SS203: Insider Tips for Effective Tenant Screening

SS203 Insider Tips for Effective Tenant Screening

Tenant screening is crucial for landlords to become successful investors. In this episode, Charles discusses tenant screening, how to perform it, and why, when done incorrectly, it can change the whole dynamic of an investor’s rental portfolio.

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Talking Points:

  • Tenant screening is the foundation of being a successful rental property investor. When you see a well-maintained property with tenant management issues, collection issues, or skips, the tenant screening needs to be tightened, and this can happen with properties of all sizes.
  • Sometimes, managers get a little lazy and want to rent a unit and do not fully underwrite the tenant, or they find a potential issue and do not question it. Either way, it is the beginning of a lose-lose relationship. The tenant will probably not pay the entire year of rent and will have to move, which does not help the landlord or the tenant.
  • Tenant screening is the equivalent of being an auto lender that doesn’t underwrite the borrower. You can have the best cars at the best prices and with the best service; however, if the borrower doesn’t pay the loan, you are out of business.
  • Let’s break down some actionable tenant screening tips you can implement at your properties.
    • The Advertisement and Pre-screening
      • Clear Rental Criteria: Don’t hide the rental criteria from your advertisement or have an incomplete list of your rental criteria. Clearly outline everything: income requirement, credit score, rental history, pets, and any other requirements or expectations upfront in the advertisement.
      • Pre-screening Questions: As we move down the funnel after a potential tenant contacts you, get on a short call with them. Go through ALL of your requirements and expectations, and let the tenant speak. Avoid scheduling a viewing until they confirm they meet all the requirements. If they don’t, I used to tell them the manager will call them back within 2 days to schedule a showing. 95% of the time, you never hear back from them.
      • This pre-screening is vital to quickly sifting through many inquiries without wasting time showing the property. It helps you gauge the applicant’s responsiveness to your communications and professionalism and whether they will fit your property well. In that case, schedule a showing.
    • Show the Property – Start the Application Process
      • If the showing was a success, have them complete an application and submit it along with their application fee, ID, proof of employment, etc.
      • The application form should include the applicant’s information, employment history, income, previous rental history, and references.
      • Once submitted, the application underwriting process begins.
    • Background Checks and Credit History
      • This is easy since your background check service will do this immediately. Usually, the credit check only takes a couple of minutes, but depending on the criminal check, it can take up to a couple of hours. Most background check services will also include a nationwide eviction report, which is done when the application is submitted.
      • If this doesn’t check out or is not as described by the tenant, you can stop here, give them a call, and decide if you want to proceed.
      • I would quickly dig into the credit report to understand their debt-to-income ratio. The credit report spells everything out, so you are really just adding up payments and comparing them to the income they put on their application. I want to see that they make 3x monthly rent and that their other debt payments align with their earnings. Because if there is an issue, they will pay the landlord last.
    • Verify Income and Employment
      • This is where a little legwork is required, but if they have passed this far, chances are this will go fast.
      • Income Verification usually consists of checking their pay stubs, but since COVID, tenant fraud, mainly based on fake employment, has become a growing problem. Make sure to contact the employer using the contact information you find online, which is not provided by the tenant. When you speak to the employer, verify they are employed there, ask how long they have worked there, and if they are full-time. I might also call back a day later and speak to someone else to verify. You could also request a recent bank statement from the tenant to match the income from the pay stubs to their bank account. There are also online services that will confirm employment.
    • Contact Previous Landlords
      • I also had asked for the previous landlords when I self-managed my properties, but I have never called one. First, you cannot confirm that you are speaking to the previous landlord, and secondly, if you wanted to get rid of a bad tenant, would you give them an excellent reference to another landlord who is taking them off your hands? I think many would.
    • Evaluating Multiple Applications
      • I don’t accept multiple applications for the same unit. In large complexes, you are always renting and usually have a furnished unit you show to potential tenants since most units are the same size with the same finishes but, in smaller properties, the unit condition and size might differ greatly, so I will only accept one application per vacant unit at a time. If I was a tenant, spent time on the phone with you, saw the unit, paid for and submitted an application, you checked my background, and then you tell me that someone else was before me? I would be pretty mad, so I have never done that to anyone.
    • A couple of closing points to consider when renting a property
      • Always Understand Fair Housing Laws and your local landlord-tenant laws. If you have any questions, contact your real estate attorney.
      • Always use a detailed written lease that your real estate attorney has reviewed.
      • Be consistent and objective with all tenants. Including uniform criteria and clear documentation.
    • Following these tips can significantly reduce the time and stress usually associated with renting a property while assuring you get a quality tenant, making the landlord-tenant relationship a win-win. Also, make sure to check out episode SS189 to learn more about Tenant Screening Questions you can integrate into your tenant screening process.

Transcript:

Charles:
Have you ever wondered why some rental properties run smoothly while others seem to face consistent issues? The secret often lies in one crucial steps Tenant screening. If you’re tired of dealing with late payments, skip rents or troublesome tenants, you’re in the right place.

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo and they were sharing insider tips that can transform your tenant screening process from good to great. Let’s dive in and make sure you’re not just filling a vacancy but securing a reliable tenant who will make your property their home stick around These tips might be the game changer you’ve been searching for. Tenant screening is a foundation of being a successful rental property investor. When you see a well-maintained property with tenant management issues, collection issues or skips, the tenant screening process needs to be tightened. And this can happen with properties of all sizes. Sometimes managers get a little lazy and they wanna rent the unit and do not fully underwrite the tenant or they find potential issues during the background check and do not question it either way.

Charles:
It is the beginning of a lose lose relationship. The tenant will probably not pay the entire year of rent and will have to move, which has not helped the landlord or the tenant. Tenant screening is the equivalent of being an auto lender that doesn’t underwrite the borrower. Yes, you can have the best cars at the best prices and the best service, however the borrower doesn’t pay the loan. You are out of business. Nothing else really matters at that point. So let’s break down some actionable tenant screening steps that you can implement at your properties. Number one is advertisement and pre-screening. So clear rental criteria. Don’t hide the rental criteria from your advertisement and have a, don’t have a incomplete list either. Clearly outline everything, income requirement, credit score, rental history, pets, yes or no, what type the size and any other requirements or expectations upfront in the advertisement.

Charles:
Pre-Screen questions as we move down the funnel. After a potential li tenant contacts you get on a short call with them. Go through all of your requirements and expectations that you’ve already laid out in the advertisement and let the tenant speak. Avoid scheduling a viewing until they confirm they meet all the requirements that you’ve set out. If they don’t I used to tell the man, I used to tell them that the manager will call them back within two days the schedule is showing and 95% of the time you never hear back from them ’cause they’re probably calling so many people. Now this pre-screening is vital to quickly sifting through many inquiries without wasting time showing the property. It helps you gauge the applicant’s responsiveness to your communication and professionalism, whether they will fit your property well And that case schedule A showing. Number two is show the property and start the application process.

Charles:
If the showing was a success, have them complete an application and submit it along with the application fee, the id, proof of employment, et cetera. The application form should include the applicant’s information, employment history income, previous rental history and in references. Now once submitted, the application underwriting process begins. Number three is the background checks and credit history. So this is easy since your background check service will do this immediately. Usually the credit check only takes a couple minutes, but depending on the criminal check it can take a couple of hours. Most BA background check services will include a nationwide eviction report, which is done when the application is submitted as well. So it’s one other thing that you don’t have to do manually. If this doesn’t check out or it’s not as described by the tenant, you can stop here, give ’em a call and decide if you wanna proceed.

Charles:
After they’ve explained themself, you know, I would quickly dig into the credit report to understand their debt to income ratio and the credit report spells everything out. So you are really just adding up payments and comparing them to the income they put on the application. And I wanna see that they make three x the monthly rent and their other debt payments align with their earnings because if there’s an issue, they will pay the landlord. Last. Number four is verify income and employment. Now this is where a little legwork is required, but if they pass this far, chances are this will go fast. So income verification usually consists of checking their pay stubs, but since covid tenant fraud, mainly based on fake employment has become a growing problem. And make sure to contact the employer using the contact information you find online, which is not provided by the tenant.

Charles:
When you speak to the employer or verify they’re employed there, ask how long they’ve worked there and if they’re full-time, I might also call back a day later and speak to someone else to verify. And you could also request a recent bank statement from the tenant to match the income from the pay stubs to their bank account. There are also online services that will confirm the employment that are a little bit more in depth. But depending on if you’ve had a problem with this in the future or if it’s prevalent in your area, you can make that decision. Number five is contact previous landlords. So I always had asked for previous landlords when I self-manage my property. So as references, but I’ve never called one. I mean first you cannot confirm that you’re speaking to the previous landlord. And secondly, if you want to get rid of a bad tenant, would you give them an excellent reference to another landlord who is taking them off your hands?

Charles:
I think many landlords actually would. Number six is evaluating multiple applications. Now, I don’t accept multiple applications for the same unit. In large complexes you are always renting and usually you have a furnish unit that you show to potential tenants. Since most units are the same size, the same finishes, they all look the same. But in smaller properties the unit condition and the size might differ greatly from one to the other. So you wanna make sure you’re showing them the one they’re actually gonna be renting. So I will only accept one application per vacant unit at a time. Now, if I was a tenant, spent time on the phone with you, saw the unit paid, submit an application and you check my background and then you tell me that someone else was before me, you know, I’d be pretty mad. So I’ve never done that to anyone.

Charles:
The one time that I have accepted two applications, I didn’t run the background on the second tenant. The first one came out with flying colors. So what I did was I just returned. They paid me in cash. I just returned all that cash back to them with the application that they filled out. So had I had nothing on them, no paperwork. Now a couple of closing points to consider when renting a property. So always understand fair housing laws and your local landlord tenant laws. If you have any questions, contact your real estate attorney and ask them. Always use a detailed written lease that your real estate attorney has reviewed. I would probably also have them review the application or if you’re using an online service, I would make sure that everything that you want to receive from your tenant is in that application and be consistent and objective with all tenants, including uniform criteria and clear documentation of what happened when someone applied.

Charles:
If you do have to turn someone down now following these tips can significantly reduce the time and stress usually associated with renting a property while assuring you get a quality tenant making the landlord tenant relationship a win-win. Also, make sure to check out episode SS189 to learn more about tenant screening questions you can integrate into your tenant screening process. I hope you enjoyed and please remember to rate, review, subscribe. I submit comments and <inaudible> to show topics at globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentor mentoring programs at syndicationsuperstars.com. That is syndication superstars.com. Look forward to two more episodes next week. See you then.

Charles:
Have you always wanted to invest in real estate, but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding and didn’t want tenants calling you. Since 2006, I’ve been buying income producing properties and great locations that provide us with consistent passive income. While we wait for appreciation in the future and take advantage of tax laws while we’re waiting and unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out to investwithharborside.com. If you like the idea of investing real estate, if you like the idea of passive income partner with us at investwithharborside.com, that’s investwithharborside.com.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure subscription documentation. At our subject to all applicable laws, please consult an appropriate tax, legal, real estate, financial, or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of syndication superstars, LLC exclusively.

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