Screening tenants plays a critical role in the success of direct real-estate investors. Make it a more pleasant and profitable experience.

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Tenants Matter

When you invest in real estate, it is more than just buying a property. Tenants are another investment you can make in real estate. These tenants either live on the property or work there. Tenant is usually the main source of income for rental properties. It is very unlikely that you will see a positive return if the tenant doesn’t pay rent on a regular basis. You are not responsible for choosing your tenant. There are many ways to invest in real estate. The manager of your REIT will not call you to find out what you think about the tenant. The same goes if you are investing in private funds or syndications of 100-door apartment buildings.

But if you are going to invest directly in real estate, tenant selection is a critical aspect of the investment. You will need to approve the tenants before you hire a property manager.

How To Attract Great Tenants

It’s a simple concept. How long will they be renting a property if they take great care of it, stay there for a long time, and have a steady, high income? It won’t be very long. They will eventually buy your property and move out. You’re left with people who either don’t stay long, have low incomes, aren’t stable, or have poor money management skills. These factors can create hassles, costs, and risks for you. You want to get the best tenant possible. There are two things that can go against you.

The initial is that top tenants are highly sought-after by other landlords. They have the ability to negotiate on their own. What are they looking for? They are looking for a reliable landlord, nice property and low rent. You won’t get the best tenants if you don’t also want to pay top dollar for rent and a quick search. You want more tenants? You can charge a little more than the market rent. If they find that they can get 20% more house at the same price, they will be more interested in your property and they will be able to get qualified tenants sooner.

How much should renter pay below market price? You can get a great tenant in there as long as you want. Perhaps 5% is sufficient. You might even need more. To make your property more appealing to tenants, you can offer incentives such as a lower deposit, a first month for free, and covered utilities. When you renew the contract, you can likely raise the rent back up to market rates without losing that good tenant because they now have disincentives to move:

  • It costs money to move
  • It costs time to move
  • Better to deal with the “devil you know”
  • They now have friends in the neighborhood
  • The kids are in school

The second factor is the cost of vacancy. You might find a great tenant if you wait six months. It will also cost you six months of rent. Which is worse: a mediocre tenant or a six-month vacancy?

Legalities of Tenant Screening

It is absolutely critical that you become an expert in tenant-landlord law in your state. There are some states that are more welcoming to tenants than others. This is especially true if you have rental properties in multiple states. You can find out what your state laws allow you to discriminate against tenants. You can violate these laws at your peril.

In Utah, for instance, landlords must adhere to the Utah Fair Housing Act. If they do not, they could face a $10,000 administrative penalty plus civil damages. This law names 10 categories of people (7 federally protected, 3 state protected) that you can’t discriminate against (e.g. These classes include:

  • Race (Federal)
  • Color (F)
  • Sex (F)
  • Disability(F)
  • Source of Income (10 State)
  • Sexual Orientation (
  • )Gender Identity (S 0
  • ) These classes include:
  • Race (Federal)
  • Color (F)

Sex (F)

Religion (F)

National Origin (F)

Disability (F)

  • Familial Status (F)
  • Source of Income (State)
  • Sexual Orientation (S)
  • Gender Identity (S)
  • Interestingly, there are exceptions in Utah. If you don’t have a real property license and live on the property, discrimination can be made against anyone in those classes. You should be familiar with the laws in your state.
  • Note: Pets, for example, are not allowed to be on the list. A person can’t discriminate because they have a child, but you can do so if they have a pet. The list also excludes drug and smoking use. Although you can legally require drug testing before renting to clients in most states, this can pose a legal problem. You cannot discriminate against tenants because of a disability. Past drug abuse or addiction can also be considered disability. Many states have legalized marijuana and it is often prescribed. Drug tests are often used to prescribe stimulants, benzos, or opioids. Drug tests also have false positives and negatives.
  • The other advantage a landlord has in the legal space is that the laws state that you cannot discriminate against a protected person solely for that reason. You can also point out other reasons you don’t like the tenant, such as their being in a protected group. You might not like their interview or the references they gave you. If they feel you are discriminating against them, they may come after you. It is better not to ask about their protected status. It is important to establish “rental criteria” as well as follow the “First Qualified tenant” rule. You are not comparing tenants. Tenants are being compared to a pre-determined list of qualifications. Those qualifications might include:
  • Paid application fees and security deposits
  • Photo ID
  • Employed for a certain period of time

Income requirement (must be reasonable for the rent you are charging)

Provides a rental history of a certain length (five years? )

Has renter’s insurance

  • Credit history: All accounts current, certain score, no evictions, defaults, foreclosures, bankruptcies, etc.
  • Criminal history: No convictions for a certain period of time
  • Maximum occupancy: You can set reasonable rules like two people per bedroom plus one more. You can have three people in a 1-bedroom and five in a 2-bedroom. You can also request an additional pet rent or deposit. Legally, assistance animals cannot be considered pets. This applies to companion animals, service, and assistance animals. They cannot be treated differently or charged more. You can ask their doctor to sign that the animal is handicapped and that it is medically necessary. To make sure that they are aware of their obligations, it is best to speak to the doctor directly. This tactic is used by many people to avoid paying pet fees and other costs.
  • How to Screen a Tenant
  • Your goal when screening tenants is to find a tenant who will:

Pay on time and in full

Not bother the neighbors

Not damage the property

Honor the lease agreement

If you are in the screening process already with a tenant, it is OK to take an application from another tenant, but let them know there is someone ahead of them in line, so they do not think you are discriminating against them.

How to Screen a Tenant

Your goals of screening tenants are to find a tenant who will:

Pay on time and in full

Not commit crime

Not bother the neighbors

Not damage the property

Honor the lease agreement

Your rental criteria and your screening should all be geared toward those five factors.

The Application

The first and easiest thing to do to begin screening your tenant is to have an application. The application is the easiest way to begin screening your tenant. Verifying the information is the rest of the process. It is unreasonable to rent to someone who has provided false information in their application. Ask about their credit history, criminal records, drug use, and previous landlords. If that all looks good, then all you have to do is make sure they’re not a liar.

Do a Credit Check

Remember to get consent to check credit, but don’t rent to someone who does not give it. There is a good chance that someone who owes money has already paid you. You will need to check for any delinquent accounts, repossessions or judgments, bankruptcy, late payments, etc. Now. you are simply checking their honesty.

  • Call the Employer
  • Verify the length of employment and income. You are now simply verifying their honesty. If you are going to have drug tests done, be ready to give a pharmacist or physician’s note detailing prescribed controlled substances. The urine sample cannot be used to screen for any medical conditions. You must also specify which drugs are not allowed before the test can be administered. Unreasonable search laws may prevent you from drawing blood.
  • Call Prior Landlords
  • You should also call the previous landlords. This is perhaps the most crucial part of the entire process. They may have been good tenants in the past. Talk to previous landlords to ensure that you don’t violate the Fair Housing Act in your state and tenant rights. But ask about:
  • On-time payments
  • Pets
  • Lease violations
  • Number of occupants

Proper notice given when leaving

Did they leave on time?

Do they owe money?

Neighbor complaints

Police incidents

Damage to property

Be careful here. Sometimes, tenants will give you the number for a family member or friend rather than the landlord. You can ask for the address and verify the number by yourself if you feel suspicious. To confirm that the person is a landlord, you can ask them questions about landlording. Ask about the local landlording association or their own rent-setting practices.

Check all the references they give you. Some unscrupulous landlords might give you an awesome reference just to get this problem tenant out of their unit.

Source link 01001010Denials01001010If you deny an applicant, be sure to follow all required laws and best practices. You must immediately return the deposit you have received with your application. Use your rental criteria to explain why you denied them. If the denial was due their credit, you may need to send them a letter. If they were denied due to their criminal record, you may need to offer them an appeal. Wish them well in finding another place.01001010Screening tenants properly is a critical aspect of being a successful direct real estate investor. It is important to screen tenants correctly upfront. A solid contract will help prevent any problems down the road. This will make your investment more profitable and pleasant. This is something that experienced landlords do every day. You should, too, even if are just an “accidental landlord.”01001010What do you think? What are your thoughts? Are you able to run criminal background checks on your tenants? Do you have drug tests? Are you a victim of discrimination? What has happened? 01001010 Sign up for our “Real Estate Opportunities Newsletter” to be the first to know about special deals, discounts, and all things real estate.01001010

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