The Landlord Lens - Tenant Screening

Episode Date: January 30, 2024

On this episode of Be A Better Landlord, Samantha walks Seamus through the importance of the tenant screening process.

I'm Seamus Nally, CEO of Turboretinent, joined by Samantha. And she's here to help me be a better landlord. So Samantha, last time we talked, you taught me all about rental applications. And I now have a bunch of applications that contain contact information, rental history, job history. I even collected things like additional occupants as well as pets and those really important documents like pay stubs to actually verify the income. So what's next? You've established your rental criteria, right? No, I haven't.

Okay. So your rental criteria or your screening qualifications are going to be the guidelines that you're looking at when determining if a renter is qualified. It's going to be looking at things like the credit score, the background, and eviction history as well. I get the feeling I probably should have done that before I even collected applications. That's definitely the recommendation, yes, but it's not too late because we haven't run the screening reports yet. So you can establish your rental criteria, communicate that with your renters, and move forward with the screening process. Awesome. You mind giving me a couple tips like when I'm establishing my criteria? What sort of credit scores should I be looking for? So credit scores start at 300. That's what everybody starts with.

Lowest you can get, no credit activity. We recommend that you would consider applicants that have a credit score between 560 and 850, which is the top of the credit score line. Gotcha. So the higher the number in that range, the better, likely meaning the individual is going to be more capable of paying rent? Yes. So the credit score is a going to be a number that is assigned based on financial activity, including the age of accounts that are open, the available credit, and on-time-vers-late payments. What else from a financial standpoint should I be putting into my rental criteria? You should also consider what your income to rent or debt-to-income ratio will be. A lot of landlords like to look at the rent-to-income

ratio as 30 percent. Some landlords do two and a half to three times the rent to ensure their renter is qualified and can support those monthly payments. Okay. So I'm going to repeat that back just to make sure I'm following, I should be making sure that an individual's income is two to three times what the rent is for my property. That's correct. And it should be verifiable income. So those pay stubs, the tax documents, the bank statements that you receive from your renters during the application. Is there anything I should consider when looking at the documents that a renter uploads alongside their application? Yeah. So when you're looking at income verification, pay stubs, W-2s, things like that. It's important to verify that the company actually exists. So you can do this

with the Google search, make sure that the address matches what's on the pay stub or the documents. You can also make sure that on the pay stub, you're seeing zeros and not O's. Make sure that zeros and O's are in the correct spaces and that numbers aren't perfectly rounded as it relates to deposits and deductions on the pay stub. Well, so people will actually fake that income verification to get a property. They will. And it takes about 20 minutes online and $5 to get. get a fake pay stub made up for you. That's pretty scary. And you mentioned background and eviction history.

Now for that in my rental criteria, but then how do I actually verify that information along with the credit information? So that's going to come from a third party provider, your screening report provider. At TurboTenant, we use TransUnion. And they're going to provide you with a snapshot look and then a deeper dive into things like the credit,

the background, and the eviction history. So once I collect the tenant screening, I look at that information and I compare to my rental criteria. What happens if I have a couple, let's say, that are applying to a property together, one of them meets my rental criteria, but the other doesn't. What should I do? So these are things you should consider when establishing your rental criteria, so you know how you're going to handle it, and you can treat all applicants the same. Okay. One of the things that a lot of landlords do is if one renter is fully qualified, and the second renter is qualified except that their credit

score is maybe a little lower, then the landlord will choose to approve them conditionally, and that would be either with a higher security deposit or with a guarantor or cosigner on the lease. All right. So with a conditional approval, do I run a screening report on that cosigner as well? Yes. You want to make sure that you're running a screening report on all applicants, which includes the guarantors or co-signers. And just consider that they could be financially liable for your investment. So you want to make sure that they have a good credit history. They have a history of on-time payments and aren't delinquent on that. several accounts because they may need to support your investment. So I have to go back to them and I should

get an application and a screening report. You got it. The same information collected from everybody. Will I receive the same info regardless of where my property is located in the tenant screening report? If you're using a reputable source, they should only provide you with information that you're allowed to use for the screening report. Okay. For example, in the state of New York, if you're a landlord, you will not receive an eviction report with your screening report in order to keep up with current laws. Gotcha. So I'll only receive what I can actually consider as a landlord. That's correct, yeah. All right, now I have a couple of screening reports, right? If I want to reject a candidate because they don't meet the rental criteria that I've set up,

what do I do? How do I reject them? So you don't have to give them a specific reason for rejecting the application, but if you are using information that you've obtained from a screening report, you're required to send them information about the Fair Credit Reporting Act. That'll let them know how to obtain a copy of their screening report, how to dispute information on their screening report. And it also confirms that the decision that you made was based in full or in part on the information obtained from that report.

What if I have a bunch of applicants that I've screened and they all meet the criteria? How do I select someone and then what happens next? So if you're looking at all your applicants and screening reports and they're all equally qualified, the next thing you should do is look at who applied first. It was the first qualified applicant that applied and offer them the rental.

So it's first come, first serve. That's exactly right. It is first come first serve. The first qualified applicant should be the applicant that gets the rental. So I've got my applicant. I'm that much closer to having an actual tenant paying rent. How do I move someone in?

So we're going to work on a lease agreement. We're going to make sure we get all the details about their move-in date and the length of their lease. And then we're going to move into that process to get them moved in. Well, I'm going to need you to tell me a whole lot more about that, but we'll save it for another time. You got it. Thanks for talking to me today and making me a better landlord. TurboTenant is the all-in-one platform for landlords to manage their rental properties. From vacancy to tenancy, we have you covered with industry-leading,

tools and expert advice. Landlord better from anywhere for free at turbotenant.com.