rental property: finding and screening tenants

In short

A friend of mine bought a duplex and rented it to the first person who smiled and said the check was in the mail. It was not. If you are about to list a rental, you can spare yourself that story with a plain, written process. Decide your rules for approving anyone before you ever post the ad. Apply those same rules to every single applicant, in the same order, every time. Check income, rental history, and credit with the applicant's written permission. Keep every record, and send the proper notice if you turn someone down. It is slow work. It is also cheaper than an eviction.

The whole of it

What it is

I once sat on a porch with a landlord who had owned three houses for thirty years. He told me his best tool was not a lock or a lease. It was a list he wrote before he met a single applicant. Tenant screening is just that: a fair, written set of questions and checks that a landlord runs on every person who applies to rent. The goal is to learn whether a household can pay the rent, take care of the home, and honor the lease.

Screening also has a second job that gets less attention. It protects you from the quiet mistakes that lead to legal trouble. A landlord who treats each person the same way is on solid ground. A landlord who goes by gut feeling is not. Good people sometimes make bad calls when they trust a smile. A written standard keeps you honest and keeps you kind.

How it works

If you are holding the keys to a vacant unit, the work starts before the ad. Write down your screening standards first. These are the facts that decide a yes or a no. Examples include a minimum income compared to rent, a clean record of paying past landlords on time, and a credit report without serious debt problems. Put them on one page and hand that page to every applicant.

Next comes the ad and the showing. Describe the home and the rent, and say what the application costs. Keep the language about the unit, not about the kind of person you want. The Fair Housing Act, which the U.S. Department of Housing and Urban Development enforces, bars discrimination based on race, color, national origin, religion, sex, familial status, and disability. Many states and cities add more protected groups. Check your local rules, because they can be stricter than the federal law.

Then the applicant fills out a written form and signs permission for you to check their background. With that permission in hand, you verify the pieces. Call the employer or ask for pay stubs. Call the current landlord and the one before that. Ask the landlord a simple question: did the tenant pay on time and leave the place in good shape? A current landlord who wants a problem tenant gone may say anything, so the earlier landlord often tells you more.

If you pull a credit report or a background report through a screening company, the Fair Credit Reporting Act applies. The Federal Trade Commission explains this law on its website. When a landlord denies someone, or raises their deposit or rent, based on information in that report, the landlord must give the person an adverse action notice. That notice tells them which agency supplied the report and how to get a free copy and dispute errors. Skipping it is an easy way to get into trouble.

The numbers, and where to find yours

Numbers first make everything else easier. Many landlords set a rule that monthly gross income should be a set multiple of the rent. Gross income means pay before taxes. There is no federal figure for this. It is your own standard, so pick one, write it down, and use it on everyone. A common approach is to ask for income of about three times the monthly rent, but that is a habit among landlords and not a rule of law.

The security deposit is the next number. Your state sets the cap, if there is one, and the deadline for returning it after a tenant leaves. Look on your state attorney general's website or your state's landlord and tenant statute. The cap is set by state law and varies widely, so look up the current figure, which the official source publishes each year for the verified limit. Application fees are also limited in some places, so look up the rule for your area before you charge one.

The cost of the screening report itself is set by the screening company. Each company sets its own price, and the exact fee is posted on the company's own site. Whoever pays, the fee should be clear in your ad and on the form. Adding up your costs before you list makes it easy to see what a thorough screening really takes.

A worked example

Let me tell you about Maria Alvarez. She owns a small house and plans to rent it for $1,400 a month. Before she posts anything, she writes her standards. She wants monthly gross income of at least three times the rent, no evictions on record, and a landlord reference that says the applicant paid on time.

Her income rule works out like this. Three times $1,400 is $4,200 a month. Over twelve months, that is $4,200 times 12, which is $50,400 a year. So she needs an applicant earning at least $50,400 a year before taxes.

Two people apply. Daniel earns $4,600 a month. That clears her $4,200 bar by $400, since $4,600 minus $4,200 is $400. His last landlord says he paid on time for three years. Priya earns $3,900 a month. That falls $300 short, since $4,200 minus $3,900 is $300. Priya's references are glowing, but Maria has a rule, and she applies it the same way to both.

Maria rents to Daniel. She sends Priya a short written notice explaining the decision. Because the denial rests partly on a credit report she pulled, the notice names the screening company and tells Priya how to get her free copy. Maria also keeps both applications, the reference notes, and the dates in one folder. If anyone ever asks why she chose Daniel, the answer sits on paper.

Where it goes wrong

I have watched good folks trip on the simplest things. The first is bending the rules for someone they like. A landlord who waives the income rule for a charming applicant has just made a case for anyone he turned down. Same rules, every time.

The second is asking the wrong questions. Questions about family size, religion, or a disability can read as discrimination even when the landlord meant no harm. Stick to income, rental history, credit, and the unit itself. A service animal or an assistance animal for a person with a disability is not a pet under the Fair Housing Act, so pet fees and pet bans do not work the same way for those animals.

The third is skipping the paperwork. No signed permission means no legal way to pull a report. No adverse action notice means a landlord may be in breach of the Fair Credit Reporting Act. No records means no defense. These are dull tasks. They are also the ones that save money.

The fourth is rushing. An empty unit costs money every month, and that pressure makes people hurry. Hurry is when you take the first smile. A vacant month costs $1,400 for Maria. A bad tenant who stops paying can cost far more in lost rent, legal fees, and repairs. Take your time.

Questions to answer before you leave this page

Have you written down your screening standards, and would you apply them the same way to every applicant who walks through the door? Do you know your state's cap on security deposits and its deadline for returning them, and have you looked up your local fair housing rules? Is your application fee clear, and does it match what your state allows? Do you have a signed permission form so you can check income, references, and credit lawfully? If you turn someone down because of a report, do you have the adverse action notice ready to send? And where will you keep every application, note, and date so that your reasons are easy to show?