How do I Screen a Rental Application?
Of all the things a property manager or landlord does, screening their rental applications is one of the most important. You will learn in this post some pit falls to avoid, vital steps to take, and red flags to watch for.
What do I Need to Know when Screening a Rental Application?
Before you even start advertising a place for rent you want to make sure you have the right tools, rules, and procedures in place so that you will know how to answer people’s questions and know what to do with applications when they start coming in. You will absolutely need the ability to run credit and do criminal background checks.
At Kasteel Property Management not only do we have this capability but we also have additional tools that come free as part of our regular services. Such as, screening applicants against our attorneys database. Our attorney is used by hundreds of management companies and has been in business for decades.
As a result, their office has a very large database of problem tenants and we check all our applicants against it. This resource is not only great for screening applicants but it also creates a network of hundreds of property management company’s working together, through the attorney, to help with collection efforts.
Another resource we have that benefits our clients is the software we use. It will show us the rental payment history of applicants that have rented from other places that use the same software. Often, we can quickly rule out a bad application before we even get to the cost of ordering a credit and criminal history report.
10 Must have Criteria you Should Require for Rental Applications:
Establish your rules and criteria that an application must pass to be approved. Make sure you write them down for reasons I’ll explain later in this post. Here are some examples that I have written down that I apply to all of my applications:
- Application must be filled out completely.
- All adults must have applied.
- They must have toured the property.
- They must have provided picture ID and current pay stub.
- Their preferred move in date needs to be within one week of the property’s availability date.
- They are not trying to move in too many people.
- They must not be in the middle of bankruptcy.
- No evictions or collections from previous landlords in the last 10 years.
- I do not look for a specific credit score. Instead, I like to see that their credit shows they are currently paying their bills and have been for at least a couple years.
- Criminal history generally disqualifies them but the severity, frequency, and time from last incident are taken into account.
Some things you may want to use your discretion on may include unpaid medical bills, only one short period of time when bills were not getting paid but the rest of the history looks good.
How to Pick a Good Tenant:
Now that you are set up with tools, your rules, and your procedures for screening applications, you are ready to put the vacancy ads up and hopefully soon, you get your first application. Then it happens. You see an application in your inbox. You are eager to run it and you are hoping it is a good one.
Before running an application you first need to get your head straight. I’ll explain. Even though getting the vacancy filled and getting the rent money coming in is very important, you cannot let that desire pressure you into approving an application that may not qualify.
To help you keep the right focus when reviewing an application, know why you are renting out the home. It’s not because you are in the business of providing housing. It’s very important you realize this. This may be considered a bit of a heartless way of looking at things but it’s important to know to help you get the right tenant. If your job was to provide housing to people you’d be performing very different tasks than you do as a landlord. You are actually in the business of real estate appreciation and cashflow. Renting out the property is only a necessary part of that. Don’t loose that focus during the application process. It’s easy to get caught up in someone else’s desire and need to live at your place. Let me reiterate, you are not looking to provide housing for someone. You are actually looking for a business partner. Applicants need to be approved on their own merits and you can tell them “no” if they do not fit your criteria as a good business partner. You are planning on entering a contract (lease agreement) with this person where you will perform certain functions and they will perform certain functions. That is a business partner, not someone that is just the recipient of a nice place to live. Remind yourself, you can solve most problems before they even happen with a thorough, consistent screening process so that you get the right tenant as a business partner.
7 Red Flags to Watch for When Screening a Rental Application:
This is where you have to be a bit of a cynic. For the most part I believe people are good and want to be honorable but to be good at screening rental applications you need to watch for those people that are trying to hide certain information from you. You also need to watch out for people that are too high risk even if their intentions are good.
- Splitting up the Deposit. Never let someone split up the deposit to pay over time. If someone asks to do this, I tell them that if they need to do that, then this place must be too expensive for them and they’ll need to find a cheaper place to live. Almost every time I say that they say something similar to, never mind I can figure it out. Remember, your goal is not to figure out a way to provide them with the housing they need. Your goal is to get a good business partner and if they really can’t come up with the deposit, then they really can not afford to live there.
- Bully’s. Don’t let yourself get bullied. This can take some time to learn. When you aren’t expecting someone to verbally single you out, belittle you, make fun of you and your policies, and make you feel like a bad person it can be very upsetting. Your established set of rules and procedures can protect you from a bully. You may have the momentary thoughts of, “am I being unreasonable, or am doing this wrong or unfair?” You can be reassured by the fact that you have well thought out rules written down to fall back on. When first encountering a bully it can be very upsetting, but as a landlord, realize you have all the power, and you can simply tell them, no. Let them say their final rude comments and hang up. No need to give them any more time or energy.
- They are Special. Another red flag to watch out for is very similar to bullying but uses a different approach. It is people telling you all the reasons they think this home was meant for them, that they have been led to it, or prayed about it and know it should be their new home. These kind of comments, delivered very differently than what the bully does, is still often intended to have the same affect. They want to pressure you into overlooking their short comings and do what they want rather than what you would usually do. Following your written rules and procedures will protect you from that pressure. Either they qualify or they don’t. The rest doesn’t matter.
- Meeting in Person. It sounds strange, but my “spidey sense” goes off when someone pushes to meet in person to turn in a paper application and “discuss the details”. I’m not necessarily opposed to meeting people in person but in today’s world everything is online, including our application process. Online is quick, easy, and expected by most people. When someone wants to meet in person it usually means they want to put on their best show to help me overlook their credit or something they want overlooked. I politely let them know our process does not need a meeting and if they are interested they need to fill out an application like everyone else and it’s first come first serve.
- Incomplete Application. An in complete application can tell me a couple things. Either they can’t follow instructions or they think they don’t need to follow instructions. Either one is a red flag for me. If I have another application in line I move on to it and if there is still time before the place is filled I’ll send them an email saying they need to complete their application if they want to be considered.
- Someone in a big hurry or that wants to apply before they have seen the place. Kasteel Property Management can certainly accommodate someone in a hurry and have many times, but people aren’t usually needing to move in a hurry without there being a reason, and it’s prudent to find out more information. When I ask what the rush is, sometimes I find out that they are being evicted. That tells me all I need to know and I respond it’s not going work out with me either, saving us both some time. To me, it never makes sense for someone to apply for a place they have never seen. Either they know they aren’t likely to get approved and they want to find out before putting in much effort, or they really don’t care about where they live and what they live in. Both of those scenarios are not something I get excited about as a landlord. I’m able to show properties quickly and easily and there is rarely a reason someone won’t want to check it out first.
- The final tip is let people talk. I can’t count the number of times that people call me up and tell me all their problems, why they wouldn’t quality, that they can’t pay their bills, that they have criminal history, etc. Once you have enough information you can interrupt them and say, sorry it doesn’t sound like it’ll work out and wish them good luck.
As a Landlord, Should I Accept Multiple Applications?
It’s important that you have established, documented, and consistent procedures and rules that you always follow for all your applications. If you do, you don’t need to be considering multiple applications and you never should. You never want to be in a position where you treat one person differently than another. Doing so can open you up to lawsuits, Federal and State Fair Housing investigations and possible Fair Housing fines. Fair Housing Laws make it illegal to discriminate against different protected groups of people, based on things like: race, religion, familial status, national origin, sex and, depending on the state you are in, there can be a lot more. If you don’t protect yourself with written rules it can be easy to unintentionally discriminate. For example, imagine this common situation: a friend and his family from your church ask to live in your rental for a short 3 months while they are in-between homes. You agree. Because you know them, it is kept pretty informal. You never required them to apply because you knew you’d approve them anyway. You knew it probably wasn’t the best business practice but for convince that’s what you ended up doing. Usually if an application asks for a short term lease you tell them no but this time you wanted to help out a friend. Unintentionally, you may have just discriminated against someones religion. You just created a situation where you have given special privileges to people that go to the same church as you do, which is the same as discriminating against those that don’t. If someone feels you’ve discriminated against their protected class you could find yourself in trouble. This is just one example, there are many more ways something like this can happen. Don’t do this to yourself. You need consistency.
To stay consistent and to be able to show your consistency, it’s important you process your applications in the order they come in, giving everyone an equal and fair opportunity to apply and to rent the home. Do not collect several applications and then pick the one you like the best. Doing that will make it hard to be consistent and even harder to prove you are consistent. First come first serve is the most fair for the applicants and the best way to keep you protected.
Often a potential tenant will ask me, “How Long Does it Take for a Rental Application to be Approved?” You should be able to tell them it will be fast. Because your process is well defined and you are doing first come first serve, there is no reason you can not give the applicant an answer with in 24 hours. You want to find out if the application is good, and if it is, you want to get them signed on a lease right away. Don’t make them wait or you might loose them. Some of my best tenants applied with me after waiting a week with other management companies. I was able to run their application, approve it, and get them signed up right away, and the other management companies lost out.
What if I’m Not Sure About Approving a Rental Application?
Now you are finally in the middle of reviewing an application. If everything looks good after completing all the steps and criteria that you wrote down for an application, then it’s easy. You sign them up. It’s also just as easy if it looks terrible. They don’t qualify. Once you find a problem or problems that makes their application un-approvable you let them know it’s denied and you move on. Although, what if the application is kind of good and kind of bad? You may be comparing your findings with your criteria and find your screening criteria is insufficient to cover every possible situation and this application is not as clear cut as you’d hoped. For example, they had a misdemeanor 5 years ago with no criminal history before that and nothing since. Their credit has always been good up until 8 months ago when they lost their job because of the Corona Virus. They have several late payments and collections that all happened about that same time but you can see payments are now being made because they got a new job 2 months ago. In addition to that, they are looking for a place to live because they are in middle of a divorce. This can be a tough situation for them, no matter how much they want to be responsible and no matter how much you want to believe them, stay focused on these things:
- Do they fit your screening?
- Will they make a good business partner?
If you still don’t know the answer to these questions ask yourself, what is the risk and how can I minimize that risk? In these situations I will often require a double deposit. That usually minimizes the risk to an acceptable level and usually works out great. It’s important to note, a double deposit is not prepaid rent. It is a security deposit that is returned only after they have moved out and their performance of living up to the lease agreement has been evaluated. When I first offered the option of a double deposit I was a bit hesitant because it was a lot of money. I’ve found that people usually understand though. They know their situation and usually agree to it. If they can’t come up with that much money, or don’t want to, then that is ok too. Without it, the risk is too high so you move on to the next application.
By following these tips and rules you will solve most of your problems before they even happen. Remember you are not in the business of providing housing, you are in the business of real estate appreciation and cash flow and because of that, you are not just looking for a tenant, you are looking for a business partner.
Stay tuned for more from Kasteel Property Management in the way of written blogs and videos.