Tenant screening is more difficult in this bad economy.
For one thing, there are fewer applicants and that forces a landlord to choose between more mediocre prospects.
But these times are also hard on landlords who rely too heavily on credit reports to make screening decisions. More applicants than ever have a foreclosure or a bankruptcy on their credit record, and landlords have to decide whether to overlook it.
Applicants with long-term job histories suddenly have been forced to change careers, and others are moving around to new cities to search out job opportunities.
While credit is an important factor in tenant screening, it is not the only thing to consider when evaluating a prospective tenant:
Talk to The Previous Landlord – Oops, There Isn’t One!
The way this economy is trending, many more applicants are previous homeowners. Some haven’t rented for years, and for others, their current residence is a parent’s home.
But one bad tenant can spell disaster for landlords, so it’s more important than ever to know how your applicant behaves.
Where there is no previous landlord, ask the applicant for personal references from neighbors to get a sense of how they got along. If possible, drive by the previous property to see what kind of shape it’s in.
A landlord can still get a sense of an applicant’s financial responsibility with credit references from those who regularly serviced their previous property.
Also, order a TeleCheck Report to see if the applicant has bounced checks.
Hard times can prompt applicants into making bad choices, like fudging their list of references. When you verify a reference, also verify the phone number the applicant provided. Cross-check it in the phone book or ask the reference to call you back and check the Caller ID. Ask chatty questions to determine if the person on the phone knows anything about the candidate’s previous residence — the exact address, what part of town it’s in, how long they’ve owned it or lived near by. This is information that can be verified.
If there is a previous landlord, at a minimum, find out if the tenant paid on time, why they left, and whether they have or will receive their deposit back.
Buying Foreclosed Rentals When you purchase a rental, you must take possession of all tenant files. Many investors are purchasing properties that the lenders foreclosed without any due diligence regarding tenants. Don’t perpetuate the mistake — create the documentation you need by pressuring the seller to have current tenants fill out applications, including emergency contact information, and give consent to run tenant screening reports.
Employment References In this volatile market, any current employment can trump a long employment history. However, the applicant’s source of income bolsters your security so it is still critical to verify the information.
Be sure that the complete company name, address, and telephone number are provided. The name of a supervisor, length of term of employment, and pay rate are all important pieces of information that must be confirmed.
Many large employers have tollfree electronic employment verification telephone numbers. In the event your prospective tenant works for a smaller company, it is equally important to confirm his employment.
Ask for a pay stub and even a tax return or W-2 form to verify the information provided. Remember to cross check the social security number and name with the other information provided.
If your applicant claims to be self-employed, an independent contractor or a partner or owner of a company, he must provide proof. At a minimum a business card will indicate a place of business and field of work.
If it appears to be a field that requires a license such as a contractor, real estate agent, nurse, or hair stylist, to mention only a few, ask to see a copy of their license. Check with the governing agency or a private information provider to find out if the license is active and in good standing.
If the prospective tenant claims to own his own business, check with public records or a private information provider to be sure such a business exists and that he is, in fact, the owner.
Be More Careful With Checks
Turning over the keys of your rental to a new tenant prior to verifying funds or allowing a deposit check to clear has been cause for tremendous losses. Understandably, there are legitimate reasons for a new tenant to have to move in immediately, but allowing possession without clear funds can be dangerous.
Following these simple guidelines may help catch problems before they occur.
1. Be sure the name and address imprinted on the check is consistent with the application. If the check has no imprinted name or the name is typed or handwritten, it may be a problem.
2. Check photo I.D. and be sure it is consistent with the application and the physical description is accurate.
3. Do not accept a postdated check.
4. If all sides of the check are smooth (one side or the top should be perforated) the check is suspicious.
6. Temporary checks, out-of-state checks, and two party checks may be signs of a potential problem.
Crossing the “T’s”
While professional scam artists are hard to ferret out, there are some all-too-common attempts at fraud that are easy to catch.
Be prepared to reject an incomplete application.
If the application is complete, read all of the documentation provided and look for inconsistencies:
- Ask the prospective tenant to provide rent receipts for the last three months of his current address. Is the address on the receipt consistent with the current address on the application? Is the name on the receipt consistent with the name of the applicant?
- If possible, look at the license plate on the applicant’s car. Is it from the same state indicated on the application? Is it the same plate number, make, and model car indicated on the application?
- Check the first three numbers of the social security number provided by the applicant. When comparing it to the social security chart provided, is it consistent with the address history on the application and screening report? Is the social security number on the application consistent with the tenant screening report? A paycheck stub? A W-2 form or tax return? A social security card?
See our related feature, Tenant Screening: Accessing Bad Check Databases.
American Apartment Owners Association offers discounts for landlords on products and services related to your commercial housing investment, including real estate forms, tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org.
To subscribe to our blog, click here.