Screening tenants is absolutely one of the most important things you can do when you’re renting out a property. Your single family home is worth hundreds of thousands of dollars, and you’re entrusting it to a tenant. This is the greatest amount of risk you can take on.
With a single family home, you don’t have a residential manager or a maintenance technician on site during the day. There aren’t adjacent units with other tenants who can let you know when there are violations or issues. A single family home is a stand-alone island, and your tenant has control of it. Tenants represent risk, and the best way to minimize risk is with professional tenant screening. That means rock solid inspections of every aspect of a tenant’s background. Credit, income, and criminal background checks should be included. You want responsible individuals.
Pricing Your Property Correctly
We believe screening tenants has a higher impact on your ROI than the actual rent rates you’re going to get. With a bad tenant, your cash flow will be trashed no matter what you’re earning every month. You’ll lose money in damage, vacancies, and legal issues like evictions. It’s worth doing your due diligence up front.
Good tenants will be shopping around, and they won’t overpay for a rental. The fallacy in the rental market is you can get an extra $100 or $200 above market just by hanging on and marketing well. But, you’re actually turning off the best, most responsible tenants. They will know the market rate and they won’t overpay. By overpricing your home, you’re almost asking for a bad tenant.
Start with a good market price. Even providing a small discount so you’re slightly below market can help. You can do this when you want to set a high bar for tenancy. Better tenants improve cash flow in other ways.
We screen for a responsible credit history. Lazy management companies will look at the credit score and that’s it. It’s not the best way to screen for credit. You don’t want to lose information, so look at the report closely. We look for bankruptcies and foreclosures as well as write-offs and NSF records (non-sufficient funds). Look at the full history so you know if bills are being paid on time. If they aren’t paying a basic utility bill like water, it’s a tip off that they won’t be completely responsible. When it comes to maintaining your property or changing a furnace filter, someone who doesn’t pay the water bill may not be adequate. Make sure the tenants are proactive and responsible.
We want people who aren’t overspending or living beyond their means. Single family home rentals require yard care and consumables. There’s water, gas, and electric falling on the tenant’s shoulders too. You don’t want rent to exceed a third or 33 percent of their income. Our income standard is that they earn three times the rent. So, if the rent is $1,000 per month, the tenant must earn a minimum of $3,000 per month to qualify.
We look at local, state, and national criminal databases. We look at the sex offender registry and we do a check of the national meth lab records. You want to make sure people don’t have a criminal background. Certainly, issues with property damage or personal safety are absolute cause for denial. Other crimes might also cause a problem. We look at this intelligently and make sure there is no criminal issue that will affect an individual’s ability to successfully carry through the terms of the lease.
We screen carefully, find the best tenants possible, place them, and then take great care of them. Our experience is that tenants pay you back with less turnover and better stewardship of your asset. This allows us to provide lifetime tenant guarantees for the people we place. We stand behind our tenants and we will make sure that if a tenant does get evicted, we’ll place a new tenant at no cost to the owner. We wouldn’t be able to do that if we weren’t detailed with our tenant screening.
Discrepancy based screening is important, and our standards remain high and consistent across the board. This results in an eviction rate that’s less than a half of a percent and renewal rates that are over 80 percent after the first year of a lease. That will boost your income more than anything else.