Screening tenants can be a huge lift for someone who is just starting out with their rentals. Time and the right tools can be extremely helpful.
When you are looking to place someone in your rental, look around at the area and what you liked about the property that drove you to purchase it as an investment or as a primary home. The first home that I purchased was one that I brought my little baby to for her first time in the USA! I had a serious emotional connection to this house and I wanted to ensure that, no matter what, someone enjoyed that property as much as my little family did. I look back now and as much as I appreciate the sentimental value, that was not the right approach at all. I needed to focus on keeping those good times in my mind but also understand that no matter what happened in the walls of that place I needed the right insurance, a good screening process and a way for the tenants to get ahold of someone to make sure broken items were addressed.
Now don’t get me wrong, the love I put into choosing those floors and that kitchen remodel we lived through are not lost to me, eleven years later that cash-flowing house is one of my favorites and the pinnacle of the start of some amazing generational wealth! We will now move onto how we can find a balance of getting great tenants into an investment!
Know How Fair Housing Laws Work
Did you know that even if you have a house, you pay the mortgage, taxes and contractors to keep it up to livable standards, you still have rules that you must abide by on two different levels, federal and state? Yes, that is right you must know these obligations under the Federal Housing Act. This is the first time many homeowners have the realization that this is truly a business not just a side hustle. Along with getting familiar with the Federal Housing Act you will also need to understand your investment’s obligations to abide by state laws.
There is a common misconception that you can post anything you want in your ads. I will not go into specifics of pet rules, but we all know that animals in your home, have to be considered as far as that owner’s status of their animal. I encourage you to look at what their animal is categorized as and what the laws that pertain to you are, both on the federal and state level. Section 8 housing is also a topic that comes up often. Many people will write in their ad, “No section 8.” In many housing acts, this is not allowed and you cannot advertise that you will not accept section 8.
The important translation from investment to business minded in most of these cases is to ensure that you do not put yourself or your investment in jeopardy. As we move through some of these issues, note that this blog is to get you thinking. It will not cover all of the rules. You will need to make sure that you look into all items and constantly look up items as they come up! Your rights are limited when it comes to how you advertise and how you uphold your property!
Screening Process Steps – How to Screen Tenants
Great news, when screening tenants you do not need to exchange money with the potential tenants as there are plenty of platforms that you can utilize to do the work for you! Some people ask why wouldn’t we just take their money and then pay for the service using my card or the money. I will tell you that when I use platforms to do the work for me, I see the tenant’s first sign of commitment and I also have no tax liability running through my accounts. I utilize apartments.com which I have used for years (even back in the cozy.com days). This particular platform will allow you to register your house, send a link to a potential tenant for them to put in their personal information, pay for the service and you will receive a report of their credit history and criminal background information. These reports to me do not get offered until I speak with the tenant and ask a series of questions.
Set Your Requirements
Requirements are important to have and they should not be made on the spot. You should have your list of questions ready and researched. Remember, there are certain things that you can and can’t say. Make sure all of your questions are legal to ask. Also, did you know that some platforms record your calls, be mindful that this in some cases is going on and the reason is not just to collect information. These platforms are running a business also and have an obligation to ensure that the fair housing rules and regulations are followed. Now, I am not saying this is an issue to be recorded, in some cases it could be helpful. What I am saying, is if a platform is recording, it shows some of the importance of making sure you are prepared and you “stick to the script.”
Important questions to ask a potential tenant
Here are some of the questions that I ask. For the first conversation, I typically use the messenger to ask these questions for good book keeping and so I can reference the answers at a later date.
- What is causing you to relocate?
- Are you local to the area?
- What is the date you are looking to take the lease on?
- What date are you able to physically move into the property?
- What are some things in the photos and ad you liked about the house?
- Do you have any clarifying questions about the house as we know sometimes pictures don’t always answer all of the questions.
- How many people are in your rental party? We run credit and background checks on all parties over the age of 18.
- Have you ever had an eviction or had to quickly move out of a property before? If so can you explain what happened or provide a reference?
- This property utilizes a digital platform for work orders and it is expected that all issues with the home are reported even if you are able to fix them yourself in some cases as this can lead to more issues in the future, are you willing and able to utilize a digital platform.
- Do you have pets or animals in your party?
Request a Written Rental Application
Requesting a written application will come after the questions above are answered. Typically there will be a phone call interview with the potential tenant to discuss the items above further if the questions are answered in a way that it seems that there is potential for that party. I do go in order of contact, but in some cases when someone responds to the questions with answers like, I am wondering where the pool is or that they have 9 people in their household and I am renting a two bedroom property. I can eliminate some as the house won’t be big enough for that group. A lot of times, when there is an answer that comes in, that seems off, I will message back with the fact that the house is 2 bedrooms in this case and they will say something along the lines of “oh I thought it was two story” or something where they didn’t understand something. Communication is key prior to requesting an application. Remember, it costs them money and we want to ensure that before we have people spending money applying, that we have ensured that they meet the necessary criteria for the property.
Run credit and rental history, and background check
Once you have accomplished the questions and the application process, you will run and receive that credit and background check. You can request their last two to three landlord references. This will allow you to contact their previous landlord and check what condition the property was left in and how they were when it came to paying.
In some cases, the current landlord should be taken with a grain of salt. Why? Unfortunately in some cases when a current tenant is behind or the landlord wants them out, they will lie to you to make the tenant seem great just so they do not have to deal with them. This is one of the reasons I request information on if the person is local. You need to be mindful of why a tenant would be moving locally. In most cases, it is just that they need a larger home or the owner of the property is selling. I just highlight this because this is a risk when talking to the current landlord.
Speak with current employer and landlord
The employer information will be located on your application and it’s a great way to verify the information listed is correct. If the potential tenant passes the background check and the credit check, I do request pay stubs for the past three months. This helps me see that they are still currently in their jobs.
As we spoke about previously, make sure you are reaching out to current landlords and in some cases the previous landlords, especially if the person is doing a local move!
Interview the applicant in person
Interviewing the applicant in person is a great way to see if the person is interested and if they are truly interested in moving forward. In many cases military members are unable to view properties before they relocate so a video walkthrough of the property can sometimes give you one on one time where you can help them understand the layout and condition of the property in real time.
Having communication with all applicants over 18 is vital too. If there is a married couple applying, I request that they both be at the showing as I have seen many times where one spouse signs the other one up for a property and it doesn’t meet their criteria. This can really cause issues for the landlord once they both arrive.
Review all applicants
Reviewing all applicants is so important. Do not just go with the person with the highest credit score or because they have the same type of dog as you. Remember this is a business, you need to let your ad be up for a couple of days and look at the overall pool of applicants. Make sure that you communicate and get people scheduled for a viewing if they are interested after the interview and information sharing of the property.
One thing I have seen first time landlords do is get scared that no one is going to take their house so they go with the first person who responds. If you leave the ad up and you allow many people to respond, you are giving yourself a longer list to pick from if the potential tenants you are working with don’t work out.
Decide On Tenants And Sign The Lease
After the communication, application, some type of viewing with all adult parties and a full understanding of the way forward, it’s time to pick the tenant and get the lease signed! This is the most exciting part of the transaction. It is also important that you know what the expectations are for moving forward. I have a templated email that I use. As a tool for you, here is an example of what I send the tenant both in email and text.
Jane,
We are so excited to let you know that all requirements for 123 Elm street meet and qualify you to begin a lease starting June 1, 2024 and ending May 30, 2025. The next steps are listed and will need to be completed in the next 24 hours for you to secure the property.
- Please send me email address and full name for all parties over the age of 18
- I will send you the lease and pet docs for your review and signatures
- I will require the deposit (and pet fees) to be sent to (insert method of collecting the deposit)
- After the deposit and lease are completed, we will be in contact with you 3 days before the start of the lease to set up a time for key exchange.
- In the meantime, you can utilize the instructions below to set up a direct deposit through (enter your platform)
Thank you and please let me know if you have any questions!
How to Deny an Applicant After Tenant Screening
To deny an applicant, I simply, in messaging through the platform send, “thank you for your interest, at this time the property has been rented”.
What are the valid reasons for turning down a tenant
If there is a reason you are looking to turn down a potential tenant it is your responsibility to look into if this is a legitimate reason. Use your federal and state laws to help you with this. There are many reasons you may not “want” to rent to someone, but that doesn’t make the reason valid. If you have a sign that you may not want to rent to someone, make sure that your response states clearly your reason for denying them. I leave all doors open to allow applicants to qualify and only respond with the information that the property was already rented out or I sometimes have to turn the ad off because of the overwhelming responses. I will let people know I am going through the first few applications and will be back in contact with them if I make it to them on the list of applicants. This is truly in respect for potential tenants’ pocket books too! I do not want to be running 5 background checks for 5 different tenants at a time. This would be a waste of some of their money and we do not feel like there is a need for this!
As you set out on your journey to convert your property into a cash machine of a business, be mindful of the business aspect. It is exciting to add to your portfolio, being your first time or your 20th, but being aware that in the eyes of the law it is considered a business is vital.
Get out there, make yourself a flowchart of how you are going to run your business and make sure to get all of your bases covered with a great tax professional too! Happy Landlording!
