Tenant Screening Secrets: What's Your Magic Formula?

[Mike Calvey]

Managing a rental can be as tricky as a high-wire act, especially when it comes to picking the right tenant!

A friend of mine, who not only manages but also lives in his triplex, is about to face a vacancy.

He's considering a strategy that includes a 3x income-to-rent ratio, pricing the rent $100 below the market, and stringent background checks (no felonies or evictions in the past decade, and no pets).

What do you think? Is he on the right track, or is there more to the tenant screening equation?

What criteria do you rely on? Have you ever made exceptions to your usual screening process? How did that turn out?

Do you emphasize a positive and verifiable rental history, or are there other 'must-haves' or 'deal-breakers' you swear by in your screening process?

Dive into the details—I'm all ears for your screening strategies and stories!

[JD Martin]

Quote from @Mike Calvey:

Managing a rental can be as tricky as a high-wire act, especially when it comes to picking the right tenant!

A friend of mine, who not only manages but also lives in his triplex, is about to face a vacancy.

He's considering a strategy that includes a 3x income-to-rent ratio, pricing the rent $100 below the market, and stringent background checks (no felonies or evictions in the past decade, and no pets).

What do you think? Is he on the right track, or is there more to the tenant screening equation?

What criteria do you rely on? Have you ever made exceptions to your usual screening process? How did that turn out?

Do you emphasize a positive and verifiable rental history, or are there other 'must-haves' or 'deal-breakers' you swear by in your screening process?

Dive into the details—I'm all ears for your screening strategies and stories!

 He's on the right track. It's not perfect but having criteria and standards will increase your chances of success.

[Teri Feeney Styers]

He needs to make sure to screen everyone equally and use the same criteria for all. That said, my husband liked to stroll past their cars and see how they took care of the interiors... 

[Bjorn Ahlblad]

Quote from @Teri Feeney Styers:

He needs to make sure to screen everyone equally and use the same criteria for all. That said, my husband liked to stroll past their cars and see how they took care of the interiors... 

 Bonus points!!

In a previous life I used to hire sales reps. When they were interviewing with someone else at the company I used to inspect their cars. Hahaha!

[JD Martin]

Quote from @Teri Feeney Styers:

He needs to make sure to screen everyone equally and use the same criteria for all. That said, my husband liked to stroll past their cars and see how they took care of the interiors... 

 I do the same thing if I'm on site. It's the rare person that keeps their car cleaner than their house. 

[Dominic Rosato]

I work in leasing/property management in NJ, and we encourage most of our landlords to require these two main criteria:

1) Household annual income > 40x the monthly rent

2) Credit score above 680

In addition, we screen their credit report to verify there are no red flags (rental collections, high CC balances, etc.), as well as previous two months of bank statements / investment accounts, whichever they'd like to provide (can they pay rent if they lost their job?). We also allow them to have a US-based guarantor if those criteria are not met. They will be subject to the same criteria, except they must have an income > 80x the monthly rent.

Under no circumstances can you make exceptions based on a good story. Let the numbers talk, plain and simple. The only criteria we will sometimes make exceptions on is income, because in some scenarios, applicants will have hundreds of thousands in savings, flawless credit, but only make 34x the monthly rent.

[Nehemiah Burney-Porter]

When they pull up for a tour, i always glance in their car to see what their cleanliness.

There's so much public information about people you can get so take advantage. My wife loves social stalking potential tenants. 

In this day and age, i dont just rely on the app and background checks, i go after their social as well. Gives you a great idea about people and what you're going to be dealing with.

For some of my section 8 renters in my town, instead of sending back the packet to them, i'll drop it off in person. If i knock and open the door to like 10 people and kids in the house its a no-go. 

All in all the general theme is to get off the application and start to find out who these people are.

[Corey Conklin]

I think it's important to set criteria in screening tenants for each individual property instead of a blanket policy over all of your properties.

It's important to understand the property value and what kind of tenant you should be attracting. If you have a class C/D property in a less desirable location you shouldn't ask for the same screening criteria for a class A/B property in a great location. I see a lot of people make this mistake. If you have a great property don't sell yourself short. If you have a pile of crap don't expect too much from your tenants.

Setting income requirements, credit score, criminal history, pets, etc. is a great way to set a standard but its not going to always weed out bad tenants unfortunately. No need to beat yourself up about it. Reading people in a 10 minute window is about impossible without major red flags.

(PERSONAL OPINION: If you think vehicle cleanliness is the secret to good tenants you are out of your mind.)

One of my best tenants was someone who needed a co-signer and no rental history. A couple of my worst tenants were high earners, great credit scores, and clean backgrounds.

I'd just tell your friend they better buckle up because they're are in for a treat!

[Ronnie C.]

Quote from @Dominic Rosato:

I work in leasing/property management in NJ, and we encourage most of our landlords to require these two main criteria:

1) Household annual income > 40x the monthly rent

2) Credit score above 680

In addition, we screen their credit report to verify there are no red flags (rental collections, high CC balances, etc.), as well as previous two months of bank statements / investment accounts, whichever they'd like to provide (can they pay rent if they lost their job?). We also allow them to have a US-based guarantor if those criteria are not met. They will be subject to the same criteria, except they must have an income > 80x the monthly rent.

Under no circumstances can you make exceptions based on a good story. Let the numbers talk, plain and simple. The only criteria we will sometimes make exceptions on is income, because in some scenarios, applicants will have hundreds of thousands in savings, flawless credit, but only make 34x the monthly rent.

 Just curious is that annual income 40x the monthly rent gross or net income?

Thanks

[James Hamling]

@Mike Calvey I can't say strong enough how flawed and WRONG of an action UNDER-pricing rent's is to "get a good tenant", it's ALL-kinds of wrong. 

My background for following "opinions"; I honestly couldn't out a # on how many tenant placement's I've done anymore.... maybe 4k.... IDK, this includes self and managed team. 

The #1 FUNDAMENTAL FLAW I see self-managing landlords and way-WAY too many PM's do is NEGLECT the entirety of the BUSINESS of things. 

A tenant placement ad/marketing, is simple Product Marketing. End of day, this is what it boils down to at core, remove all the over-complication of it, it's just Product marketing. 

And we have an epic ocean of Product Marketing DAT and RESEARCH all lending to Product Marketing SCIENCE. Yes, there is 100% a science to it. 

When you think of who sells a lot of products, that you actively us, who comes to mind? No, I am not talking the product manufacturer, I am just talking product SELLERS. Think Target, Walmart, Kohls, Sams Club, Costco.     

Do you see them in a "race-to-the-bottom" consistently pricing lower than any other for that type product?    Now, don't mix up a sale price with what I am saying. 

Where do we see this race to the bottom? Dollar stores, right. 

Who does better, Dollar stores or Walmart? 

Kohls is often cited as being "the" experts of consumer science in Product Price Marketing, if you read the research papers. I will save you that research and say just look at Kohls and say what stands out different. 

Yeah, SALE prices. 

Consistently, everything is "ON SALE" and while anyone and everyone with any common sense knows the "regular" price is just marked up to, mark down on a sale, it's still like moths to a flame. 

FOMO is the most POWERFUL positive motivator in consumer science. 

So how does one BEST get GOOD tenant's to ACT on a vacency listing FAST, and for BEST price and terms?    Ok, here it is, I will broadcast my tripple-diamond "secret sauce" recipe: 

(A) exposure, Exposure, EXPOSURE. Step 1 in marketing is getting as MANY eye-balls as possible to see that listing. This means intelligent placement on multiple platforms of popular use. Also possible a database use of historical tenants in search (more for PMc's).    

(B) CATCH-EM!    That first pic, that title, the first sentence, that is your EVERYTHING. It's NOT to "sell" a person on renting, NO, it's to just get them to click on it that's it, HOOK EM IN, get em to open the listing

(C) REEL EM IN!    Now that there in the listing, the next 3 photos are VERY important, they must HOLD the attention enough to then make it worth reading any further then that 3 seconds. Yes, literal #, it's actually 3.7 seconds, that's the "Bounce" danger zone. If you got em past 3.7 seconds *POW* there in.     And now, next thing, which SOOOooooo many fail miserably at; you GOTTA make it SIMPLE, uber simple and straight forward for them to make the actions THEY would want next answered, and steering toward what YOUD want them to do.     This means DONT overload on wordiness, don't get rediculous with pitching, lend ENOUGH of what one would want answered to move to the next step which is creating a LEAD.    You MUST have video, that's a must, video tour, so they can tour it right then and there.     Have a clear direction for next steps. 

(D) LASTLY is Pricing Strategy.    Now here si the thing, cleaning is CHEAP, paint is CHEAP, taking good photos and video is CHEAP.... DO THE CHEAP SIMPLE STUFF AND DONT BE LAZY.    Editing photos is so insanely easy and simple yet near to none do it. People take narrow crappy photos of dark rooms, blinds closed, with close-ups of who knows what because there WAY to close-up.    No, Open blinds, get lighting set, close toilet lids, use wide angle setting and snap 2,3,4 photos, to later edit for which is BEST.     Put some effort into it.     THAN Price for VALUE. Go HIGH not low!!!! Because you can always LOWER price.     If your doing it smart, your using a software, like showmojo or something that captures those looking at it. So after 7 days listing with no app's, you can effect a "SALE price" of reducing $100.     

Now, with a "SALE" in effect via "Discounting" it $100, your offering "A Deal". And the system shoots out an allert to all who had seen it but didn't act, of the "SALE/DISCOUNT". 

All are now PRICE CONDITIONED that the "Price" is that original higher list. So in there brain, it's a "deal/sale" and only question is where does FOMO press actions. 

And you read the data, and effect price adjustment every 7-days. 

You WILL see the data jump and actions happening at each stage. You will see things getting close. And when you hit that right "Discount/SALE" all hell breaks loose as most often several all rush to complete applications asap, or pre-app's, whatever. 

Personally, I don't all in-person showings to anyone who isnt verified pre-qualefied to rent. Yup, tire-kickers can do video tour, that's it. And my average time to lease a unit is 17 days, via this method. 

And, I average 107% market rate on rents. With average tenancy of 32 months. 

I ALWAYS require MINIMUM 3X rents in gross household income, no exceptions other than pre-paid for FULL lease term (yes, I lease this way, not theory). And, 640fico is generally my minimum. I have more flex on fico depending on factors of why fico is what it is, for example divorce etc.. 

Point is, my minimum requirements are higher then most, I am more stringent then most, I am less giving then most, I am less amicable than most, I lease units for more then most, and get better tenants, faster, who stay longer, then most....

SCIENCE.... 

That's the difference. I approach it scientifically, like running a business, vs operating from feelings. I am a sociopath of a landlord and EVERYONE should be too, emotions have NO place for a landlord, NONE. 

[Steve K.]

My secret is only buying properties in great locations. I rarely have a turnover and when I do, there are always plenty of qualified applicants to choose from. Half the time the current tenant actually has a friend or relative who wants it and I don't even end up needing to create a listing. 

When I had properties in bad locations I had a hard time qualifying tenants because they all had bad credit, none of them had savings or income at 2-3x rent, or references I could call, etc. it was a process of picking the least-worst applicant and hoping for the best possible outcome. 

The better the location, the better the tenants, the easier the job, the higher the profits. Don't tell anyone ;) 

[Greg M.]

Quote from @Mike Calvey:

He's considering a strategy that includes a 3x income-to-rent ratio, pricing the rent $100 below the market, and stringent background checks (no felonies or evictions in the past decade, and no pets).

What do you think? Is he on the right track, or is there more to the tenant screening equation? 

He's going to price it $100 below market? So your friend likes losing money? I never aim for the top as I prefer quick turnover, but $100 under market may be too much. 

Most people have a pet, so no pets is going to exclude over 50% of the potential applicants. I strongly suggest openly taking pets and having the rent and security deposit reflect this added risk. Besides, ever pet is just a lie away from being an ESA. 

No evictions. Felonies you need to look at. Depending on location, a DUI, possession of weed, or peeing near a school at 3:00 AM could be a felony. None of those would be 100% deal breakers for me.

Credit score is an indicator of risk, but I like to look at the report details to see how they use credit. 

I also like to confirm that potential tenants have reserves in the bank. I don't want an employment hiccup stopping my rent. I want them to have a safety net. 

[Nicholas Mann]

Create a solid rental application utilizing questions and criteria from biggerpockets books and forms. I just had an application process and utilized rent prep for the background/credit check, I found it to be a useful tool and worth the cost (about $40).

[Colleen F.]

@Mike Calvey  don't price below market, it brings in the riff raff.  So for credit, set a minimum but look at pattern of payment and Debt to income.   A lot of recent missed payments ? no go.  Car loans eating up a huge amount of income no.  Rental history- larger unit- how long were they at the last place, big predictor or longevity.  Call previous rentals for reference.   Small unit, newer renter I will take personal references from neighbors etc. combined with an established job in the area or a new job with a strong employer in the area. The younger they are, the more important a social media search is. Do they have a FB page with their dogs and say they don't have pets. is it all about partying.     Lastly listen to what they offer up.   Complaining about the old landlord, who will visit. what is the attitude.  I also screen for number of vehicles but that depends alot on your area. Set up showing to get multiple good applications say by having an open house. 

[Priscilla Z.]

So you've received a lot of great advice.  I strongly agree with the don't price lower than market rents.  I didn't read all replies so someone might have said this already but I do accept credit score under 620 with two times security deposit amount.  I've had no problems with this.  I believe people have had bad luck in the past and credit doesn't necessarily reflect their current situation.

One thing I like to do is actually CALL and talk to the references.  The landlords more than anyone.  If you ask the right questions and carry on a 'landlord to landlord' conversation you will get the information you need to decide whether they will be a good fit for you or not. 

[James Mc Ree]

Great advice above. Here are a couple items I can add:

- I try to schedule lease signing at their current residence, not the new property. New tenants always want to come to the new property. I want to see what their current residence looks like today because my property will look like that at the end of the lease. It's a last chance option to bail out if their residence is a pit of despair.

- Require renters insurance and ensure you are an "additional insured." This covers their liability to you for what they break and covers them with temporary housing funds and other benefits if they need it. My tenants pay about $20-$25/month for it and get $100,000+ in coverage. Some want more for their own special property. The "additional insured" puts your name on the payout check with theirs to ensure you get paid for the damage. The tenant can just endorse the check over to you versus run away with it.

[Michael Sloan]

@Mike Calvey income and payment history are the most important. You need to make sure they can afford the rent and they have a solid history of paying their bills on time

Life happens to people which can affect a credit score. Look at their credit for payment history more than credit score. Don’t be afraid to ask an applicant about an account if you have questions.

[Dominic Rosato]

Quote from @Ronnie C.:

Quote from @Dominic Rosato:

I work in leasing/property management in NJ, and we encourage most of our landlords to require these two main criteria:

1) Household annual income > 40x the monthly rent

2) Credit score above 680

In addition, we screen their credit report to verify there are no red flags (rental collections, high CC balances, etc.), as well as previous two months of bank statements / investment accounts, whichever they'd like to provide (can they pay rent if they lost their job?). We also allow them to have a US-based guarantor if those criteria are not met. They will be subject to the same criteria, except they must have an income > 80x the monthly rent.

Under no circumstances can you make exceptions based on a good story. Let the numbers talk, plain and simple. The only criteria we will sometimes make exceptions on is income, because in some scenarios, applicants will have hundreds of thousands in savings, flawless credit, but only make 34x the monthly rent.

 Just curious is that annual income 40x the monthly rent gross or net income?

Thanks

Gross annual income. Make sure to verify all types of income with paystubs (or signed offer letter), bonuses, and 1040 or W2/1099. If it can't be verified, you shouldn't allow it to count. Many people like to overestimate their income on the application, which is another thing to look out for.

[Alexander Szikla]

1. Credit Check

2. Background Checks - Evictions get an automatic ding

3. Prior Landlord Reference - Call them! Ensure they are a good tenant who pays on time, doesn't have issues with noise/smoking/trash, etc.

4. Income Verification - Paystubs, W-2s, Bank Statements, Tax Returns. SOMETHING!

5. Employer Verification - Call them! Make sure they are a responsible employee.

[Chloe Brown]

@Mike Calvey you have a ton of information in all of the responses you have received so far so I will say one thing.

Make sure that your friend is clear on the Fair Housing Regulations especially if renting in Colorado. I do not know the ins and outs of Colorado regulations but do know they have been becoming increasingly strict as they are in California.

Make sure you are abiding by these laws when screening and approving residents.

[James Hamling]

Quote from @Dominic Rosato:

Quote from @Ronnie C.:

Quote from @Dominic Rosato:

I work in leasing/property management in NJ, and we encourage most of our landlords to require these two main criteria:

1) Household annual income > 40x the monthly rent

2) Credit score above 680

In addition, we screen their credit report to verify there are no red flags (rental collections, high CC balances, etc.), as well as previous two months of bank statements / investment accounts, whichever they'd like to provide (can they pay rent if they lost their job?). We also allow them to have a US-based guarantor if those criteria are not met. They will be subject to the same criteria, except they must have an income > 80x the monthly rent.

Under no circumstances can you make exceptions based on a good story. Let the numbers talk, plain and simple. The only criteria we will sometimes make exceptions on is income, because in some scenarios, applicants will have hundreds of thousands in savings, flawless credit, but only make 34x the monthly rent.

 Just curious is that annual income 40x the monthly rent gross or net income?

Thanks

Gross annual income. Make sure to verify all types of income with paystubs (or signed offer letter), bonuses, and 1040 or W2/1099. If it can't be verified, you shouldn't allow it to count. Many people like to overestimate their income on the application, which is another thing to look out for.

FYI: Paystubs means NOTHING. There is many sites online now happy to provide a tenant a FAKE paystub. It comes down to VERIFY income. 

I prefer bank statements. It's simple, can see what's coming in to account to confirm paystub, but also get to see if there riding $0 regularly, or saving. Tells you who they are in regards to financial habits. 

[Bill S.]

@Mike Calvey so where to start. 

1) Colorado laws have changed and there are strict requirements that must be followed with severe consequences ($$$$) if you don't. Too much to cover in this reply. I will cover the ones that come to mind in reading your post. There are some exceptions for owner occupied properties so make sure to understand if the exception fits. I don't know the exceptions since they don't apply to my business. I own more units than qualifies for the exception and I don't live in any of my rental properties.

2) 3x rent is illegal in Colorado now.  Colorado law says landlords can't reject applicants for income if they make more than 2x rent on a monthly basis. Yes 2X. It's crazy and clearly legislatures have no clue about the rental business but it's the law.

3) Colorado now requires that a landlord cannot reject applicants for being felons if the felony is older than 5 years ago.

4) Colorado now requires that landlords cannot reject applicants for being evicted if the eviction was more than 7 years ago.

The most important is: Write down your criteria ahead of time and do not deviate from it. I will repeat. Write down your criteria ahead of time and do not deviate from it. If you get it wrong correct it for the next vacancy but hold the line for this one. Adjust price but not the criteria mid stream. The pull will be to bend the criteria when you are desperate and it NEVER ends well.

The marketing advise is the best. Most exposure and quality ad is very important.

As other have said. Call and check references. Verify character of folks. Do they do what they say and pay their bills. 

I have heard the car thing a lot over the years but it fails to cover whether or not they pay their bills. I had an applicant with a impeccable Mercedes that multiple accounts in collection. I don't know how they would have been as tenants as I didn't rent to them.

The bottom line is ... A vacancy is a blessing compared to a bad tenant.

[Colleen F.]

@Bill S. apparently Colorado thinks people don't have to pay anything but rent.  Curious are you still allowed to have additional financial requirements like no late payments in the last 6 months, no late rent payments in the last year or set a criteria like Debt to income ratio? 

[Bill S.]

@Colleen F. yes we have a bunch of real winners in office now. One party controls the house, senate, and governor. They have super majority so cannot even filibuster to prevent legislation. The author of most of the bills was evicted when he was in high school and the president of the senate was also evicted when she was a child. They hate landlords and the legislation reflects it.

They wonder why evictions are increasing and low income housing is scarce. 

[Melanie P.]

Do not rely on tenant provided documents. Have them furnish paystubs, but then Google the company name and call the listed phone number to verify what is on the paystubs. When you have the employer on the phone ask if they are happy with the applicant and if their position is permanent. Sometimes the answer to that will surprise you!

We have found that the best qualified tenants pay slightly below top of market rent. The market is efficient. Whether that number is $100 depends on your market. 

The criminal history we will consider case-by-case. 

[Colleen F.]

@Melanie P.  if you intend to talk to the company make sure the tenants signed release covers that, you might have to send it to them. I have called employers and most say very little.