As you consider ways to lower your vacancy rates and improve the NOI of your properties, improving the efficiency and effectiveness of your tenant screening process is a top-of-mind consideration. To mitigate the risk of property damage, rent defaults, vacancies, lease breaks, holdovers, or evictions, a thorough tenant screening process is a must-have for property owners and managers. The good news is that qualifying the right renters for your property becomes significantly easier with a strategy that includes a balance of careful review and smart risk-mitigating strategies.
Reviewing potential renters: what are the most important tenant screening steps?
Collecting and reviewing the correct information from potential renters is the most important first step of an effective screening process. Your rental property is a business, and its residents are your customers, and it’s vital for present and future customer satisfaction (and renter retention) that you do your best to get to know potential renters thoroughly so you can determine their eligibility for a lease.
Conduct a thorough credit check
A credit check will help you assess a renter’s financial history and creditworthiness. You can obtain a credit report from a credit bureau or a tenant screening service. An ideal applicant will have a good credit score (700 +), indicating they are financially responsible and can pay rent on time - but a poor credit score doesn’t automatically disqualify a renter (more on how to qualify renters with uneven credit history in a moment). When checking a renter's credit history, landlords or property managers can use one of the following methods:
Request a credit report through a major credit bureau, such as Equifax, Experian, or TransUnion. This report can provide information about the applicant’s credit score, payment history, outstanding debts, and other financial details.
Utilize credit check features within a third party tenant screening service.
By using reliable methods to check credit history, you can reduce the risk of non-payment and qualify eligible renters.
Verify employment and income
Employment verification is another critical component of renter screening. An ideal applicant will show income that is within a reasonable rent-to-income ratio - although, similarly to credit score, this isn’t a hard and fast number, or the only piece of information you should take into account. When verifying income, make sure to:
Request proof of employment, such as a pay stub.
Contact the renter's employer, if they have one, to verify their employment status and income.
If you’re qualifying a freelancer or gig economy worker, request 1099s, invoices, and/or tax returns that show their freelance income as proof.
Review rental history
Check to make sure that the applicant’s rental history isn’t choppy, missing sections, or full of short-term situations. Contacting previous landlords can provide valuable insights into the renter’s past behavior, such as timely rent payments, property damage, or eviction history. Be sure to ask for references and verify their authenticity.
Contacting rental references: asking the right questions
Taking the extra step of requesting and contacting past rental references is often very worthwhile. You should begin by asking the applicant for references and obtain their written consent to contact those references. You can then contact the references via phone or email to ask about the applicant's past behavior and rental history. When you contact your applicant’s references, you’ll want to ask questions that may expose any red flags. Consider asking about the following:
Rental history in general
How long they rented, and if they fulfilled their entire lease term
If they paid rent on time consistently
If there were any instances of property damage during their lease term
If there were any outstanding positives or negatives about their behavior as a renter
It's important to ask open-ended questions and allow the reference to provide their own perspective on the applicant. For example, you could ask, "Can you tell me about the applicant's behavior during their tenancy?" or "Did the applicant cause any damage to the property during their tenancy?" This will give the reference an opportunity to provide you with additional relevant information that you may not have thought to ask about.
Run a criminal background check
A criminal background check will help you determine if the renter has a history of criminal behavior. You can use a tenant screening service to assist with this process (more on that in a moment), or follow the steps yourself.
First, check your local and state laws to ensure that it is legal in your area to run a background check on a prospective renter.
Second, get your applicant’s consent to run a background check as part of your application paperwork.
Finally, run the background check and also check the national sex offender registry, to ensure that you are not renting to someone who poses a potential risk to your other residents or the community.
The right help for tenant screening
If all of the above sounds like a lot of work, or your current employee resources don’t allow for that level of detailed screening, there are multiple options available to save time and qualify potential renters with less legwork on your part, including:
Using a professional renter screening service
While you can conduct applicant screenings on your own, there are many benefits to using professional tenant screening services. Not only can they save you time, but they can also provide a level of screening that you might not otherwise have access to. A typical professional screening will include all of the above items - a credit check, criminal background check, employment verification, rental history - plus additional levels of screening to ensure fully qualified tenants. Professional screening will help you identify red flags faster and more accurately than screening by hand.
What are the best tenant screening services?
There are many renter screening services available on the market, each with its own features and pricing. Some of the most popular options include:
Each screening service has its own perks. First Advantage, for example, offers all property managers access to frequently updated public resources. Other screening solutions, such as Apartments.com, offer free online rental management tools and a full range of screening services.
To choose the best renter screening service, consider the following tips:
Determine your needs: Decide on the specific features you require, such as credit checks or criminal background checks.
Compare pricing: Look for a screening service that offers affordable pricing and transparent fees.
Check for accuracy: Choose a screening service with a track record of accurate and reliable results.
Read reviews: Check online reviews and ratings from previous users to ensure the screening service has a good reputation.
Using a professional renter screening service is a great way to protect your rental property and minimize risks. With the right screening service, you can find the right renter for your rental property and ensure your investment is protected.
Using an insurance products to help qualify renters and protect your bottom line
A credit report or income verification - or even a background check, if the offenses listed are more than 7 years old - don’t always provide a full picture of whether an applicant will be a good renter. Fortunately, there are ways to qualify more eligible residents and mitigate your risk at the same time, and one of the best ways is to take advantage of a service that offers lease guarantee, rent coverage, and security deposit replacement insurance products:
Lease Guarantees and Rent Coverage insurance: A lease guarantee or rent coverage insurance is another great option when you’re looking to qualify renters whose income is nonstandard, or whose credit check is less than ideal. Companies like TheGuarantors provide coverage in the form of a surety bond, paid for by the renter, that protects the landlord’s income in the event of renter default, vacancies, lease breaks, holdovers, and more, while opening up your field of potential residents more safely.
Security deposit replacement and Deposit Coverage insurance: Security deposit alternatives can help renters who qualify to pay the monthly rent costs but might struggle to come up with the liquid cash for a security deposit. In that case, Security Deposit Replacement Coverage from a company like TheGuarantors can help great residents access great places to live, and give landlords peace of mind.
The best tenant screening process uses a comprehensive strategy
By carefully following best practice renter screening steps, enlisting a tenant screening service for expertise and more thorough screening access, and making use of a good insurance products service to help qualify more eligible renters, you can ensure that you lease your properties to trustworthy and reliable renters who can pay rent on time.
If you have any questions about improving and risk-mitigating your rental operation, feel free to contact TheGuarantors. We are happy to help you find the right solution for your property. Both our Rent and Deposit Coverage products are backed by over 1,000 data points to help predict renter risk with 85% accuracy and qualify more residents - safely.