"5-Step Landlord Tenant Screening Process"

It really is in your best interest to adopt a careful and thorough landlord tenant screening philosophy. The quality of your tenants will absolutely dictate the quality of your investing experience.

If you have good tenants, you will be wondering why everyone you know doesn't own multi-family rental property. But if you have even a single bad tenant, I assure you that it will be a miserable experience.

The cold hard truth is that at some point in your investing career, you will run into a bad tenant. Your goal is to simply take the steps necessary to minimize the risk of this happening.

CHARACTERISTICS OF A GOOD TENANT

Your landlord tenant screening process should focus on validating that a prospect:

• Has sufficient income to pay the rent. Typically, the monthly rent should not be more than 30-35% of the prospect's total monthly income.
• Has not been previously evicted or otherwise been a problem tenant.
• Has been employed for at least 2 years at his/her current job.
• Has an adequate credit score. Proceed with caution on any FICO score less than 600.
• Has not declared bankruptcy.
• Has lived in his/her current home for at least 1 year.

STEP #1: COLLECT TENANT INFO

All prospective tenants who are shown and have interest in the property should be asked to complete a rental application. You should also charge each tenant a $25 application fee to pay for the landlord credit report. Yes, some people will balk at this, and that's ok because it indicates that they did not have a strong level of interest anyway.

In addition to the completed rental application and $25 processing fee, you will also want to collect copies of his/her last 2 pay stubs, and current driver’s license.

STEP #2: RUN A CREDIT CHECK

Step 2 is to run a landlord credit check. There are many online services that you can turn to for this, although it is getting more and more difficult as time goes on.

Why? Because the FTC recently mandated that the 3 major credit bureaus (Experian, TransUnion and EquiFax) do a better job of protecting consumer privacy. This was the result of several large databases being hacked into by identity thieves.

So these days, it is generally not possible to get detailed landlord credit report data unless you are willing to pay an upfront fee and have your "office" location physically inspected by the credit information provider.

An alternative to this is to settle for the landlord tenant screening company's summary credit report, which still scores the applicant and makes a recommendation regarding credit worthiness, but excludes the detailed bureau information.

While not ideal, this is still ok when coupled with employment and reference checks. I currently use National Tenant Network for the landlord credit check piece.

NTN also lets you know if a prospect has previously been evicted, which is critical because this dramatically increases the odds that he/she will be evicted again at some point in the future.

STEP #3: VERIFY EMPLOYMENT

If the prospect has acceptable credit-worthiness the next step is to call his/her employer and verify the information on the rental application. Specifically:

• Verify income
• Verify length of time with the company
• Verify average number of hours worked per week
• Probe to see if the employer has any general thoughts on the quality of the person as an employee (most times you will get some insight)

You will have also previously obtained copies of his/her paystubs as an added validation step.

STEP #4: VERIFY QUALITY OF PREVIOUS TENANCY

The final step in the landlord tenant screening process is to call the prospective tenant's previous landlord to see if the person in question is clean, makes payments in a timely fashion, is law-abiding, etc.

STEP #5: COMMUNICATE THE DECISION

If after all of this the prospective tenant makes the cut, I'll call him/her and set up an appointment at the apartment to sign the lease and complete the move-in process.

For denied applicants, I send a form letter informing them of the bad news (click here for immediate access to this and 24 other FREE landlord forms).

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