Screening tenants is an essential part of a property manager’s job. But all too often, the approach is strictly transactional: Forms must be scanned and uploaded, data must be entered manually, and property managers and tenants alike can find the process cumbersome and frustrating.
This legacy approach isn’t enough in today’s fast-moving experience economy. Companies like Google, Uber, and Amazon have changed how consumers think. Convenience isn’t a luxury anymore; it’s an expectation. And for a property management company, convenience can be a strategy. When approached through the lens of a holistic experience, tenant screening is one of the best ways to set yourself apart.
Related: State of Resident Experience Study
How to Screen Potential Tenants
The first step to improving a process is to ensure you can structure it. What follows is a best-practice approach to tenant screening, complete with tips for success at every step.
1. Understand tenant screening laws
With a Triple Win mindset, PMs will seek tools that help them remain objective and fair to all applicants. That’s why every professional PM should be familiar with tenant screening laws in their area. Tenant screening laws are regulations put in place to protect tenants from discrimination, unfair eviction, etc. They govern interactions between real estate investors, property managers, and tenants.
One of the best-known regulations is the Fair Housing Act, which protects tenants from discrimination on the basis of:
- Race
- Color
- Religion
- National Origin/Ethnic Background
- Gender
- Familial Status
- Mental/Physical Disability
2. Create tenant screening criteria
Creating tenant screening reports is an important part of the rental property management process. Here are the steps to take:
- Define your target market: Identify the type of tenants you want to attract based on factors such as property location, size, price, and amenities.
- Set minimum requirements: Determine the minimum criteria that all potential tenants must meet, such as a certain credit score through ResidentScore or other tools, or income level.
- Consider additional factors: Other factors may be important to you, such as employment history, rental history, criminal background, and references.
- Establish a scoring system: Create a system to evaluate potential tenants based on the criteria you've established. For example, you may assign points for a positive credit history or deduct points for a criminal record, taking care to evaluate each person individually and fairly.
- Apply the criteria consistently: Ensure that you apply the screening criteria consistently to avoid discrimination and potential legal issues.
- Review and update regularly: Review and update screening criteria regularly to ensure that they remain relevant and effective for your rental property.
3. Check credit report and background
Some screening providers are leveraging financial data APIs or "open banking" tools to automate income and employment verification. Tenant screening services like Plaid, Finicity, Pinwheel, and more are being applied to rental screening and replacing manual document upload and review.
You can also find tools for getting a full credit report and credit background. Credit reporting should be compliant with the Fair Credit Reporting Act (FCRA).
As identity fraud becomes more prevalent, identity verification tools are becoming more sophisticated. Some can even effectively identify past rent transactions in the bank account ledger. Most of these tools are being built for large apartment operators, but more innovation is coming to SFR, too.
Second Nature’s Resident Benefits Package includes a $1 million identity protection program and credit building for tenants. These programs protect your tenants and help attract people who want to build responsible financial security.
4. Verify employment and income
A big question on every PM’s mind is how to evaluate a prospective tenant’s ability to pay rent. Is income what matters? Credit history? The cash balance a tenant carries? Or just their history of prioritizing rent payments?
The traditional (and oversimplified) answer is to slap on the widely accepted income-to-rent ratio of 3-to-1 or to look for a specific credit score. But neither of these tell the whole story of a tenant’s ability, or even likelihood, to pay rent and to pay on time.
A much more telling number is a potential tenant's net income. Net income is true spending power. A net income of 2.5 or 3 times the monthly rent is a good starting point. But how do you quickly verify this information? Pay stubs will work, but experienced property managers know a simple pay stub template is a Google search away.
This is where an automated income verification tool can provide an advantage, reliability, and speed. You’ll have much more accurate insight into tenants’ ability to pay rent and get them verified in much less time.
5. Review rental history and evictions
As a follow-up to background checks, property management companies should have a process for reviewing an applicant’s rental history and potential evictions.
Don’t just accept a letter from previous landlords – call and ask about their experience. Getting their perspective is one of the best ways to check on rental and eviction history.
6. Check criminal record with multi-state search
When it comes to tenant screening, one crucial aspect is conducting a criminal record check that includes a multi-state history report. This step is vital to safeguard you and your team from legal headaches or disruptions down the road. A multi-state search provides a broader view of an applicant's history, as it covers more than just the state they currently reside in or are applying from. This is particularly important because individuals may have lived or committed offenses in different states.
By implementing a comprehensive background check that spans multiple states, you can uncover any criminal history that might not be evident in a local or state-only check. This process helps in making informed decisions about potential tenants, ensuring you're not inadvertently overlooking important information that could affect the security of your property or the neighborhood. Of course, this doesn't mean denying anyone with a criminal record. Fair housing laws will have established rules on this that property managers should know well for their area.
7. Interview tenants before signing a lease
Property managers should ensure someone on their team conducts an interview with potential tenants, particularly in SFR property management, where lease terms are usually longer.
Here is a list of questions that property managers may consider asking potential tenants during the screening process:
- What is your current occupation and monthly income?
- Have you ever been evicted from a rental property or broken a lease agreement?
- How long have you been at your current job, and what is your employer's contact information?
- Do you have any pets, and if so, what type and how many?
- What is your desired move-in date and lease length?
- Will you have any roommates or co-tenants, and if so, what are their names and contact information?
- Have you ever filed for bankruptcy or had any outstanding debts?
- Do you have a good rental history, and can you provide contact information for your previous landlords and previous addresses?
- Are you willing to undergo a tenant credit check and background check as part of the application process?
Again, please note that investors and property managers should be careful not to ask discriminatory questions that could violate fair housing laws.
Additionally, it may be helpful to provide potential tenants with information about the property, such as move-in costs, lease terms, and any rules or restrictions that apply to the rental property. After all, the property manager’s goal is to create an experience that caters to tenants in order to create the best value for their investors.
8. Follow a fair policy when accepting or rejecting tenants
A consistent and objective set of screening criteria goes a long way to simplifying the acceptance or rejection process.
Here are some steps to follow when accepting or rejecting rental applicants:
- Evaluate the applicant's information: Review the application and any supporting documentation, such as credit reports, employment verification, and rental history. You may also charge an application fee.
- Compare the applicant to your screening criteria: Compare the applicant's information to your established screening criteria and determine if they meet the minimum requirements.
- Consider any additional factors: Consider any additional factors that may impact the applicant's suitability as a tenant, such as their behavior during the application process, their responsiveness to communication, and any references provided.
- Communicate your decision: Communicate your decision to the applicant in writing, providing clear and specific reasons for your decision. Be sure to also inform the applicant of their rights to request a copy of an applicant’s credit report and to dispute any errors.
- Keep accurate records: Keep accurate records of your tenant screening process, including copies of all applications and supporting documentation, as well as notes on your evaluation of each applicant.
- Maintain consistency: Apply your screening criteria consistently to all applicants to avoid any potential discrimination claims.
Remember, it is essential to treat all applicants fairly and to follow fair housing laws and state-specific regulations to avoid discrimination.
Example Tenant Screening Checklist
Here is an example of a comprehensive tenant screening checklist template, based on the best tenant screening services:
1. Basic Information:
- Full name
- Current address
- Contact information (phone, email)
2. Income and Employment:
- Proof of income (pay stubs, bank statements, tax returns)
- Employment history (length of employment, job title, employer contact information)
- Gross income (should be 3 times the monthly rent)
3. Credit History:
- Credit score (should be above 650)
- Credit report (to check for bankruptcies, late payments, collections)
- Outstanding debts
4. Rental History:
- Previous rental history (landlord contact information, length of stay, reason for leaving, address history)
- Evictions (any prior evictions, eviction records, eviction reports)
5. Criminal Background:
- Criminal history (felony convictions, sex offender status)
6. References:
- Personal references (contact information for at least two personal references)
- Professional references (contact information for at least two professional references)
7. Other Factors:
- Pet ownership (type, size, breed, and number of pets)
- Smoking policy (whether or not smoking is allowed in the rental property)
- Other specific requirements (e.g., credit checks, criminal background checks, rental history checks, etc.)
The criteria on this checklist may vary based on the specific needs and requirements of the investor or property manager – and local laws.
Benefits of Vetting Tenants
Why screen tenants? The answer might seem obvious. You can Google “tenant screening,” and you’ll see any number of articles giving the common reasons for screening tenants: protecting your property, protecting your financial situation, etc.
And yes, all of that is important. But elite property managers know that protecting yourself is the bare minimum. The best PMs consider the tenant screening process their first chance to make an impression and win the best tenants. Success is about creating and delivering the best experiences for tenants, investors, and property managers.
At Second Nature, we call this the Triple Win. Property managers should be thinking: “How do we design the screening process for a Triple Win?”
Here’s what we mean by that.
A win for investors
What do real estate investors want? Bottom line: To maximize their investment by having all residences occupied by good tenants.
But there’s tension when you’re aiming to maximize investment. Investors have two primary needs when filling a rental property, and they can seem opposed:
- How do I select a quality tenant who will pay rent on time, stay a long time, take care of the home, and be generally cooperative?
- How do I fill the property as fast as possible? Every day a home is vacant, it generates zero revenue and incurs costs.
Investors win when they have a screening process that can deliver quality tenants, fast.
A win for tenants
What do tenants want? Bottom line: To be approved quickly and easily.
Think about when you’re applying for a job. The employer honestly can’t work too fast to get you in a good seat. The faster, the better.
As we mentioned before, convenience is no longer a luxury; it’s an expectation. Tenants want to move quickly toward the lease agreement without too much effort. Therefore, building convenience into the screening process is a crucial strategy for a successful property manager to attract the best business.
A win for property managers
Professional property managers stand out by providing experiences that are consistent, convenient, and rewarding for investors and tenants. But they also need to design the process with the experience of their team in mind, too.
PMs focused on a Triple Win can align qualified tenants’ desire for convenience with an investor’s desire to be protected from risky applicants and vacancy costs. As if that’s not enough of a challenge, they also need to accomplish this in a way that complies with fair housing regulations.
Therefore, an enterprising property manager will design the screening process to create experiential value and better monetize each property.
Ultimately, a Triple Win for tenant screening is introducing speed, accuracy, and convenience to a legacy process. Let’s dive into that concept in the next section.
Property Management Tenant Screening Services
Tenant screening services can help manage the identity verification process, an assessment of the prospective tenant's financial situation, and evaluate any factors that may be relevant. They typically access information from a wide variety of sources to compile a current and precise tenant portrait.
Most tenant screening services offer their services online, where property managers can supply the identifying information of an applicant to get a full report within minutes.
Here are just a few:
Which Tenant Screening Solution is Right for You?
When selecting a tenant screening solution, begin by assessing your specific scope as well as budget constraints. Bear in mind that some solutions are limited in scope in that they primarily provide credit reports, while others may be geared toward landlords rather than property managers.
In all cases, seek out providers with reputable customer support (as indicated on popular software comparison sites as well as app download stores) and user-friendly interfaces to streamline the screening process. Additionally, consider any legal requirements or industry standards relevant to your situation.
By weighing these factors, you can select a tenant screening solution that aligns with your requirements and helps mitigate some of the risks associated with property management.
How Does Second Nature Help With the Tenant Screening Process?
Like we’ve said – and as most PMs recognize – legacy “tenant screening” systems are the worst. They’re clunky. They’re long and tedious. They require a ridiculous amount of manual work to upload pay stubs or other documents.
Think about how seamless an experience it is to find a listing on Zillow. It works smoothly on desktop or mobile, and the app is clean, easy, and responsive. You can find 3D tours, self-showings, and all kinds of innovations happening in the discovery process. Then you hit "click to apply.” Whomp whomp. Suddenly, you hit a mediocre (or worse!) experience that feels a decade old or more. It can take days from that initial button click for submission, review, and official approval/declination.
But imagine if this was all designed through an experience lens instead of an accounting or transactional lens. PMs who want to stand out will have a screening process that works like an Easy Button. So how might we make it as easy as possible for the best tenants to get approved same-day by the best property managers in the country?
Think about your current screening system. You can see if a tenant paid rent, but can you see if they changed their filters, reported minor maintenance issues, how they treated and communicated with staff, what condition they left the property in, and the security deposit status? Do you have a Resident Benefits Package that attracts tenants who care about good habits and supports them in those habits?
The screening process sets the tone and the standard for the rest of your relationship with a tenant. Property managers can be part of helping build good habits right from the start.
Learn more about what tenants are looking for today and how PMs are innovating in response.
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July 18, 2024
