you might advertise your properties near public transportation or popular business areas.
Use Social Media with Caution.
Social media can be a valuable way to find out crucial information about your renters. However, you should use caution when including social media in your screening process.
Importantly, if you want to use social media, make sure you identify beforehand which platforms you’ll be using. Then, use the same platforms and procedures for all your tenants. For example, it’s not ethical to search an applicant’s Instagram only when you have suspicions that they aren’t being honest about a part of their application.
Find High-Quality Tenants for Your Properties
Highly qualified tenants are not impossible to find. If you use thorough tenant screening— particularly with property management software—and follow these five tips, you are sure to secure great tenants for your properties.