WARNING: If you use the following criteria in tenant selection, you must apply them equally to all applicants. The safest method is to write them out and hand them to every person who wants to apply to rent your property. Failure to do so could well open the doors to costly Fair Housing complaints.
You can set a minimum amount of income that an applicant must have before you will accept him and/or her. One common criteria is that gross income must equal at least 3 ½ times rent. You can also re- quire that other bills, contracted debt, not exceed a specified amount.
Contracted debt is anything that the tenant has signed his name to agree to pay. That would include rent, credit cards, car payments, credit union loans, and consumer loans to name a few. It does not include electric bills, cable bills, water, gas and such. Those can be turned off without affecting the tenants’ credit.
These are conservative figures. On the other hand those are liberal figures when compared to what lenders use to determine if a borrower qualifies for a home loan. With that kind of debt ratio it is possible for a person to buy a home with some of the new programs available.
You might want to increase the ratios to 35% or 38% and 45% or 48%, or even higher, depending on the type of tenants that particular property attracts. Regardless, apply it equally to all applicants.
2. Employment or income stability:
Employment history is a good indicator of ability to continue to pay rent without difficulty. It is somewhat irritating to get a call from a tenant saying he has just been laid off and won’t be able to pay the rent for about six months.
Lenders require at least two years in the same line of work to buy a home. You can require something similar to rent one.
Something else to watch out for are strikes. If their line of work has a history of frequent strikes, it would not make good business sense to risk not getting the rent during the period of the strike.
3. Length of time at last residence:
Every time a tenant moves out it costs you at least a month’s rent. That’s for a good tenant. That could take a year of regular rent receipts to make up, depending on the amount of profit in the rent. A bad one, who hasn’t bothered to pay rent for a while and has been hard on the property, will cost several months’ rent and could take two to three years to make up.
If you see a tenant has a habit of moving every three or four months, don’t rent to him. As a rule look for at least two years at the last residence, and the longer the better.
If a tenant has been evicted, you may not want him. You can’t live long enough to experience everything yourself, so learn from others’ experience. Another landlord’s bad experience with a tenant should be reason enough not to rent to him.
Every bad tenant has a story about how it wasn’t his or her fault. The two times landlords get into trouble is when they are in a hurry to rent and when they feel sorry for the applicant. Do not believe
5. Marital stability:
Watch out for people in the middle of a divorce or recently separated. They are not quite all there. That period of time in a person’s life is when they traditionally have the most credit problems and gen- erally lose touch with normal life.
Another thing that can happen is that he or she gets back together with the spouse and moves out, costing you rent. It is a shame to victimize these people, who could have the potential of being good tenants, especially if they were home owners before their separation or divorce. These people are members of a protected class, so you can’t discriminate because of marital status, but you can because of length of time at last residence or previous complaints from neighbors and landlords.
A way around it would be a one year lease. That way you are fairly well assured of getting the rent for a year, even if the tenant moves. That solution would only be in the case of a prospective tenant who looked to be excellent in every other respect.
6. Number of occupants:
It is still legal to discriminate based on the number of people who will be occupying a home, even though the rules aren’t completely clear and can be changed on a whim and without warning by the Department of Housing and Urban Development (HUD).
You may not legally discriminate on the basis of the fact that the tenant has children under the age of 18, unless you have established that your property is for people 55 and older.
7. Number of vehicles:
In some units no more than two vehicles are allowed, sometimes no motorcycles. In an apartment complex the number of vehicles is an important consideration, because parking is at a premium.
In a single family dwelling or duplex (something free standing), it can also be a consideration. Lots of vehicles sitting outside is an eyesore and tends to degrade the neighborhood. In addition to having neighbors mad at you, you could be liable if your tenant were to make it difficult for a neighbor to sell his home because of junker cars parked around your rental house.
Smokers tend to make maintenance of the property more costly. You will probably have to repaint every time a smoker moves out. Fires are more common with smokers than with non-smokers, as well.
Moreover, even smokers don’t like to rent properties another smoker has lived in because of the smell of stale cigarette smoke in them.
Many apartment complexes have gone completely smoke free, meaning that no smoking is allowed in any of the units or on the grounds. While you may have difficulty refusing to rent to smokers themselves, you can require that no smoking take place in or on the grounds of the property by the tenants or the tenants’ guests. Making that prohibition clear from the beginning will send many smokers looking for somewhere else to rent.
9. Bad credit: A tenant who does not pay anyone else may not pay you the rent either.
There are a number of ways to get a credit report. If you are a member of your local apartment association, you may be able to order one through them.
Another method is to use a tenant screening company; they charge under $25 to check any applicant’s record. Two companies we recommend are RealChek America and Zip Reports. You will need to fill out the forms and meet some requirements, but once you have, you can get reports of various kinds on each applicant you screen.
A late payment or two does not mean the tenant will not pay the rent on time. You need to look for consistently late payments and collections. Also bankruptcies and judgments, especially for property damage or unpaid rent, are a good sign that these are not the tenants for you.
10. Unverifiable information:
This is most important of all. If you can’t independently verify what an applicant has written on the rental application, don’t rent to him or her. Even if you use no other rental standards, use this one. You have to be able to verify current and previous landlords, current and previous employers, current and previous addresses, and even the fact that your applicant actually exists, and isn’t just a figment created from his or her own imagination.
There are fewer and fewer ways left for landlords to weed out potential bad tenants. We need to take advantage of all of them if we are to be able to maintain a profitable rental business.