I last wrote that you should never accept a credit report provided by the applicant due to easy online availability of fake credit reports.
In this post, I would like to explain why even a valid credit report is inadequate by itself when screening a rental applicant.
Credit reports do not contain enough information to properly evaluate an applicant.
The applicant’s income, in addition to eviction and criminal history are very important when considering a potential applicant and none of these are found in a credit report.
Typically the required income to rent ratio is 3 to 1. If the rent is $1000 per month, then the income for all the renters need to be at least $3000 per month.
I am often asked about verifying income. We recommend that the agent or owner ask for 3 consecutive pay stubs. You should request the 3 most recent bank statements to verify the income deposits if the applicant is self-employed.
This method is far easier and quicker than attempting to get salary or wage information from the employer. Many large employers will direct you to a third party that requires a fee for income verification.
An eviction report is extremely important. A person who was evicted in the past, is likely to be evicted again. It is very time consuming and costly to evict a teannt. Repairs to the property also need to be taken into account. Most evicted tenants don’t exactly leave the property “broom clean move-out” condition.
Don’t think a criminal report is important? Think again. I was speaking at a real estate investors group about tenant screening best practices. An elderly landlord told me a very scary story. The tenants in one of his properties stopped paying rent and would not respond to his phone calls. He went to the house to ask about the rent, was beaten severely by one of the occupants and ended up in the hospital for 2 weeks.
It was discovered after the tenant was arrested that he was a convicted felon.
A criminal background check would have identified his criminal history and saved the landlord from the pain and suffering of the beating.
Here are some more stories that will help convince you about the importance of tenant screening. http://buildrealty.net/blog/2014/12/21/6-insane-landlording-stories-that-prove-the-importance-of-tenant-screening/
No tenant screening process will be 100% effective. But a comprehensive background search can significantly reduce the number of problem tenants.
Jay Apple is co-founder of TenantMagic, LLC www.tenantmagic.net