Besides leasing, a rental application is an essential component of the rental process. As a rental owner, you need to conduct a screening process to verify the applicants’ documents. After all, you don’t want your first real estate investment to be an awful experience. Therefore, gather essential information from every applicant and verify their details thoroughly during the screening process.
Why You Need a Thorough Screening Process
As a successful landlord, you should follow a consistent and thorough screening process. Since it helps you evaluate the tenant’s credibility, conducting tenant screening will help to reduce risks of property damage, late and nonpayment of rent, and tenant evictions. Obviously, you want to sign a tenant who can pay on time every month and will take care of your property. If you are new to owning a rental property, you’re probably wondering, “How can I conduct a successful background check on a tenant?
Essential Items to Include in Your Tenant Application Process
Here are some tips to help you visualize the screening process and run a background check:
1. Set Your Requirements
Streamline the process by setting up specific requirements. This way, you can determine if an applicant is a good tenant for your property. Factors you should consider include income, employment, previous rental owner’s references, credit history, evictions, and criminal records. Defining the criteria will help you shortlist tenants you already selected. This makes it easier to find the best tenants. Let’s get into further details and explore each factor:
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- Income
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According to a survey by TransUnion, payment issues are a major concern for 84 percent of landlords. It’s no surprise that a major reason for nonpayment is low income. Therefore, it becomes compulsory to set a level of income while selecting the tenants. A perfect tenant is someone who makes enough income to cover their monthly rent payments. The best method to determine an applicant’s ability to handle rent is through a rent-to-income ratio calculator. According to Statista Research Department, the average rent-to-income ratio was 19.5 percent.
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- Landlord and Employers Reference
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Tenants should have positive landlord, personal, and employment history references. You need these references to verify that the information in the tenant’s application is accurate. During this process, you need to ask the previous landlord about the rental property’s condition. Similarly, communicate with their employers to verify their employment status.
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- Credit History
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While evaluating the applicant’s ability to pay the rent, you need to check their credit report. It is understood that tenants with a good credit history will pay monthly rent on time. Also, a higher credit score indicates their credibility and positive financial history. But additionally, checking a potential tenant’s credit history will provide a whole picture of their financial past so that you can determine their suitability for your property.
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- Evictions
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As a rental owner, you should see if the applicant has a history of evictions. If they have faced evictions from previous landlords, it’s crucial that you know the reason. Perhaps the tenant’s behavior was an issue, or maybe both parties had a dispute.
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- Criminal Records
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Checking tenants’ criminal records will help answer some essential questions. Obviously, you wouldn’t risk your property by handing it over to a person with a criminal history. This can be threatening for you as well as your neighborhood. Skipping this step can be an expensive mistake that can lead to a messy eviction process later. Review each applicant’s criminal records separately to ensure that they don’t have a history of prior convictions. You can often find this information included with the credit report.
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- COVID-19 Screening
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Due to the COVID-19 pandemic, housing authorities have imposed regulations on signing new tenants. One of the requirements is to screen potential tenants for the virus. Make sure you read all the leasing information for COVID-19 rules before commencing the tenant application process. Ask tenants to verify questions related to the possibility of COVID infection during the pre-screening process in order to evaluate whether or not they should physically view your property.
2. Do an Initial Screening
The tenant application or shortlisting process starts with a rental advertisement. Disclose all essential information in the advertisement and save time by initially screening renters. For instance, if your rental property includes small closets, honestly mention it in the advertisement. So, if a tenant applicant wants ample storage space, they can ignore your ad. Also, do include pet policies and deal-breakers to ensure a smooth tenant application process.
3. Create an Application
Design an application template and share it with every prospective tenant. That way, you can assess tenants and prioritize compliance with fair housing laws. During this phase, you can collect information such as prior and current landlord references, employment history, and prior evictions. Ensure that you include a section for a signature and keep a copy for future disputes. You can also hire a professional property management team such as 1836 Property Management to handle the process on your behalf. There are numerous benefits of hiring a property management team. They can help reduce costs and mitigate visible and invisible risks, so that you’re always in legal compliance when it comes to correct documentation during the application process – as well as choosing the best renter.
4. Screen Your Tenant
So far, you have gathered plenty of information about the tenants and set the eligibility criteria for the tenant application. Now, it’s time to evaluate each applicant and verify their information. Once you spend plenty of time reading applications, having open conversations, verifying the current income, and contacting references, it’s time to complete the screening process and make a decision. If you don’t want to spend your time choosing the perfect tenant, hire a professional property management company to do the work for you. They should offer comprehensive criminal, credit, income insights, and eviction reports in a matter of minutes. This way, you can complete the screening process and verify all tenants’ data through one system.
Legal Issues
Suppose you found the perfect tenant to lease your rental property to. In that case, you need to complete the paperwork and sign all contracts in correct terms. Note – you should never use a general tenant application template that you’ve downloaded from the internet. You should always check your local and state laws, then customize it to adhere with certain compliance elements, as well as, adding in your own specific criteria for eligibility.
Here is the list of renting documents you need:
- Leasing agreement
- Co-signer agreement
- Rental inspection report
- Sub-leasing
- Notice to Enter
- LLC documentation (if applicable)
- Room rental agreement
- Rental application form
The Bottom Line
Many landlords trust their gut instinct when reviewing tenants applications and making a decision to sign a renter. Regardless of the answers, you shouldn’t blindly trust information provided by people you don’t know – or even those you think you do. To get that perfect tenant in the contract for your real estate investing strategy, follow the above-mentioned tenant application process. A thorough background check helps you avoid bad tenants. Since applicants might mislead you with their answers to sign a leasing contract, you need a strict process to find the perfect tenant.
Partner with a Pro
Have questions? Or are you ready to partner with a professional property management team to manage your Austin, TX real estate investment? Reach out to 1836PM! We look forward to working with you!
Email: BDM@1836pm.com
Call: 512-994-4323
Watch the 1836PM webinar featuring Acutraq Background Screening on the topic:
[embedyt] https://www.youtube.com/watch?v=ceCjcnd96p0[/embedyt]
By: Kayla Gonzales, 1836PM Marketing Manager
