How to Screen Tenants & Reject Bad Applicants – Without Running Afoul of Fair Housing Laws
Shoddy tenant screening is to blame for many tenant problems that landlords experience. Bad tenants will refuse to pay rent, ruin your rental property, invent reasons to sue you, and then tell the judge that you're evicting them unfairly. In short, they are an expensive nightmare.
So how do you spot these rotten apples?
First of all, bear in mind that sleazeball applicants can sue you without ever signing a lease agreement. If you show your rental property to a prospective tenant, and subsequently turn them down, they can turn around and sue you for "discrimination". So, what this means is that the tenant screening process has to begin with the initial phone call, to help you get a sense for what kind of tenant they are. Ask plenty of questions about their current and past employment, income, credit history, current and prior housing, their relationship with their landlord, and anything else that comes to mind during the course of the conversation. If they start talking about how their current landlord is a deadbeat who won't fix anything, politely end the conversation without scheduling a definite time to meet them, because chances are they will be combative (or at least high maintenance).
If possible, email the prospective tenant the rental application to fill out on their computer, e-sign and email back to you before committing to the hassle of meeting them at the property (ezLandlordForms has an emailable, e-signable application). If this is not practical, when you do meet the applicant in person, immediately hand them a rental application form and a pen, and have them complete and sign the form on the spot (ezLandlordForms also offers a free handwritten rental application).
There are a minimum of four items to research, when looking into an applicant’s past, and if all of these look promising, the applicant will most likely prove a decent tenant.
Income/Employment: Can they afford to live in your rental unit? If the rent is more than 25% of their gross monthly income, the answer goes from “probably” to “possibly”, and if the rent is over 35% of their income then the answer is "less likely".
Beyond simple numbers, how stable is their employment history? Be sure to ask their employer how long they have been there, and how likely their continued employment is. If they changed jobs recently, find out how long they were at their previous job.
Credit Report: While income answers whether they can pay the rent, credit history answers whether they will pay. Apparently someone, somewhere once changed their financial habits after reading a lot of personal finance books, but most people are either consistently good about paying their bills on time or they are consistently inconsistent.
Poor credit history is a simple – and legal – reason to reject rental applications. Sometimes it can be hard to pinpoint exactly why your gut distrusts an applicant, and it's often a combination of subtle clues (such as the way they described their last landlord, or the way they wouldn't meet your eye when talking about their last job). When you send out rental application rejection letters, if you include the reason you rejected their application, make sure it is a legal one: "poor credit history", "insufficient income", etc. You should keep the credit report and rental application on file for a year, in case they try to take you to court for discrimination.
Criminal History: Criminals make bad tenants and bad neighbors for nearby residents. Fortunately, ezLandlordForms includes a nationwide criminal background check and full credit reports (which includes a sex offender search, to keep the neighborhood safe).
Housing History: How long has the applicant lived at their current residence? The longer the better, as someone who moves around frequently is both a higher risk for rent defaults and is likely to leave the property vacant again soon. Also ask the prospective tenant why they are moving – answers like “we’re having another child and need more space” are fine, while answers like “our current landlord is a bum who never fixes anything” are a bad sign. The more stability in applicants’ housing history, the better.
Call applicants' current landlord to ask about how they are as tenants. If they say “wonderful!”, take their word with a grain of salt and start asking probing questions, because the easiest way to get rid of bad tenants is to give them a glowing review so another landlord will take their headache.
Be sure to also ask prospective tenants about their relationship with their current landlord. If they fire off a series of hostile complaints and accusations, steer clear and opt for a tenant who remains civil even if they explain a past disagreement with their landlord.
Visit applicants at their current residence, to see how they’ve treated it. What kind of shape is it in? How clean is it? Beware, this is how they’ll treat your property too.
Pets, Co-Signers & Other Considerations
There is much debate about whether landlords should accept pets, and it comes down to a risk-reward ratio decision on the part of the landlord – see our article on Should Landlords Allow Pets?
Co-signers are a viable option, for tenants who qualify except for their income. Recent college graduates, for example, may be well-qualified but have little income history, and thus having their more-stable parents co-sign the rental agreement may be a good option for all parties. No amount of co-signers will make a felon sex offender a good choice for an apartment building filled with families however. (For more information, see our article on Lease Co-Signers FAQ, and feel free to view our Co-Signer Lease Addendum.)
Requiring higher security deposits is also an option, for not-quite-perfect tenants who seem promising. But beware: many U.S. states and Canadian provinces restrict the maximum security deposit a landlord can collect; when you create a lease package with our lease wizard, our State- or Province Assist will alert you if there are restrictions.
In general, if your gut doesn’t feel 100% about an applicant, keep advertising and showing the rental unit. There are plenty of good tenants out there, so steer clear of bizarre requests, desperate-seeming applicants and any other red flags, no matter how small.
For more information, read our article about complying with fair housing laws.