One key facet to being a successful landlord is effectively screening your future residents. Failure to choosing a stable, on-time, rent paying citizens of our society will only cost you time, money, and un-needed aggravation. I don’t care whether one is filling a $300/mo or a $3,000/mo rental nor if the applicant is a $7/hr worker or president of a Fortune 500 company. Knowledge is power; therefore, it is critical that one pull a full credit, criminal, and eviction report. You see just because you find some negative things doesn’t’ mean one turns them down. The key is that you match the story that the reports tell you with the applicant interview and employment/landlord references. With all the information out front, one can make an educated decision if an applicant has the financial and moral responsibility to pay in a timely manner…
Recommended Steps for Screening a Rental Applicant:
- Interview –
- Credit Report
- Criminal Report
- Eviction Report
- Employment History
- Landlord References
Each one of these critical steps is an article in itself; however, I will tell you that it is the nuances of illiciting & interpreting the information that each provides that is critical for success. We must remember that the $300/mo rental may attract a different applicant than the $3,000/mo rental. Different criteria and microscope mentality is needed for each.
What might I concentrate more on with the $300/mo rental? Employment, Eviction, and Criminal are most important to me. I want to verify length of employment (and prior if 1st employer is less than a year) and salary. I’d like payroll stubs as a cross-check. Having the earning ability to pay rent is critical. If your applicant doesn’t understand the importance of long-term consistent pay than more than likely they won’t understand your need for consistent monthly rental payments. Eviction checks are key -i can handle filings from two+ years ago; however, any current filing will require a verifiable explanation. Eviction filings don’t lie; unfortunately, fellow landlord references can. Criminal reports let you know if somebody has a recent, consistent, or a long-time ago bad habit. Habitual problems (even traffic/no-license or insurance) only highlight the applicants instability in life let alone major issues. Each landlord has different views. There might be certain issues I’ll overlook and vice-versa! What’s important to me is a clear demonstration in change or perhaps a one-time hiccup. I’m looking for applicants that have proven that they understand the importance of earning a living, keeping a roof over their head, and are not a rapist nor murderer. Typically low income applicants will have poor and/or no credit. Doesn’t mean I don’t pull all the other criteria -just means I focus more on these three issues.
How about the $3,000.00/mo rental? Employment, Credit, and Eviction is my focus. I want to make sure this applicant has the capability of paying (via verifiable employment income), demonstrates this ability (and willingness) to paying via a credit report, and doesn’t show issues with paying with past landlords. Of coarse the other area’s are just as important and need to be pulled; however, I find the biggest red flags tend to come up in these first three criteria first. After-all if one cannot afford to pay the rent, then one cannot afford to pay rent and all the other data is almost immaterial at that point.
While I cannot hit on all the details of each subject, I will state that the applicant interview is critical. It is a time to look for signs of deception, honesty, and/or integrity. It is when one should find out all the pros & cons of the applicants history, lifestyle, and philosophy of life. I call it the gray area of the screening process. There is an art to the interview and interpreting all nuances whether it be in facial expressions, body posture, and voice inflections -let alone what you are told. It is the art of lining up this information with all the factual data and making and educated decision.
In the credit world we call it ‘the three C’s of credit’: Cashflow, Capacity, and Capability. Take all the information. Verify Income, any savings, and READ that credit report. Learn how to read it -it is not that difficult. After awhile, one will see that a story can be gleaned and you can almost instantly determine if the applicant can meet your financial obligation. Remember there are no instant answers and the science of interpreting data that will place a successful resident into your rental may take some time. Time well spent as this is essential in a landlords long term success to creating wealth with real estate.
Tyler McCracken – A NC Real Estate Investor
July 4th, 2010