Screening Tenants for Rental Property

Here is a recent question I received: “When screening tenants, if they have bad credit but a solid rental history would you rent to them? Do you recommend credit checks or focus more on criminal and rental history.” I originally just shot back an answer in a comment, but then decided it probably needs more attention. I have written about Tenant Application-Red Flags, My $2000 Tenant Screening Mistake, and even Screening Tenants Using MySpace, but I have not addressed what you do when you actually receive a rental application and what to look for.

When I meet a prospective tenant, I tell them that I require a completed rental application and that the application fee is $25, non-refundable. I explain that in Minnesota I use a service that gives me a report on credit, criminal, and rental history and that I am looking for anything recent or significant. I require each adult to fill out an application regardless of who is on the lease and I ask them up front if there is anything in their background that I may find. Most importantly, I require the prospective tenant to fill out and sign a copy of my Rental Application Policies. This document tells the prospective tenant (in writing) what I am looking for when screening tenants. In fact, it is required by law when leasing Minnesota investment property. It can also act as a liability shield if someone tries to sue you for discrimination.

Once I process the application, I find that most of my tenants have less than perfect credit. In fact, some have terrible credit. If the following items are satisfactory, I will overlook their bad credit (assuming they have no criminal or rental red-flags):

• I review the circumstances of how they got the bad credit (collections, late payments, large debts). Very often tenants have utilities, cable bills, or cell phone bills in collections, which I am not overly concerned about.
• Is their income more than 3x the rent amount (in other words, would they be spending more than 1/3 of their income on rent)?
• If they have a stable long-term job, it speaks to their ability to pay the rent.
• The length of time they lived at their previous address also tells me about their stability.
• The amount of the rent at their previous address compared to my rent. If they are increasing their rent amount significantly, they should be able to justify the increase and have a plan to pay for it.
• Lastly, I contact their current landlord to confirm they pay their rent on time.

Any red flags in the above items will trigger a denial. The following items, in other areas, may trigger a denial:

• If they have any larger items in collections (cars, boats). Again I look really hard at their employment and income.
• A derogatory report from their current landlord is an immediate denial.
• Any felonies in the 10 years or any sexual assault related charges ever. I review the charge or conviction on gross misdemeanors and other violations.
• Any evictions in the last 5 years will most certainly lead to a denial unless the judgement was satisfied.
• If the prospective tenant does not have the ability to pay the damage deposit and first month’s rent.
• A new search that I do, is searching for their email address and cell phone number in Google.

While this process is not perfect and I probably have a few false-positives where I deny a tenant that may turn out good, I have had my share of bad tenants and it is cheaper to screen a prospect up front than evict a tenant later!