As a landlord, there’s almost nothing more important than finding qualified tenants. Evictions, and the problems that lead to them, are costly, stressful, and time-consuming. High tenant turnover also causes a hit to cash flow, especially if you can’t find a stable and reliable tenant for a long time. But by screening tenants carefully, you can significantly lower the chances of renting to problem tenants. Here are some key things to screen for and how to do it.
Rent-to-Income Ratio
Your tenant’s pre-tax income should equal at least three to four times the rent. Ask for monthly income on the tenant’s rental application and confirm it with a pay stub or other proof of employment. The application should require employment history, including the employer’s name and address, the tenant’s position or title, and the length of time for which the tenant has been employed at his or her current job. Calling the employer to confirm the tenant’s job and salary is always a good idea.
Credit Score Guidelines
Always get a credit report and background check as part of the application process. This article from Nolo has more information about how landlords can check credit. A low-risk tenant would have a credit score over 700, and a high-risk tenant would have a score lower than 550. A medium-to-low risk tenant would have a credit score between 600 and 700. Acceptable tenant credit scores will vary depending on where your rental property is located.
You may want to consider extenuating circumstances contributing to less-than-ideal credit scores. For example, applicants’ credit can be affected by past large medical bills or a divorce that may not affect their ability to comfortably afford the rent now. But use caution and make sure the applicant’s explanations and ability to pay the rent can be verified.
You can perform a credit check on any potential tenants through a tenant screening service or through one of the three major credit bureaus. The cost of the credit check is typically covered by the tenant’s application fee. The following links will provide you with more information about how to use the tenant screening services from Experian, Equifax, and TransUnion.
- Experian: http://www.experian.com/screening-services/
- Equifax: Equifax Resident and Tenant Screening
- TransUnion: TransUnion Landlord & Property Management Homepage
In addition to checking credit reports, you should check applicants’ criminal records and eviction histories. Calling prior landlords can help you know whether applicants paid on time and followed the rules.
Landlord Options
The tenant screening process requires a thorough assessment of applicants’ personal, residential, and financial backgrounds. Sometimes landlords are tempted to cut corners because of the time involved in running checks and calling references. But doing so can create even bigger headaches in the long run.
If tenant screening sounds like a hassle, or if you don’t have the time or resources to do it well, you may want to consider hiring a property management company. A company can screen and place tenants for your rental property and, if you want, can handle management and any tenant-related issues in the future. Ultimately, the decision is about your comfort level with tenant screening and landlord-tenant communication.
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