Your livelihood as a landlord is dependent on your ability to find great renters that pay rent on time. This becomes even more important for those with fewer units.
Needless to say, independent landlords and real estate investors need to be extremely vigilant when it comes to selecting your renters, as the financial and legal implications of making the wrong call can be dire.
As you go through the tenant screening process, pay close attention to some of the major red flags that might not show up in a background check. We’re here to show you what to look for and how to prevent a situation from going awry.
Go beyond the paper trail
Renting your property to anybody involves risk. A great way to go beyond a paper trail is to get to know your potential tenant. It allows you to go deeper and get more personal to see if they will be a good fit for your criteria.
With that said, it’s possible that they are putting on an act to give you a false impression or alternate reality. If they don’t want you to get to know them and aren’t open about their situation, you need to look deeper. As you conduct your due diligence, keep these things in mind:
Someone who wants to live in your property should be willing to go above and beyond. This could mean filling out an extensive questionnaire in great detail. It may mean going to get coffee to learn more about one another.
Like a job interview, you’ll want to also ensure that the potential renter meets your criteria and feels like a good fit in terms of a working relationship. Inevitably, something at your property will require attention at one point or another. Getting to know a tenant can help you vet their communication skills when these situations arise.
As always, it’s important to abide by federal and state laws in any tenant screening process.
Pay attention to the details
Working out the terms and conditions with your potential renter is like a partnership. You are both entering into an agreement that requires honesty and trust. If a renter seems to lack transparency or be evasive about their references, employment details, rental history, and so on, this could be a sign of potential problems down the road.
Inconsistent story
When interviewing potential renters, it's important to pay attention to the details. If their stories don’t add up or are inconsistent in any way, this could be a sign that something is off.
For example, if a renter claims they have worked at a job for a long time but their recent employment history doesn't match up. Or they provide a false address on their application. It may be necessary to follow up with questions to clarify, but in most cases, the simple solution is to move on if you suspect that a potential renter isn't providing accurate information.
Inability to provide references
When running background checks on potential renters, it's important to check for references. If the renter is unable to provide any references then this should act as an alarming sign that should not be overlooked. On the flip side, someone who provides references but is looking to skate around your suspicions may just list their friends. To ensure that the people you speak to represent various components of their life, other modes for verifying identity might include:
Confirming their job with their employer
Talking to their current landlord
Corroborating details with a family member or friend
Follow the money trail
One of the most important renter selection criteria is financial security. It's important to do a thorough check on the applicant’s employment, income and banking history before signing a lease agreement. If there are any discrepancies in their money trail, it could be an indication that they may have difficulty meeting rental payments.
Insistent on paying the deposit and rent in cash
When a renter insists on paying more money than is necessary or wants to pay in cash, this should be seen as a cause of concern unless they have good reasoning. Although it may be tempting to accept the extra money offered, it can create legal issues since any cash transactions over $10,000 must be reported to the IRS.
Renters that pay in cash should be required to provide additional documentation which can include a bank statement from the last month, proof of employment, and other information.
Alternatives exist if a security deposit is a deterrent to an otherwise great potential tenant. The Guarantors offers a program that lets renters pay a small fee (which would be less than a deposit) in exchange for coverage in the event of default. This covers your back if you end up with a tenant who can’t pay for one reason or another.
Pay stubs seem suspicious
When screening potential renters, it’s important to ensure that the information they provide is accurate. This includes their employment and income details as provided on pay stubs or background checks.
If a potential renter’s pay stubs are difficult to verify or come from an unknown source, this could be indicative of a red flag. Pay stubs are your sign that the renter is predictable, reliable, and has the ability to pay their rent on time. You should keep your eye open for suspicions such as:
Swapped numbers/letters
Inconsistencies in job title or company name
Incomprehensible pay stubs
Messy images
Dates don’t align with employment history
All of these may be indicators of a scam or simply dishonesty on your potential renter’s part. Either way, you’ll want to be cognizant and aware.
Hesitant to allow you to pull credit
Potential renters should expect a background check, financial verification, and will be prepared for your screening process. Others who are hesitant to give you the green light on pulling their credit may be attempting to hide something about their history. While the renter may just be concerned about the pull for commitment reasons, it could be a red flag that they are trying to hide negative credit history, bankruptcy or even criminal records.
The best solution is to have an open discussion with the renter about why they are hesitant and offer them an alternative means of verifying their rental history. If you don't feel comfortable with a potential renter for any reason, it’s best to err on the side of caution and move onto another applicant who appears more reliable.
TheGuarantors can help
As a landlord, you're always trying to protect your investment. This means taking the extra steps to ensure that your renters are financially stable and unlikely to default on their rent.
TheGuarantors uses as an AI-based model that leverages 1,000+ data points to predict renter default with 85% accuracy. We offer lease guarantee and deposit insurance in the form of our Rent and Deposit Coverage products, which increase access and affordability for renters to the homes of their dreams, while mitigating a landlord's risk of rent defaults, vacancies, lease breaks, holdovers, damages, and more.