Tenant screening and selection is an important part of the leasing process. Selecting the wrong tenant can be an absolute nightmare. Selecting the right tenant is great for the bottom line and helps you sleep at night.
During our aggressive marketing campaign, we generally receive numerous applications for each rental property. How do you pick the best candidate? We have a process for tenant screening and selection. We stick to our process, and we believe it helps guide us in making the best decision.
First of all, the prospective tenant has to come view the property. This is probably the most important part of the process. Our property manager will be onsite during each of the mini-open houses (discussed in a previous entry). The property manager will make sure to take time to speak to each prospective tenant. These short conversations serve as informal interviews and are a great way to feel out the person and gauge their interest. Our property manager will take notes on the prospective tenant so in the event they submit an application, we will have anecdotal information on the tenant.
If the tenant likes the property the property manager will send them a link to our online application. Our online application allows us to collect their basic information. We receive their social security number, employment history, income, and current bank account balances. If we come to general terms with the prospective tenant, they pay an application fee and we do a background check. We check their credit, criminal and eviction history. Below is a sample of what our background check generally looks like.
Ideally, the prospective tenants income is 3x the asking rent and their credit score is north of 750. However, its common to see a prospective tenant either have great income or great credit, but not both. Lacking in one of the two main financial qualifiers does not mean a prospective tenant will not be a great tenant.
Going Beyond The Numbers.
A lot of property managers will base the tenant screening and selection process almost exclusively off credit scores. We prefer to go beyond the numbers and look at the tenant from a holistic approach. Hands down, the worst tenant we have ever managed had a +800 credit score and great income. In fact, they are the only tenant we have ever had to take to small claims court to collect rent.
If a prospective tenant lacks in one of the two main financial qualifiers, we learn more about the tenants specific situation. There are many factors that can be detrimental to one’s credit score that do not necessarily make the prospective tenant a riskier tenant. Divorce, medical bills, or identify theft are not necessarily indicators of a prospective tenant that is likely to become delinquent on their rent. Additionally, the income stated on a tenants W2 might not be a full picture of the tenants income or financial picture. We had a tenant apply for a property, that had a W2 that only showed income 2x the asking rent. However, the tenant was making 100% of their salary moonlighting as a consultant. This was verifiable through their tax returns and meant their actual income was 4x the asking rent.
When a prospective tenant is leaving something to be desired in either of the two main financial qualifiers, there are strategies you can employ to mitigate the risk. When a property manager shoots down a prospective tenant based only on their credit score or income, they maybe leaving money on the table. We have found good tenants with less than desirable credit scores are willing to work with the property manager to help mitigate risk. Here are a few real examples of tenants who were lacking in one of the 2 main financial qualifiers and how we were able to mitigate the risk.
- 3 college students had very limited income. Their parents signed on as guarantors.
- A recently divorced single mom with bad credit volunteered to an increased security deposit.
- Young entrepreneur’s failed company destroyed his credit. He offered to pay 3-months rent in advance with an increased security deposit.
Ideally, everyone in our portfolio would have income 3x the rent and credit scores north of 750. However, unfortunately that can not always be the case. The tenants that we have worked with to help get them qualified because of some challenge related to their credit score or their income have often been fantastic tenants.
If you are interested in applying to live in our of properties, we encourage you to check out vacancies HERE.
Lastly, and perhaps, most importantly. Marterra Properties is an equal opportunity housing provider and we are proud of the diverse and vibrant homes and communities that we manage.