Qualifying Tenants for Rental Homes

on 26 September 2016

Probably one of the most vital functions of property management is the tenant applicant screening process.

There is no guarantee that doing a thorough character review will assure a quality tenant, but it is certain that not doing it invites headache and potential loss of investment value. Even a poorly conducted screen is better than no screen at all.

Having said this, it is important to note that the process need not be as formal as that of qualifying for a mortgage or loan. Indeed, such stringent qualifications are probably counterproductive in the rental business because many a good tenant prospect may never be approved under such rigid standards. The one feature most property managers enjoy, that a bank cannot, is a face-to-face meeting opportunity between the decision maker and the applicant. Judicious use of the personal interview is a powerful method of judging character.

In my own case, as a professional property manager, the tenant may not even know they are being interviewed, because I do it discretely during the property showing process.  While showing the property, I ask a lot of questions. Questions that just make me look like I’m a normally inquisitive property manager. In actuality, I am probing for inconsistencies between what they tell me during this informal process, while their guard is down, and what I will get later in the written application. During the showing, they may not yet have even decided that this is the right house for them, so they haven’t fully engaged in a deceitful strategy to cover up their background. When I discover inconsistencies between the written application and the personal interview, I can pretty much plan on denying the prospect. If they are fibbing to me before we even get started, it is doubtful that the relationship could have an otherwise good ending.

The credit report is an important resource as it can be highly informative about the prospect’s risk probability. There are dozens of criterion in this resource.  While the credit-score is an indicator, I do not put much weight the score itself, because it’s designed to satisfy bureaucratic expectations, many of which are ludicrous at best. I am more interested in what the applicant has done lately, and even more than that, the reasons why. This is something the credit report can neither digest nor quantitatively indicate.

Another good source of information is the residential history.  A phone call to the previous landlord can be priceless. If the previous landlord was an apartment complex, they will probably want to communicate with you in writing. Be prepared to send a fax in which you ask the pertinent questions. If the prospect owned a home just prior to application, that should be easy to verify. If they had a loan on the property, the status of that loan will appear on the credit report.  If they owned the house our-right (unusual for renters), that can be confirmed by checking county tax records for ownership.

Finally, check with the prospect’s employer. Some HR departments in the larger companies resist such inquiries. Nevertheless, they will provide the information if you are willing to jump high enough and through enough hoops. But if they are overly resistant, you can get all the information you need from recent pay stubs. You may even want to get a few recent bank statements that indicate the monthly deposit rate, which can easily be compared to the pay stubs.

Intuitively, it seems checking criminal background would be a good measure as well. The problem with this process is that comprehensive searches are extremely expensive—and anything less than a comprehensive search is a waste of both time and money. The truth is though, that most unsavory types avoid applying for professionally managed properties, because they suspect that property managers are better acquainted with the landlord tenant laws than they. They also assume that processes are in place to safeguard the landlord from the antics of this type individual. The bad apples would usually rather prey on the unsuspecting private owners, the do-it-yourselfers. So maybe a good solution for the tenant screening process is to hire a professional in the first place.  You might also want to ask a few pointed residential-history type questions if the prospect’s last known address is absent on the credit report, or even better, if it indicates the federal or state pen for the last five years.  God luck!

Daniel R. Wilhelm
Managing Broker
3 Options Realty, LLC.
Phone: 678-397-1282

The author of this Blog is not an attorney. Nothing written should be construed as legal advice. Conclusions conveyed are outcomes based upon practical experience and should not be depended upon to be a common outcome of other similar circumstances.