Posted by Ryan Howard on Mon, Aug 20, 2012
Resident screening has long been employed by property managers, leasing managers, apartment owners and commercial and individual landlords.
But even in the best of times, leasing residential properties can be risky business. Compliance with Fair Housing and other applicable legislation is often a moving target, the economy is tight so ability to pay is somewhat limited for many people and, unfortunately, not everyone can be trusted. It makes good sense, therefore, to engage in diligent resident screening before you enter into a binding contract with a prospective tenant.
There are several things landlords should look for when screening potential tenants to maximize the probability that the residents chosen are responsible, trustworthy and likely to make for long-term and mutually beneficial relationship partners. Remember, even though you are taking a risk, that risk should be calculated while, at the same time, enabling you to maintain Fair Housing compliance and increase occupancy rates.
There are many factors to examine when screening leasing applicants. Among the most important are:
#1 - Criminal History, What's Acceptable
Criminal History. Not all crimes are created equal. More importantly, remember that there is a critical difference between Criminal Record and Arrest Record. Determine what you are and aren't willing to accept. Set standards and stick to them. Is a DUI that happened several years ago grounds to deny an otherwise acceptable applicant? Is marijuana possession acceptable but intent to distribute not? Perhaps misdemeanor convictions aren't disqualifying but felony convictions are? If so, what if the applicant is a truly reformed ex-con? No matter the criteria, it should be clearly established and consistently applied.
#2 - Credit Rating, Set Your Criteria
Credit History. Routinely used not only for resident screening but for employment screening as well, a credit history helps you to better assess the financial risk associated with the applicant. While a good credit score doesn't guarantee that there won't be future problems, a bad credit score usually guarantees there will be.
#3 - Debt to Income, Define Ratio
Debt to Income Ratios. Designed to calculate how much debt an individual has to income, this simple formula can help landlords determine whether the prospective tenant can afford the monthly lease obligation even if that person's monthly income meets an established minimum. Calculators are readily available.
#4 - Income to Rent Ratio, Define Ratio
Income to Rent Ratios. Whether the tenant knows it or not, he or she should generally not pay more than 30 percent of their monthly income for rent. Point this out at the beginning of the process and you'll save everyone involved time and headaches down the line.
#5 - Rent Payment History, the Good and Bad
Rental History. Needless to say, having a clear picture of the applicant's rental history will help you determine whether he or she is likely to be a good tenant. Rental Payment History searches are also available, and will provide information for both Good paying residents, and habitual late payers or skips. Someone with an irregular history that includes gaps should be looked at a bit more closely. If you prefer to verify rental histories manually, ask for information about how to contact past landlords. The willingness or lack thereof to comply with this request will provide you some insight into the character of the applicant.
#6 - Employment Status, Verify Source of Income
Employment History. When conducting resident screening, examining employment history is often overlooked. As with a rental history, a resume that shows irregular or incomplete employment may be indicative of less than desirable characteristics, characteristics that will just present challenges down the road. It's best to avoid those if at all possible.
Not all factors examined by resident screening are, however, relevant or even permissible by law. In short, screening tenants is not an exact science. That said, it isn't necessarily rocket science either. No matter the standards you employ when conducting resident screening, remember that attention to detail up front will spare you much potential aggravation down the line.
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VeriFirst Background Screening, LLC makes no EXPRESS NOR IMPLIED warranty that this BLOG is appropriate for your particular needs. PLEASE SEEK THE ADVICE OF LEGAL COUNSEL REGARDING YOUR DUTIES AND OBLIGATIONS UNDER THE FAIR CREDIT REPORTING ACT AND OTHER FEDERAL AND/OR STATE LAWS.