As overwhelming as tenant screening can be, the consequences of skipping this step tend to be much more challenging.
During the tenant screening process, you can uncover a number of red flags about prospective tenants. For example, you might learn about a history of late payments, previous evictions, or even a criminal record.
Depending on the circumstances of any information you uncover, there is a chance it’s not a dealbreaker for renting to that person. However, at the very least, you have the information you need to make the most informed decisions when it comes to who will occupy the property you invest in.
Tenant screening can be a delicate process, but there are several best practices and considerations to follow to ensure you take a legal and respectful approach.
In this step-by-step guide, we’ll take you on a deep dive into how to screen tenants, covering topics like:
- Questions to ask prospective tenants
- The Fair Housing Act
- How to turn down a tenant
- What to include in the tenant screening process
- Red flags to look for in prospective tenants
Why Tenant Screening Matters
Tenant screening is certainly helpful for protecting your property, but its benefits go beyond this. It’s also about creating a safe and respectful atmosphere for your neighbors and running a profitable rental business.
Conducting rigorous screenings reduces the chance of financial loss, property damage, and disputes. A recent study also found that landlords who screen tenants pay their rent an average of 17 days faster than non-screened tenants.
Establish clear and reasonable requirements for tenants, such as income level, credit score, and employment history. If these criteria are too high or strict for your specific area, your property might remain vacant longer.
For example, requiring a $100,000 income in a location where the typical income is $75,000 could deter many potential applicants.
Conversely, overly lax criteria may increase the likelihood of renting to untrustworthy tenants or those who cannot afford to keep up with your payment schedule.
Poorly conducted (or non-existent) screening processes lead to costly evictions, reputational damage, and legal consequences. These consequences aren’t worth the time you think you’ll save by skipping tenant screening.
Landlords who mistakenly discriminate or violate privacy laws during screening may face penalties or lawsuits. Proper tenant screenings alleviate these worries while instilling confidence in future renters.
The goal is to balance protecting your investment while respecting the applicants’ rights and dignity.
This guide describes a comprehensive tenant screening technique that accomplishes both.
Set the Stage for Tenant Screening
Before starting the screening process, make sure you are well prepared.
To keep everything functioning smoothly, you’ll need the following in place:
Clear Rental Criteria
Create a set of non-discriminatory standards for applicants to be considered for your rental.
Examples include income criteria (e.g., three times the monthly rent), employment verification, and references from previous landlords.
Understanding the Legal Requirements
Carefully review federal, state, and municipal tenant screening laws. This includes the Fair Housing Act, which forbids discrimination based on race, color, religion, gender, national origin, familial status, or handicap.
Some states have laws that restrict credit or criminal background checks.
For example, in Colorado, laws like SB18-057 restrict housing decisions based on arrest records that did not lead to convictions and sealed or expunged criminal records. Additionally, Colorado landlords cannot require applicants to disclose these records, deny housing based on them, or use them in civil cases related to tenant conduct.
Written Rental Application
Create a complete application form that contains important information such as employment history, income, past rental addresses, and consent to background checks.
Screening Tools and Services
Consider using tenant screening platforms or professional services that include credit, eviction, and criminal background checks. Make sure your chosen provider follows the Fair Credit Reporting Act (FCRA) regulations.
Once you lay this groundwork, you can be confident your tenant screening process is set up for your success.
Crafting Questions for Prospective Tenants
Your questions for prospective tenants must be strategic so they help you collect relevant information without violating fair housing laws and being invasive or discriminating.
Here are some examples of permitted questions for prospective tenants:
- Can you show proof of income?
- Why are you leaving your current residence?
- Have you ever been evicted or breached your lease? If so, what was the situation?
- Can you give references from your previous landlords?
- How many people will live in the unit?
Just as important as it is to include certain questions, landlords must also be careful to avoid others.
For example, steer clear of asking about family status, national origin, religion, or other protected traits.
Implementing Legal Safeguards: The Fair Housing Act and Beyond
Understanding and abiding by legal standards is another integral component of tenant screening.
The Fair Housing Act forbids discrimination against protected classes, but landlords must also keep up with state and municipal regulations that may impose further restrictions.
Fair Housing Compliance
Discrimination does not have to be intentional to result in legal consequences.
For example, imposing excessively stringent income restrictions may disproportionately affect some populations.
Train yourself and your employees to recognize and prevent prejudices.
The Fair Credit Reporting Act (FCRA)
If you conduct credit checks, you must tell applicants about their rights under the FCRA. This includes obtaining written consent and sending an adverse action letter if you decline an applicant based on their credit report.
State-Specific Laws
California is one of a few states that limit the amount you can collect for application fees or prohibit inquiries into criminal background. To avoid penalties, be sure you understand these laws.
If you are unsure about compliance, consult legal counsel or property management professionals.
5 Steps to Screen Tenants Thoroughly
Next, we’ve outlined five key steps in the tenant screening process to facilitate a smooth process and ensure you receive all the information you need.
| Step #1 | Collect information from prospective tenants |
| Step #2 | Perform background checks on applicants |
| Step #3 | Verify findings from background checks and other reports |
| Step #4 | Contact references to cross-check findings |
| Step #5 | Compare and review all information collected |
1. Collect Applications and Verify Information
Every adult applicant needs to fill out a detailed application.
The application should include:
- Current and past addresses
- Employment history
- Income details
- Personal references
Once you’ve collected these details, your work isn’t done.
2. Run Background Checks
Use a professional tenant screening service to conduct comprehensive background checks.
Your checks should review an applicant’s:
- Credit history
- Eviction records
- Criminal history
Apply the same checks to every applicant to avoid allegations of bias. Familiarize yourself with local laws regarding the use of criminal history in rental decisions.
3. Verify Income and Employment
Request supporting documents such as recent pay stubs, tax returns, or employment verification letters.
For self-employed applicants, you should also ask for bank statements or profit and loss reports to confirm their ability to meet rent obligations.
4. Contact References
Now, it’s time to contact the references you were provided with. Write a list of questions to verify the applicant’s history.
You’ll want to ask landlords specific questions about the tenant’s payment history, property care, and any disputes. Ask employers to confirm the applicant’s job stability and income.
5. Review Findings
Compare all collected information against your predefined rental criteria.
Document the reasons for approving or denying an applicant to ensure transparency and compliance with legal requirements.
Red Flags on Tenant Applications
Red flags don’t automatically disqualify an applicant but warrant further investigation.
Pay careful attention to any of these red flags worth exploring.
Frequent Moves
This could indicate instability or unresolved issues with landlords. It’s worth investigating whether the frequent moves were due to personal circumstances, such as job relocation or unresolved disputes with previous landlords.
Inconsistent Income Documentation
Missing or unverifiable income records may point to financial difficulties. In some cases, this could be due to irregular employment, self-employment, or attempts to obscure financial issues.
Negative Feedback from Previous Landlords
If you get reports of property damage, late payments, or disruptive behavior from a previous landlord, you must take this information seriously.
When negative feedback about a prospective tenant arises, ask specific follow-up questions to better understand the problem’s severity and frequency.
For example, a previous eviction could have been due to unanticipated circumstances rather than neglect or recklessness.
Best Practices for Long-Term Success
Your tenant screening process isn’t meant to be a “set it and forget it” system. Instead, it necessitates ongoing refinement to ensure that it is always fair and effective.
To maintain fairness and efficiency, consider the following practices:
Regularly Update Screening Criteria
Rental markets and regulations are constantly changing. To keep up, review your tenant screening criteria at least every six months or whenever relevant legal updates impact your screening process.
Document Everything Thoroughly
Record-keeping can be a daunting part of being a property owner, but it’s also a very important one. Keep meticulous records of any and all applications, correspondence, and decision-making processes when screening tenants.
Include reasons for approvals or rejections, which can be indispensable when defending against disputes or discrimination claims.
Implementing these detailed practices ensures a tenant screening process that remains fair, respectful, and legally compliant, benefiting landlords and tenants alike.
Final Thoughts on Tenant Screening
Although tenant screening takes time, effort, and attention to detail, it’s a worthwhile endeavor. This practice is another precious asset in the long-term success of your investment property.
Start building a tenant screening process that prioritizes fairness and professionalism so your property and your tenants can thrive.
