How To Screen Tenants: Criteria and The Sweet Spot

Screening tenants is as much art as it is science.  There are a wide variety of risk variables to consider and no two situations are exactly the same.

Nevertheless, as a professional property manager, I make it a point to have clearly defined criteria for qualifying tenants to rent.

A landlord wants to find the best person to live in and pay rent for his property.  As such, landlord is concerned about three things:

1.  Preservation of the property condition
2.  Timely and consistent rent payments
3.  Tenants minding their own business and being neighborly

As long as all three of these conditions are met, landlords are typically  ill-advised to interject themselves into the lives of their tenants or micromanage the way they live.  

To make sure these three conditions are met, I follow a rigorous screening process that looks heavily at risk factors.  Here are the qualities of tenants who I typically approve applications for:

1.  Good rental history
2.  No pets
3.  No smoke
4.  Income is 3 times rent
5.  No felonies

Of course, we never discriminate based on protected classes.  You shouldn't either.  We are interested rather in the economic viability of a tenant.

Notice that "Good Credit" is not one of my key criteria.  Tenants are tenants for a reason and I understand many life circumstances can destroy credit.  Such experiences include bankruptcy, divorce, a medical wipe out, and/or identity theft. I consider credit when reviewing the application but I am often looking for key red flags.  A good rental history will often but not always override concerns about bad credit. 

To illustrate who I look for in a tenant, I have put together this chart:

Many of the pools of people overlap each other but the the number of folks that fit in every category is pretty small.  Hence, it may take a little longer to rent a property following this criteria.  However, the rewards for screening are well worth it.

My experience has also taught me that there is a caliber of tenant that will almost certainly result in the destruction of a property or significantly degrade its condition to a point that future tenant quality is impaired unless expensive renovations occur.  This tenant falls into the center of these three categories:

The objective of a landlord is to get the best tenant possible for his property given its current condition.  As carpet wears, paint fades, and neighborhoods change, rent prices will fluctuate.  Tenant quality in turn will also change relative to rent price.  A tenant that is allowed to have a big dog in their unit may make significant changes to the condition of that property.  This change may result in the unit being "pet friendly" until the owner can afford to stain block floors, repaint, and replace carpets.  Pets are an expensive proposition.

Yet, despite all these risk factors, there are things can can be done to compensate if a tenant does not fit perfectly in the ideal tenant category.  Adjusting the deposit, or asking for a co-signor are an excellent way to work around some of the problems that can come up.  This also reduces risk for the landlord and provides more assurance that the tenant will perform on their obligations.

Being a landlord requires some careful thought and risk management skills.  If applied properly and equitably, screening criteria can make being a landlord a rewarding and worthwhile experience.

In the meantime, if you are looking for a professional property manager, contact me and I will show you how our services make owning investment real estate hassle free for you.