Any good property manager will tell you that tenant screening is one of the most critical aspects of the leasing process. Properly digging into and qualifying tenants helps eliminate bad bets and answer the all-important question ‘what’s the risk of putting this tenant in your home?’
First Tell-Tale Sign Is the Application
If a person won’t fill out the entire rental application, it’s best to turn that prospect away. Our standard is to accept a potential tenant’s application only when it’s complete with:
- Personal information including evictions, bankruptcy or judgments
- Social security numbers and date of birth
- Current and past landlord contacts
- Employer documentation
- Release of information signatures
We review the basic information provided to see if anything is out of the ordinary and if the applicant appears to meet certain criteria like adequate income to pay the rent.
Verify, Verify, Verify
With proper diligence and knowing what signs to watch out for, it’s easier to spot risky tenants.
Run a credit report. First thing we do is run an Equifax credit report and obtain the applicant’s FICO score. Developed by the Fair Isaac Corporation, the FICO score is a type of credit score that’s widely used to assess risk. To help determine credit worthiness and the applicant’s ability to pay the rent, we look at:
- Credit Score – from 300 (lowest) to 850 (highest)
- Past Due Accounts
- Total Debt
- Total Monthly Payment
Confirm employment, qualify income. We verify employment, salary and length of employment, ask about prospects for continued employment and review the types of company and years in business.
Each applicant’s income is also verified using the most recent pay stubs, which is required with the application. Qualifying income for every PPM managed property is 50 times the monthly rental amount. For example: for monthly rent of $1,850, the qualifying income is 50 x $1,850, which equals an annual income of $92,500. We will accept up to two applicant incomes to qualify for a property.
Perform reference check. Is the landlord an individual, friend or relative? Is there a management company involved or an apartment complex? For a more of complete picture of the applicant, we ask:
- Do they pay on time?
- Has there been any inspections to assess the property’s condition?
- Would you re-rent to these tenants?
Assess the Risk
Here are some rules of thumbs we use to weed out undesirable tenants:
- Insufficient income, a credit report indicating a lot of debt or past due debt and less than sterling rental references all raise the risk. Money can often reduce the risk by requiring additional deposits and/or rent.
- Cosigners and multiple applicants all pose different levels of risk, which must be assessed to determine whether or not to accept an application.
- Just because someone has a high credit score or “good credit” does not necessarily make them a good risk.
- As a landlord, never give someone the keys to your property unless you have sufficiently screened them. Offering or paying cash for a month’s rent, or a deposit, because they need to move in right away is a Red Flag to be avoided until you can assess the risk.
- Virginia law is more landlord friendly than the District of Columbia and Maryland. It still takes the better part of 60 days to evict someone but the goal of course is to never get in that position.
PPM carefully weighs the information uncovered in the screening process to find the best tenants for every property we manage.
Remember, it’s better to have a good vacancy than a bad tenancy — and “they were so nice” doesn’t pay the rent!