Occupancy is the lifeblood of real estate investment. Yes, you can sit on a vacant property for years and still make a nice return — but it’s occupancy that delivers the month-over-month cash flow that really unleashes the value.
But you can’t have just any tenants in your rental property. You want tenants who are going to take care of the property as if it were their own, tenants who are going to pay rent on time, as well as tenants who are going to get along well with neighbors.
For those reasons (and others), you need an effective tenant screening process. At HUNTAHOME, we provide comprehensive DFW property management services that include tenant screening. To ensure that our clients get the best of the best for their properties, we use this proven 7-step process:
- Decide What Matters Most
There are no rules or regulations about what you have to check as part of tenant screening. Only you can determine what factors matter most to you. As a rule of thumb, though, lean toward being more comprehensive rather than less.
Proper tenant screening can be time-consuming, and it also requires a small investment. But think about it this way: How much money can you save by identifying problem residents at the start of the process and preventing them from occupying your property?
The best process includes these 5 different checks:
- An informal pre-screen
- A credit check
- A criminal background check
- An employment and income confirmation
- A look at past addresses, landlords and evictions
After walking through those 5 different checks, you should have plenty of information to make an authoritative decision on specific applicants.
- Get Started With a Pre-Screen
The pre-screen falls into 2 categories:
- Informal conversations
- Google and social media searches
Start by asking informal questions of your applicants. Do they smoke? Do they have pets? If they say “yes” and you allow neither, there’s really no point in them applying at all. If you won’t accept residents with felonies on their records, ask that question upfront. Again, there’s no point in going through the application process if you know the result at the start.
Then, once you’ve had your informal conversation, take a look at your applicant online. Do a simple Google search to see what comes up. Take a look at their social media profiles, if public. If you see them engaging in behavior that you’d rather not have at your property, your decision is easy.
And here’s one more pro tip: Screen co-applicants, too. If others are going to be living at your property, you need to know about them — even if they aren’t the primary applicant.
- Check Their Credit
You get 2 key pieces of information via a credit report. First, you get to see whether or not your applicant pays bills on time. A credit report will show you bills that have fallen behind in 30-, 60- and 90-plus-day increments. It will also show you obligations that have been turned over to collections.
Don’t be afraid to get more information about any blemishes on a credit report. For example, if an applicant has only one past-due bill or one obligation that has fallen to collections, ask them about it. You may find that the applicant didn’t know about a bill that has been turned over to collections, or you may find that a past-due bill is part of a dispute. You hold the power, and you can choose to overlook anything you want — but you need to get more information.
The second key piece of information reported on a credit check is the sum total of the applicant’s monthly debts. It will list out the total of payments they are making. For example, a credit check might list a car payment, a student loan payment and minimum payments on 2 credit card balances.
Add those up and toss in what you’ll be charging in monthly rent. If that total is more than 50% of the applicant’s gross income, you’re in the danger zone. Another way to test your applicant’s ability to pay monthly rent is the 3-times rule — make sure your applicant’s gross income is at least 3 times as much as the rent payment will be.
- Look at Criminal Background
The next big step in tenant screening is a look at criminal background. You’ll want to secure both state and federal criminal records. Most criminal background checks will let you know if your applicant is a registered sex offender or if he or she is on a terror watch list.
Needless to say, if your applicant is a sex offender or included on a terror watch list, you want to think twice before letting them live in your property.
- Confirm Employment and Income
Much of your ultimate decision will be based on your applicant’s monthly debt obligations compared to monthly income. That’s why you need to verify they work where they say they work and make what they say they make.
Verifying employment and income isn’t as difficult or intimidating as it sounds. Simply call the phone number provided on the application and ask for someone who can help with a rental application — you’ll often get transferred to HR. Be prepared to send over a copy of the signed application that says the business may provide the information requested.
- Crosscheck Past Addresses
Get past addresses and landlord contact information going back at least 2 years. Again, get in touch with relevant landlords and confirm that your applicant lived at the addresses during the times listed — and that there were no evictions. Also, confirm how much the applicant paid in rent at these previous addresses.
While you have landlords on the phone, don’t be afraid to ask about their relationships with the applicant. Did the applicant cause any problems or conflicts? You’re well within your right to know.
- Make a Decision
If you follow the tenant screening process outlined above, you should have more than enough information to make a good decision on whether or not to accept a prospective tenant. Just keep in mind that your property is a valuable asset, which means you’ll want the best possible tenants living in it — people who will care for the home as their own.
No amount of short-term rental revenue is worth the long-term headaches that come with accepting a tenant who comes with red flags.
Make Your Tenant Screening Process Simple
Tenant screening can be time-consuming and challenging — which is one great reason to secure quality property management in Dallas and Fort Worth.
At HUNTAHOME, we take care of tenant screening so that our clients don’t have to. As the leader in DFW property management, we are adept at securing comprehensive information for our property owners, as well as making recommendations on whether or not to accept specific applicants.
When you hire a property manager that knows how to screen tenants, you get to focus on your investment strategy and enjoy your returns.
Contact us today about tenant screening and property management in Fort Worth and Dallas.