How much is one of your investment rentals worth? $50,000? $100,000? $250,000? More? Would you give a complete stranger a suitcase filled with hundred-dollar bills just because they have a nice smile and hand you a couple of pay-stubs?
I have personally been involved in the real estate game as a broker, owner, and property manager for over 30 years and the nightmare stories I could tell you about the all too often end-result of improper tenant screenings would probably keep you up at night.
My goal with this article is to help you to sleep more soundly when turning your "hundred-thousand-dollar-baby(s)" over to strangers, i.e., new tenants.
Before I get into the nuts-and-bolts of how to do a proper tenant screening, some personal background information might be in order:
- I am an 82nd Airborne Division veteran.
- A graduate of the Northwestern University School of Law, and still licensed to practice (although I don't) in Illinois.
- I've taught hundreds of real estate licensing students as a licensing instructor and mentored countless aspiring agents.
- I've taught real estate investing at the college level, and I personally own rental real estate and a very successful residential property management company -- Real Property Management of Sarasota & Manatee.
In other words, I am a serious dude who knows this business well.
So, back to tenant screening . . .
First off, understand what tenant screening is NOT. It is not a likeability contest or a beauty contest. It is not an, "I agree (or disagree) with you politically" contest, and it is not determined on a first-come-first-served basis, e.g., the first party to wave a check at you isn't necessarily the one to get the unit. There should be a definite, organized process that all tenant prospects must navigate to prove their worthiness to rent one of your properties.
When it comes to screening tenants, I don't care if they are tall or short, fat or skinny, gay or straight, black or white, athletic or wheelchair bound - all I care about is that they pay their rent on time, don't harass the other tenants and neighbors, and don't damage the house. If they do those things, they will be my tenant for life. If they don't do those things, they'll be looking for another place to live.
No hard feelings. Just business. As an owner, you have got to understand this mindset.
Rule #1 - Set Expectations Up Front
There is nothing 'mean' or 'rude' about making sure a prospective tenant understands the rules. This is a business, and for a business deal to go smoothly, both parties must fully understand and agree to what is expected of them. You must set the expectations up front!
While the formal 'rules' are explicitly spelled out in the lease document, do take the time to have a civil, but candid conversation with the tenants before they apply. For example, the conversation between one of my property managers and a prospective tenant might go something like this:
"Thanks for your interest in the property. We really do appreciate you wanting to apply. However, before you do, I think it's only fair that we discuss our expectations of you, and also what you can expect from us. Sound fair? Good.
Rent is due on the 1st and late on the 2nd. We expect you to pay your rent on time, every single month, without exception. In the extremely rare circumstance that you are going to be late, you must call us in advance and let us know. Why you ask? Because we have owners who have to make their mortgage payments and if you are late, that means they are going to be late, so the fair and honest thing to do is to give us a heads-up so that we can inform the owner and they can make appropriate arrangements.
Not to be negative, but so that there is a very clear understanding, there will be a $60.00 late charge for the first day you are late, and then an additional $10.00/day until the entire balance is fully paid. If still not paid by the 5th, a process-server will deliver a notice to your door. If still not paid by the 15th, the file will be turned over to our attorney, and you will be evicted. You will lose your deposit, Sheriff officers will come to the premises, all personal items will be put to the curb, the locks will be changed, and the eviction will become a part of your credit history. Do you understand the process? Any questions?
We want to be fair to you, and the very last thing in the world that we want is for this to happen to any of our tenants, which is why we want you to be sure that you are ready to take on the responsibility before you apply. Make sense?
As for us, we are responsible for maintaining the property and addressing all of your legitimate concerns in a timely manner. With this in mind, we maintain a 24-hour, 7-days a week, 365-days a year telephone hotline that's staffed with trained maintenance coordinators. If you have a true emergency, they can dispatch immediately, any time of the day, or night. Non-emergencies will be logged and addressed during normal business hours. The owner is responsible for paying for all legitimate maintenance issues resulting from normal wear-and-tear, and you are responsible for all damages caused by improper use, or neglect. Make sense?
In short, pay your rent on time and don't damage the property and we will be the best landlord you ever had, but fail to do those things, and you'll be looking for housing elsewhere. Sound fair? Make sense? Do we understand each other?"
Rule #2 - Trust, But Verify
Remember Ronald Reagan? He's the guy who put an end to the cold-war conflict between the United States and the former Soviet Union. With regards to his negotiations with the Soviets, Reagan is famous for his quote, "Trust, but verify." Now, a boy from the Bronx (like me) might not have put it quite so eloquently and might have said something more like, "Talk is cheap, so show me the goods before I turn over the keys."
For insight into what the process should look like, here's a general overview of my company's screening process when evaluating the rental application of a tenant prospect:
- Every person who is 18 years old and up who will be residing at the property must complete and submit a complete rental application - no exceptions.
- Every applicant's data will be submitted for background checks, and the acceptance or rejection of an application will be based on the following criteria:
- National criminal database check.
- National eviction database check.
- Credit report check.
- Income verification, to include:
- Pay-stubs and employer verification for employees.
- Two-years tax returns for self-employed applicants.
- Such things as social-security award letters, pension award letters, and investment account statements, for retirees.
- If pets are involved, there is a pet approval process and an additional rent charge.
Rule #3 - Be a Good Landlord Yourself
Too many landlords forget that life is a two-way street and you always get back what you give out. If you want good, honest, reliable, fair, conscientious, tenants, then you have to be a good, honest, reliable, fair, conscientious, landlord. I have met my share of owners who don't want to pay for repairs, fail to follow through on promises, are rude and unprofessional in their interactions, yet complain about how they can never find good tenants. Do NOT be that guy!
Your Next Step . . .
If you self-manage your rentals, devise a tenant screening system that is above all else thorough and treats all applicants fairly and without bias. Be professional, and always hold up your end of the bargain.
If you own Florida rental units in either Sarasota or Manatee county (Ellenton, Parrish, Palmetto, Bradenton, Lakewood Ranch, Sarasota, Siesta Key, Osprey, Nokomis, Venice, North Port, Englewood, Port Charlotte), you can contact us at Real Property Management of Sarasota & Manatee, 941-216-0005.
Download our free guide to finding the best Sarasota and surrounding area property manager for further reading.