Take your time.
There are times when you really want to move fast, as when you are evicting a tenant. When you are screening to fill a vacancy, or a prospective one, you need to take your time. The essential bits of information you will need are the rental history, employment history, credit history, references, and, perhaps, a criminal background check. Take time to obtain all of the information you have decided ahead of time that you need, then take time to verify what needs verification, such as references. Don't hesitate to reject an applicant if he does not meet your minimum standards, and don't necessarily accept the first minimally qualified applicant who comes along. You wouldn't accept the first barely qualified applicant if you were offering a job; you would wait until you had several applicants to choose from and go after the most qualified one first. Offering an apartment is no different. It is true that you lose money every day the unit is vacant, but you will lose more in the long run by taking a marginally qualified applicant who turns into a problem. In addition, you will get very sore from kicking yourself for being in too big a hurry to wait for that ideal prospect who came in two hours after you accepted your first applicant. This process need not be open ended. Tell your prospects you will be taking applications for a week, or until a date certain, and then evaluating their applications side by side to find the most qualified one. There is nothing illegal about this, and it could save you a lot of money in the long run.
Set policies and standards in advance.
Policies and standards are nothing more than decisions that have been made before the need to implement them arises. When the need does arise, you pull them off the shelf where they have been sitting, dust them off, and use them. In the tenant screening area policies and standards relate to the quality of tenant you desire, the type of rental arrangements you want to make, how you will go about finding and attracting such tenants, and so on. These policies and standards should be a realistic minimum that you are willing to accept in a long-term tenant.
Policies and standards are critical if you delegate the task of qualifying prospects to employees or outside contractors. Even if you do not delegate, there are still sound reasons for having them. You can formulate these policies and standards when your units are all full and there is no pressure to fill a vacancy. That means that the decisions you make about the things mentioned in the last paragraph are more likely to be sound because they will not be colored by emotions, such as pity or fear, that may arise when you are confronted with a prospect's sob story or a negative cash flow due to a vacancy. Rationality is most likely to prevail in an atmosphere free of these and other similar pressures. Cool reason is what you need most when you are deciding on a prospect.
We must also consider the question of what will happen when - "when" is used deliberately - a disgruntled applicant complains he was rejected due to some form of invidious discrimination. That this must be considered is, perhaps, unfortunate, but it is nevertheless true. All of the gimmicks in the world will not shield you as effectively against discrimination litigation as will rational policies rationally enforced. If you are able to show that you have such standards, and that you apply them consistently, and that the disgruntled applicant did not meet them, or that another applicant for the same unit was more qualified, then you will put an end to any claim of invidious discrimination.
Write down your policies and standards and have a lawyer review them before you apply them.
The best way to show you have policies and standards is to show them. In other words, they should be visible, that is, in writing. Take the time to reduce your policies and standards to writing, then, have a lawyer review them. Once they are given the seal of approval by the lawyer, follow them.
There are three powerful reasons for spending a few dollars to get a lawyer to review and approve your policies and standards. First, lawyers are trained to foresee problems, and your lawyer can review your policies and foresee Fair Housing and other pitfalls and avoid them before they appear. Second, in the event you are accused of a Fair Housing Law violation, you can produce the lawyer and credibly claim you were following his advice in good faith, which will mitigate and might eliminate potential monetary liability. Third, if you make a mistake you will pay for it out of your pocket directly or through higher insurance rates, but if your lawyer makes a mistake, he has an errors and omissions insurance policy that will make you whole.
Don't be tyrannized by forms.
The biggest problem with forms is also their greatest strength. They can systematize the accumulation and presentation of information, assuring that all questions on the form are accounted for. But for this reason they also can exclude information. This problem can occur in particular if you delegate tenant screening to employees or contractors. If the question is not on the form, it may never be asked. If there is not an information field on the form, the information may not be disclosed, and not through any fault of the prospect. If you use one of our forms, do not hesitate to revise it so that you get all the information you think is important, and do not hesitate to eliminate some parts of it if you do not think the information is relevant. Just be careful to think through what you are doing, as experts have designed these forms based on experience. Then, use the form as a starting point. Read it, analyze it, understand the information it presents, and see how the various bits of data in it relate to each other.
Read and analyze the material you accumulate on a prospect.
The object of tenant screening is not to fill out the forms. The object is to use the data in the forms to reach a rational decision on which prospect to accept. This means that you are going to have to actually read what is in all those boxes and analyze it.
"Analyze," in this context, means to understand what the data are and how they relate to each other. For example, let us assume you are trying to rent a vacancy in your apartment house in Denver. An excellent prospect shows up and you have him fill out the application forms and you run a credit check on him. He shows employment in Denver, and you call his supervisor who assures you he is an excellent employee, has been with the firm for years, and has ample income to pay the rent. The credit report shows several open revolving credit accounts and a car loan, all paid as agreed. His stated residence is an apartment building in Denver, and you call the number given and get a glowing reference. He looks pretty good, so you sign him up and he moves in, after giving you a personal check for the first month's rent and a security deposit.
A week later you find that you read the forms, but did not analyze them, and you discover this right after you get the rent and deposit check back from your bank marked NSF. So now you go back and analyze the information. When you check the credit report you find that he has three open revolving accounts and a loan, all right, but the address given is in St. Paul. Your suspicions are aroused as you notice this for the first time. You run a new credit report and find that now two of the accounts are showing past due. You discover that the address given in the credit report is for an apartment building in St. Paul, so you do some checking, find the property management company, call them, and discover that your excellent prospect was evicted the previous month for non-payment of rent. You visit the prospect, who is now a tenant, and he confesses. He was fired from his job in St. Paul for embezzlement and moved to Denver to stay with his brother and sister-in-law. The employer you called for income verification was none other than his brother, and the apartment manager you called for a previous landlord reference was his sister-in-law, both of whom had been briefed in advance on what story to give. He has no job and has only been in Denver a few weeks.
The late payments on his credit record had simply not been reported yet, but the contradictory addresses had been. If you had taken the time to analyze the information, that is, to see if the addresses jibed, then alarm bells would have gone off and you probably would have saved yourself an expensive eviction.
Be sure to rent and view Pacific Heights, a good movie as well as an object lesson for landlords. See how many mistakes the protagonists in that film make in dealing with the villain, Michael Keaton, and how you can learn from them.
Make your standards realistic.
Which are you trying to rent, Baltic Avenue or Park Place? Is it something in between, like Marvin Gardens or Oriental Ave.? Do you have a hotel on this property or just a house? How demanding you are, in terms of qualifications, will depend in large measure on the answers to these questions. It is unfortunate, but true, that there are very high-class neighborhoods, and not so high-class neighborhoods. Very high standards that make sense when renting Park Place might be completely unrealistic to expect of tenants interested in Baltic Avenue. Similarly, if you have a 20-unit building, you might be able to stand a vacancy or eviction more easily than if you have only a single-family dwelling. A rent default in the apartment house deprives you of 5% of your cash flow; a rent default in your single-family dwelling deprives you of 100% of it. You will need to have higher standards for a single family dwelling, even if in a relatively depressed area. But keep in mind that the market will determine the quality of prospect you can expect. This is something you will have to consider very carefully as you make the decision to buy or continue to own a property.
Regardless of the location of the property, do not make every blemish on a credit report ground for automatic disqualification. Analyze the information. Even large companies that extend credit on a regular basis are beginning to recognize that they are disqualifying, one by one, each and every person in the United States, and so are loosening their standards and taking a more flexible approach to analysis of credit history. Just as every human has some blemish on their person somewhere, so every human has some blemish in his credit history somewhere. Learn to ask not only what it is, but also what it means. There can be excellent reasons for a few late payments, some that may even make the applicant more attractive as a tenant than otherwise, as, for example, if he let his stereo payment fall behind once while he was laid off to be sure his rent was paid on time.
Learn the law.
As are most other aspects of our lives, tenant screening is regulated by the government. There are some things that you may consider when deciding to rent, and other things you have to pretend just aren't there. You need to learn the difference. Both the government and the private sector civil rights industry investigate these things and look for opportunities to initiate legal proceedings against transgressing landlords. If you doubt this, peruse Realty Times and Inman News Services. They usually run a discrimination horror story of the week.
In any event, if you follow the advice we gave elsewhere and get a lawyer to review your screening standards, you have a leg up on compliance and, hence, protection. That is not enough. You also need to take a little time to review the laws that pertain to your jurisdiction. This includes Federal law, your state's laws, and any regulations that may have been imposed by your local or regional government. It is these Gauleiters that tend to be particularly inane, so you must be on the lookout for their typically loopy regulations. Leading an exemplary life is usually insufficient to keep you from transgressing their counterintuitive strictures. For this reason you must take the time to inform yourself. You will have to make decisions that even your lawyer will not foresee, and you may not have the luxury of time for a consultation before making them.
You are in the landlording business, a point we have emphasized repeatedly on this site. You need to associate with other landlords and other businessmen, even if landlording is only a secondary pursuit for you. By such associations you will benefit from the experience and knowledge of others in your own area. It is this local knowledge that is so very rare, largely because it is only passed on by word of mouth.
We don't want to get into recommending particular organizations. Generally, your local Chamber of Commerce and Apartment Association tend to be fairly good bets. The latter are often also sometimes styled as property owners' associations and, rarely, due to embarrassment at the term, landlords' associations. Sometimes, in larger cities especially, you will find more specialized groups that are interested in a particular geographical area or type of property. These can all be useful for gaining contacts with knowledgeable individuals who are often only too amenable to sharing their knowledge with others. Join one or more of these groups - the membership fee is usually deductible - and you will be amazed at how quickly your knowledge and confidence increase.
Talk to prospects.
Miraculous technologies have made it possible to attract, screen, contract with, collect rent from, and evict a tenant without ever meeting the person. This is not necessarily a good thing.
You should take a half-hour or so to meet your prospect and talk over the application. The importance of this step is in inverse proportion to how many properties you own. You are, after all, going to put this person in control of a major slice of your worldly assets. The less real estate you own, the larger the proportion of your assets he will control. If you are the owner of only a couple of rentals, the chances are you are a hands-on manager and you will have to deal with this tenant repeatedly. You need to know if you can get along with him. Non-payment of rent is not the only reason landlord-tenant relationships collapse into expensive evictions, even if it is the most common one. Even if you own many properties, an interview can be valuable as a source of nuances and bits of information that most frequently do not emerge from an application form. Besides, personal contact will make things more, well, personal. The goodwill benefits are obvious.
Sell the rental unit; do not shop for the "class" of person you think ought to have it.
Steering is, perhaps, on the fringe of the screening topic, but it can come up in the screening process, and so should be mentioned here. Don't do it. Your task, as landlord, is to sell the rental unit to whoever can use it. You are not the World-Mommy who decides who really needs your two-bedroom apartment. You may think it is ideal for a couple with a young child, and maybe it is. It might also be of interest to a bachelor who wants a hobby room. Steering is both arrogant and illegal.
This does not mean that you cannot sell the benefits of your unit. If it has a beautiful, relaxing view, you can say so. If it is quiet and located on the top floor of the building, you can say that, too. You cannot tell a blind woman she would be just as happy with the cheaper unit on the ground floor with a window facing the freeway sound wall. You cannot tell the leg-amputee that he would not be happy with the access to that top floor unit. Let them decide. Now, if you have other units they might like, by all means show them, just as you would display your wares to any other person, but let them make the decision to apply. "Yes," you say, "but there is no elevator to the third floor. What if the amputee comes to see the unit and wastes a trip?" To which we say: "Yes, that is the price we sometimes pay for anti-discrimination legislation." If the man asks if there is an elevator, answer truthfully, but don't steer him away by volunteering.
Use the phone.
The telephone is a powerful screening device. You should use it. See our article on the subject if you want some insights into what a brief telephone call can tell you.
At minimum, the telephone can be useful in eliminating obviously unqualified prospects. When you receive telephonic responses to a vacancy ad, be prepared to give the rental rate, the size of the unit, the location, and security deposit requirements. If you use a robotic answering system, the outgoing message should include this information even if the ad contains it. Not only will you save time by not showing up for an appointment for someone looking for a two-bedroom who discovers on his arrival the unit is a studio, but you will be acting courteously to your prospects as well, as they can screen themselves if they see the unit is not what they want or is more than they can afford.
Use a professional.
Consider engaging the services of a professional to find and screen prospects. Generally, such pros will fall into two categories.
A tenant finder offers a turnkey type operation. Such a company will locate a suitable prospect, usually from a list of shoppers who have signed up with them, screen and qualify him, sign him up to a lease, and then turn him over to you. The fees for such services are typically all or a part of one rental installment, depending on what services you actually contract for. Most landlords consider such fees excessive, but if you lack confidence in your screening skills, or just do not want to take the time to do the job, this may be a valid option.
A professional screener offers his services, often over the Internet, not only to provide background and reference information on prospects, but to grade or rank prospects, leaving the final decision and the close to you. In this arrangement, the screener will rank prospects, giving them some sort of numeric score, similar to credit scores, based on instructions given by you in advance. Signing up and moving in a prospect is up to you. Such services can be very useful if you do not want to take the time to do a lot of fact checking, but want to have more control over the outcome than a turnkey operation provides.
Note well: neither of these services is a substitute for reading the information and getting to know your new tenant. Even so, they can save a lot of time and eliminate a lot of aggravation. It is up to you to decide if they are worth the fee.
Always run credit.
This one does not require a lot of discussion. You need to run, and read, a credit report, except, perhaps, in the most rare of circumstances. These rarities do not include renting to a relative or friend. Frankly, if you do not run credit, you are wasting your time even taking an application; just hand the prospect a key.
Write everything down.
If it is not written down, it was never said and it never happened. That is the rule of thumb.
There are lots of reasons you need a reliable record, made at or about the time events occurred, of your screening efforts for each prospect who gets to the screening stage. You should also have a log of incoming phone calls made in response to your ad and any return calls you make, including the date and time of the conversation, the name given, if any, by the caller, and a brief description of the substance of the conversation.
Such logs are available in stationery stores. Generally the stores describe them as "binder paper." When you advertise your rental, take one of these handy logs, write "Incoming Call Log" at the top, then place it next to the phone with at least two pens. When a prospect submits an application packet, take another of these handy logs, write "[Prospect Name] Screening Log" at the top, then date and write down all fact checking you do and conversations you have in regard to the applicant. When you make the decision on the applicant, write it down, with your reasons, and the date and time the decision was made. When the unit is rented and the ad withdrawn, take all these handy logs and put them in a file and keep it. Forever. In that same file keep all receipts for credit report charges, etc., and copies of any written documentation you have received on the prospects. You should transfer the papers relating to the successful applicant to his tenant file.
With such a writing in your possession, referred to in law as a "business record" or "past recollection recorded," depending on how it is used and for what purpose, you will have as much safety as you can reasonably expect from claims of wrongdoing made later. Be careful, though, because if you do not take the rest of our advice and inform yourself as to your legal rights and the best practices in the screening area, you will also document your transgressions.
Don't let anyone into the unit until the screening is done and money has changed hands.
Some landlords occasionally jump the gun, and in their anxiety to get a unit rented, or snag that ideal tenant, let the tenant move in before the screening and sign-up process is complete.
Never permit yourself to make this mistake. Resist the temptation to let the prospect in early regardless of the sob story he tells or how attractive his application might appear. As we have recommended elsewhere, rent and view Pacific Heights.
There is only one appropriate time to give the tenant a key, and that is after you have taken the application, checked everything you could and resolved any discrepancies to your satisfaction, and money has changed hands. And when we say "money," that is what we mean. Never let a prospect into your property in exchange for a personal check for the rent and deposit. Insist that the check clear. Ask for a cashier's check or money order if you do not want to wait for a personal check to clear - although you should be aware that even though the contingency is remote, even payment on a cashier's check or money order could be stopped. But at least you know it won't bounce due to NSF.