Your investment property is important to you. You want to ensure that you find a tenant who treats the house well and is also current with their rent payments. In other words, you want to pick someone you can trust to keep their end of the deal. This is where tenant screening comes in. While there’s no guarantee, screening gives you a good picture of who you are considering. In real estate, the saying goes ‘location, location, location’. In rental properties, our saying is ‘screen, screen, screen’. If you don’t ‘screen’, you may end up with ‘scream’ to deal with messy tenants. Let’s face it, it’s not easy to deal with difficult tenants and eviction costs time, money and effort – it’s a headache you want to avoid.
Screen, Screen, Screen
The goal of tenant screening is to find great tenants. The screening process is like putting together a puzzle. You paint an objective picture of the tenant based on various data available about them through credible sources. There are two categories in selecting a tenant – objective and subjective.
Let’s look at the key factors to consider for tenant screening objectively:
Credit score gives a picture of the applicant’s historic ability to keep to their commitments. It shows whether they have been mostly on-time with the money they owe.
Eviction history shows whether the tenant is reliable.
Foreclosure history gives a picture of how the tenant has handled their finances and where they are now.
Current employment status is a good indicator of the tenant’s ability to pay rent. You want to look at their paystubs and call their employer if needed.
Lease history / broken lease helps to identify if this tenant is a long-term candidate. Short term candidates cause turnover and therefore costs money and time for the landlord to turnaround the unit. Month to month leases at a different rent is a better option for some candidates.
Outstanding debt helps to understand how much rent the tenant can afford to pay. If they aren’t paying these debts, then that’s another piece of the puzzle in painting a picture about the tenant.
Criminal background helps to identify any documented criminal activity across different states.
Sex offenders when registered can be tracked across states.
Financial affordability We recommend that you look at the holistic financial picture of the tenant instead of blindly using the 30% rent to income ratio. Factor all the income streams and known fixed expenses as well as the debt owed. A post-tax calculation paints a picture of how much the tenant will have left to pay the rent and afford their daily expenses. We have a detailed article on it here.
Can they afford that rent? Do your own comprehensive math
Now, let’s look at some of the subjective measures:
Rental history obtained through discussions with past landlords helps to get firsthand feedback. However, keep in mind that people change and they may not be the same person that used to rent a different house in the past for better or worse.
Meeting the tenant and interviewing them gives them an opportunity to explain their situation. It also gives you an opportunity to evaluate if the person is trustworthy or has too many stories.
Meeting the people helps you to put all your objective discovery work in context
Using both objective and subjective measures, you can reduce your chances of getting a bad tenant and protecting your investment property and peace of mind. HomeKasa offers the best property automation software that helps you to screen the tenant and keep track of all communications.