The Do’s and Don’ts of Tenant Screening: Ensuring Reliable Income
Managing rental properties can be a rewarding way to generate passive income, build wealth, and work toward financial freedom. Finding the right tenants is crucial part of the income rental property equation. A great tenant not only pays rent on time but also cares for your property, reducing headaches and costly repairs down the line. We touched on this topic briefly a couple of weeks ago as part of our Top 10 Mistakes that Landlords Make series. If you have more questions there, go check it out. Today, we’re going to do a deep dive into our favorite property management chore – tenant screening! I know, screening tenants can be stressful and generally not very much fun but getting the screening process right can mean the difference between bank or broke in this business.
The Do’s of Tenant Screening
1. Do Use a Consistent Application Process
First things first: establish a clear, consistent application process. Create a standardized application form that asks for essential details—employment info, rental history, references, and consent to background checks. Consistency ensures fairness and legal compliance, preventing discrimination claims. If you happen to have an attorney friend, it’s not a bad idea to invite them over for Sunday dinner and have them look it over for you.
2. Do Conduct Thorough Background Checks
A comprehensive background check is your best friend. This should include:
- Credit report: Helps you assess their financial responsibility and ability to pay rent on time. Remember that in Austin, students are a protected class. Avoid declining applications based on medical or student debt to avoid discrimination claims.
- Criminal background check: Ensures the safety of your property and other tenants. In general, you are looking for crimes involving theft or dishonesty and violence. Think of it in terms of, “If I approve this application, and my tenant damages someone’s property or person, could they make the claim that I could have prevented it?” If the answer is yes, probably best to move on to the next applicant.
- Rental history verification: Contact previous landlords to confirm the applicant’s reliability and care for the property. Just keep in mind that previous landlords will be, understandably, tight-lipped about bad tenant behavior. Afterall, they want to avoid liability, too. And if it’s a current bad tenant, they aren’t going to shoot themselves in the foot by encouraging you to turn them down. So get good at reading between the lines.
Reliable tenants typically have a good credit score, positive rental history, and clean background checks. Now, occasionally, you’re going to come across an awesome tenant that just went through a rough patch. But that’s rare and typically pretty easy to spot.
3. Do Verify Income and Employment
Ensure your prospective tenant can afford the rent by verifying their income. A common rule of thumb is that rent should be no more than 30-35% of their gross monthly income. Request recent pay stubs, bank statements, or employment verification letters to confirm their income sources and stability. Today, this is a bit trickier with more and more people taking on side-hustles. Be sure to ask for plenty of income history. Generally, we ask for three months of rental history. But if someone is self-employed or does free-lance work, we might ask for more.
4. Do Set Clear Expectations
Be upfront about your screening criteria, lease terms, and expectations. This transparency helps attract tenants who meet your standards and reduces surprises down the line.
The Don’ts of Tenant Screening
1. Don’t Rely Solely on First Impressions
While gut feelings are natural, don’t make final decisions based only on initial impressions or personal biases. Stick to your established screening criteria to ensure fairness and consistency.
2. Don’t Discriminate
Fair housing laws prohibit discrimination based on race, color, religion, sex, national origin, familial status, or disability. Avoid questions or decisions that could be interpreted as discriminatory. Focus on objective criteria like credit, income, and rental history.
3. Don’t Skip Background Checks
Skipping background checks might seem like saving time, but it’s a risky gamble. Without verifying criminal history or creditworthiness, you could end up with tenants who are unreliable or pose a risk to your property or other residents.
4. Don’t Ignore Red Flags
If you notice inconsistencies or red flags—such as a poor credit history, evictions, or unresolved criminal issues—don’t ignore them. Instead, consider these as part of your overall assessment. Sometimes, a good explanation or context can help, but trust your instincts.
5. Don’t Rush the Process
Patience is key. Rushing to fill a vacancy without proper screening can lead to problematic tenants. Taking the time to thoroughly vet applicants saves you stress and money in the long run.
6. NO HALL PASSES
This is the most important “don’t” because when it’s done, disaster inevitably follows. I cannot even tell you how many family feuds we’ve had to play the middleman for because someone let a family member move in without going through the application process. Years ago, we had an owner hire us for the express purpose of dealing her son because she allowed him to move in without requiring him to sign a lease and he just took advantage of her every chance he got. While we were happy to help her with the logistics, it’s still a highly stressful situation for anyone to be in.
It doesn’t matter if it’s an old college buddy, your sister’s ex-boyfriend’s mom, or your cousin. Do not make the mistake of loosening your safeguards because you have a personal connection to the tenant. Put every potential tenant through the same application process. Make every potential tenant sign the same lease agreement. Do not reduce the rent for one potential tenant and not the next. No exceptions. If you think you’re going to have trouble with this, it will be cheaper in the long run to hire a property manager. I’ve said it before and I’ll say it again: unless that’s what you set out to do, your investment is not a half-way house, it’s not a charity, or a shelter. It is your risk that is always your chief concern. Don’t take on any more risk than you must for anyone!
Bonus Tips for Successful Tenant Screening
- Use a professional screening service: They can streamline the process and access comprehensive reports.
- Create a tenant screening checklist: Helps ensure you don’t forget any critical steps.
- Trust your instincts: If something feels off, it’s okay to pass and wait for another applicant.
- Keep detailed records: Document all screening steps and decisions for legal protection.
If managing this process feels overwhelming, or you want to ensure you’re following best practices, Neighborhood Realty and Property Management can help! We handle tenant screening, lease management, maintenance, and more. We have been one of the top-producing rental property management companies in the Austin area for more than 30 years, and we’d love to help you reach new levels of success!