10 Tips for Profitable Tenant Screening

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By Danielle Pierce

In theory, renting out a house or an apartment appears to be a relatively simple task to accomplish. After all, lease agreements can be purchased at any local office supply store or simply downloaded online. There are multiple ways to locate tenants including running ads in the local newspapers, posting “For Rent” flyers throughout your local neighborhood or simply placing a sign outside the property. The last step is for both parties to sign the lease agreement and every month the landlord collects a rent check and everyone is happy, right? Wrong!

If you have ever rented property or are considering doing so, read on to find out the top 10 ways to screen tenants which could cost you thousands in liability.

1.  CONTACT THE PREVIOUS LANDLORD

I cannot think of a rental situation in which this step would not apply. There are, however, a few things to be wary of when verifying previous rental history. First and foremost, the landlord should verify that the person listed on the application as the previous landlord is in fact, the owner of the tenant’s previous residence. I would also recommend doing a reverse phone number search in the white pages to see if the name on the application matches the name listed in the white pages. Another option is to contact a Realtor and request a review of the tax records. The tax records will list the name and address of the current owner of the subject property. One thing to be wary of is “false positives” from the landlord when verifying information. This situation occurs when the landlord paints a picture of a great tenant that always pays on time and never causes any problems, when the reality is that the tenant is actually a landlord’s nightmare. The obvious reason for a landlord doing this is to unload a nightmare tenant onto the new landlord as quickly as possible.

2.  PERFORM A CREDIT CHECK

Checking a potential tenant’s credit history will give the landlords some indication of the likelihood of receiving that tenant’s rent payment on time, every time. It is up to each individual landlord to establish their credit criteria.  But as a landlord, it is imperative that each tenant be evaluated in the exact same manner. Even more important, the criteria for evaluating prospective tenants on credit and any other criteria should be in writing and each tenant should receive a copy of those guidelines. This will go a long way towards preventing any future discrimination lawsuits.

3.  DROP  IN UNEXPECTEDLY ON THEIR CURRENT RESIDENCE

As a landlord myself, I have utilized this method in the past and it really does work, provided the tenant allows you into the residence. While past performance is not a guarantee of future results- if the tenant’s current residence is run down, dilapidated and otherwise not well-maintained- you can bet your residence will be maintained in a similar manner.

4.  VERIFY EMPLOYMENT AND CURRENT INCOME

The quickest way to do this is ask for one month worth of check stubs and to call their current employer directly. (Note: Be sure that your application allows for this step.) Many employers have gotten away from providing information over the phone, so they will usually ask for proof that the employee consents to the request.

5.  CONTACT THEIR PAST AND CURRENT NEIGHBORS

If done correctly, performing this step can lead to a virtual goldmine of information. In fact, talking to some neighbors can yield too much information on a prospective tenant. However, most neighbors should be able to disclose some information with regard to your prospective tenant’s behavior. Of course, this information must be taken with a grain of salt and should not serve as a deal breaker for any given application.

6.  ASK FOR PERSONAL REFERENCES

Generally, a landlord should request five personal references with a maximum of two references provided by family members. Again, these references should be taken with a grain of salt. Your goal as the landlord is simply to find out as much information as you can to make an informed rental decision.

7.  ALWAYS USE WRITTEN APPLICATIONS

(Keep Your Records)

I cannot stress the importance of keeping excellent records. Many people make the mistake of keeping a poor paper trail because maybe they only have one property for rent. I want to make it clear that the second an individual starts renting property, they have just started a business. Similar to any business, proper record-keeping is critical to success and it also helps to know the applicable laws related to that business. If a landlord is ever party to a discrimination lawsuit, keeping accurate and detailed records can prevent a lot of headaches. Community Investment Corporation offers a very detailed landlord training program at a minimal cost. Also, the City of Chicago offers FREE landlord training classes throughout the year. I would highly recommend that all current landlords and those thinking about becoming landlords enroll in at least one class. You do not want to be a landlord ignorant of the law and subsequently rent to a tenant that knows the law inside and out. Failure to get up to speed on Landlord-Tenant laws could cost you thousands in liability.

8.  CONSIDER HIRING AN OBJECTIVE THIRD PARTY TO HANDLE THE SCREENING PROCESS

This may be the best option for an individual that rents apartments on an ongoing basis and does not have the time and/or the inclination to maintain appropriate records. Hiring a third party to handle tenant screening takes all the guesswork out of the rental equation and can make life a lot easier for an over burdened landlord.

9.  VERIFY RENTAL HISTORY FOR PAST FIVE YEARS

This step will allow the landlord to determine if the tenant has been relatively stable in the past. Ideally, as a landlord you want an individual that does not have a history of moving every few months. This is generally not a good sign and it begs the question: “Why is he/she moving so frequently?” There are tenants that make it a practice to move from property to property and have no intention of ever paying rent. Unfortunately, in Chicago, the eviction process is long and arduous and sometimes allows tenants to live rent free for six months or more.

10.  PERFORM A CRIMINAL BACKGROUND CHECK

The key to this again is to establish a standard that can, and will be, applied to every prospective tenant. The landlord should be as specific as possible in his/her requirements and be sure to let tenants know upfront that this will be a required part of the process. The following websites offer screening services: www.tenantscreening.net and www.landlordassociation.com.

Clearly, the ideas suggested above do not guarantee that any particular landlord will secure problem-free tenants. Sometimes, the most “ideal” tenant can potentially turn into a disaster for all parties concerned. However, use of the strategies listed above, combined with intuition and a bit of luck can certainly decrease the occurrence of bad relations between landlords and tenants. Happy renting!

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Danielle Pierce is an investor and licensed real estate agent with Williams Realty and Investments. She specializes in Time Management, Money Management, and Wealth Creation through multiple streams of income. She can be reached at 773-551-4769. Visit here website at http://www.investchitown.com.