Screening Tenants: Reducing Vacancy and Avoiding Problems

Building wealth through rental real estate isn’t just about buying property; it’s about managing it intelligently. One of the most crucial aspects of property management, often underestimated by new investors, is thorough tenant screening. A poorly screened tenant can lead to late rent payments, property damage, legal battles, and extended vacancies while you evict and repair. On the other hand, a well-screened tenant contributes to a stable income stream, lower maintenance costs, and peace of mind. This article will provide a practical guide to effective tenant screening practices that help reduce vacancy and avoid potential problems.

Why is Tenant Screening So Important?

Imagine this: you’ve finally acquired your dream rental property, carefully calculated your cash flow, and eagerly await your first tenant. Now, picture that tenant consistently paying rent late, neglecting the property, or even engaging in illegal activities. This nightmare scenario is entirely preventable with a robust tenant screening process. Here’s why it’s so vital:

• Reduces Vacancy: While it seems counterintuitive, thorough screening minimizes vacancy in the long run. Evicting a problem tenant is far more time-consuming and costly than spending a little extra time finding the right fit. The eviction process often involves legal fees, court appearances, and lost rental income during the eviction period and subsequent repairs.
• Protects Your Investment: Your rental property is a significant investment. A destructive tenant can cause extensive damage, depreciating your asset’s value and costing you thousands in repairs. Screening helps identify individuals with a history of property damage or neglect.
• Ensures Consistent Income: Consistent rental income is the lifeblood of any successful rental property business. Screening ensures you’re renting to someone with a reliable income source and a history of paying rent on time.
• Minimizes Legal Issues: Dealing with tenant disputes, evictions, and potential lawsuits can be incredibly stressful and expensive. Careful screening can help you avoid these legal headaches by identifying potential problem tenants before they move in.
• Creates a Positive Community: Responsible tenants contribute to a positive living environment for other renters in the building or neighborhood. This, in turn, can attract more responsible tenants and increase the overall desirability of your property.

The Tenant Screening Process: A Step-by-Step Guide

Effective tenant screening isn’t a one-size-fits-all approach. It’s a systematic process that involves gathering information, verifying its accuracy, and making informed decisions based on the data. Here’s a step-by-step guide to implementing a comprehensive screening process:

1. Establish Clear and Consistent Screening Criteria

Before you even begin advertising your property, define your ideal tenant profile. What are your minimum income requirements? What credit score are you looking for? What is your policy on pets and smoking? Write down these criteria and apply them consistently to all applicants to avoid accusations of discrimination. Documenting your criteria also protects you in case of fair housing complaints.

2. Require a Complete and Detailed Application

A thorough application is the foundation of tenant screening. Include fields for the applicant’s full name, current address, previous addresses (for at least the past 2-3 years), social security number (for background checks), date of birth, employment history, income information, and references. Don’t be afraid to ask for supporting documentation, such as pay stubs or bank statements, to verify income claims. Also, include a section where applicants can list any pets they have and their breed and weight.

3. Run a Credit Check

A credit report provides valuable insights into an applicant’s financial responsibility. It reveals their credit score, payment history, outstanding debts, and any bankruptcies or judgments. A low credit score or a history of late payments is a red flag. There are numerous online services that offer tenant credit reports, often allowing you to pass the cost onto the applicant (check local regulations). Always obtain written consent from the applicant before running a credit check.

4. Conduct a Criminal Background Check

A criminal background check helps identify applicants with a history of criminal activity. This is essential for ensuring the safety and security of your property and other tenants. Several online services specialize in criminal background checks for landlords. Be mindful of local regulations regarding the use of criminal history in tenant screening. Some jurisdictions restrict the types of convictions you can consider. It’s generally advisable to focus on convictions related to violence, property damage, or drug-related offenses.

5. Verify Employment and Income

Don’t rely solely on the information provided on the application. Contact the applicant’s employer to verify their employment status and income. Ask for confirmation of their start date, job title, and current salary. If the applicant is self-employed, request copies of their tax returns or bank statements to verify their income. Be consistent in how you verify income for all applicants to avoid any claims of discrimination.

6. Contact Previous Landlords

Speaking with previous landlords is one of the most valuable steps in the tenant screening process. Ask about the applicant’s payment history, their care of the property, and whether they were a respectful tenant. Be sure to ask open-ended questions to elicit detailed responses. For example, instead of asking “Did they pay rent on time?”, ask “How consistently did they pay rent, and were there any instances of late payments?”. Be aware that some landlords may be reluctant to provide negative information for fear of legal repercussions, but their tone of voice or hesitation can still be informative. Always ask for the landlord’s name, phone number, and email address to confirm you are speaking with the actual property manager.

7. Perform a Public Records Search

A public records search can reveal information about an applicant’s civil lawsuits, judgments, and evictions. This information can provide valuable insights into their past behavior and potential for future problems. There are online services that offer comprehensive public records searches.

8. Conduct a Personal Interview

Even after you’ve reviewed all the documentation, a personal interview can provide valuable insights into an applicant’s personality and character. This can be done in person, over the phone, or via video conference. Ask open-ended questions to encourage the applicant to talk about themselves and their lifestyle. Pay attention to their body language and how they respond to your questions. This is also an opportunity to clarify any ambiguities in their application or background check.

9. Document Everything

Keep meticulous records of your entire tenant screening process. This includes copies of all applications, credit reports, background checks, employment verification documents, and landlord references. Documenting your process protects you in case of fair housing complaints and provides a clear audit trail in the event of a dispute with a tenant.

Fair Housing Laws and Tenant Screening

It’s crucial to be aware of and comply with all applicable fair housing laws when screening tenants. Federal fair housing laws prohibit discrimination based on race, color, religion, national origin, sex, familial status, and disability. Many states and local jurisdictions have additional protected classes. Avoid asking questions that could be construed as discriminatory, such as questions about an applicant’s marital status, religion, or disability. Ensure that your screening criteria are applied consistently to all applicants, regardless of their protected characteristics.

What to Do With the Information

Once you’ve gathered all the information, you need to make a decision. Weigh the pros and cons of each applicant and choose the one who best meets your criteria. Don’t be afraid to reject an applicant if you have concerns about their ability to pay rent or their potential for causing damage to your property. If you reject an applicant, you must provide them with a written notice explaining the reason for the rejection, in compliance with the Fair Credit Reporting Act. This is often referred to as an “adverse action notice.”

Reducing Vacancy While Screening Effectively

The goal is to find a qualified tenant quickly, but not at the expense of thorough screening. Here are some tips for reducing vacancy while still maintaining a robust screening process:

• Start Early: Begin marketing your property well in advance of the anticipated vacancy date. This allows you to build a pool of potential applicants and start the screening process early.
• Be Responsive: Respond to inquiries promptly and schedule showings quickly. Potential tenants are more likely to choose a property where the landlord is responsive and communicative.
• Use Online Tools: Leverage online rental listing platforms and tenant screening services to streamline the process. These tools can help you reach a wider audience and automate many of the screening steps.
• Offer Incentives: Consider offering incentives, such as a rent discount or a free month of rent, to attract qualified tenants.
• Price Competitively: Ensure your rental price is competitive with similar properties in the area. Overpricing can deter potential applicants and prolong the vacancy period.

The Cost of Skipping Tenant Screening

While the upfront cost of tenant screening might seem like an unnecessary expense, it’s a small price to pay compared to the potential costs of renting to a problematic tenant. The costs of eviction, property damage, and lost rental income can quickly add up to thousands of dollars. Investing in thorough tenant screening is an investment in the long-term success of your rental property business.

Conclusion

Tenant screening is a critical component of successful rental property management. By implementing a comprehensive screening process, you can significantly reduce vacancy rates, protect your investment, and create a stable income stream. Remember to establish clear and consistent screening criteria, verify all information, comply with fair housing laws, and document your entire process. While it may take time and effort, the benefits of thorough tenant screening far outweigh the costs.