How to Fill Vacancies with the Right Tenants
A rental vacancy can cut deeply into a property owner’s cash flow. For each month that your unit remains vacant, your carrying costs and utility bills will still have to be covered. If your property has an HOA, those dues must be paid and there might be some maintenance that has to be done to prepare for a new tenant. These are all money-draining expenses when you don’t have rent coming in and/or the reserves to support them.
When faced with a vacancy, it might be tempting to get a renter into the unit as quickly as possible without doing the research to discover whether they will be a good tenant or not. Renting quickly to the wrong tenant can ending up costing you much more than the expense of a proper tenant background screening or a month or two of rent.
Choosing a good tenant can feel very daunting to even the most experienced landlord or property manager. You want someone who will pay rent on time, be respectful of your rules and not damage your property. By following the steps below, you are on your way to filling your vacancy with a qualified, responsible renter.
Create a list of qualifications
Decide what is important to you in your dream tenant and hold all applicants to this ideal so that you are comparing “apples to apples.” Be sure that these standards conform to the Fair Housing Act and that every applicant understands that they are applied to each person equally. It is a good idea to have your qualifications in writing to be shared with every prospective tenant in order to avoid charges of discrimination.
This list might include the following criteria. A thorough tenant background check will provide the answers to most of these questions.
- Their income must be enough to afford the rent. (Calculate the minimum income needed to pay the monthly rent for your unit. The rule of thumb is that the tenant’s income should be at least 2.5 to 3 times the monthly rent.)
- They are currently employed or have a co-signer who can cover the rent each month.
- They have the means to pay the security deposit.
- They must consent to a tenant credit and background screening. Establish a minimum credit score that you will accept.
- Do you want a tenant who plans to stay for a certain amount of time, such as six months or a year or more?
- Are you willing to rent to someone with a history of violent crimes, drug convictions or a bankruptcy? (Bear in mind that some states, such as California, will not allow you to reject applicants if they have been convicted of certain crimes.)
- Will you accept a smoker or a pet owner?
- Have they ever been evicted?
Pre-qualify your applicants
Your initial contact with a possible tenant provides you with the opportunity to pre-screen each other. You can get a feeling as to whether they would be a good fit for your rental and they can determine if they have an interest in the property after all.
The following are some of the questions you will want to ask.
- What are the names of the people who will live in the home and their contact information?
- When do they want to take occupancy? How long do they expect to occupy the unit?
- Are they smokers?
- Do they have any pets? If so, what breeds and how many?
- Why are they looking for a new home?
Accepting a rental application
The next step in the process is to accept rental applications. The information gleaned from these forms will help you choose the best prospects to fill your vacancy. Never rent to someone who will not sign the application or consent to a full background screening. If they are trying to hide something from you, you do not want them living in your house or apartment.
A properly completed application will tell you the following vital information:
- Where they have lived for the past five years.
- The name and contact information of their past landlord.
- The name and contact information of their current employer.
- Their employment history for the last five years with contact numbers.
- Whether they have been evicted, declared bankruptcy or convicted of a felony.
- Some applications also ask for personal references.
Additionally, ask for supporting documents, such as bank statements, pay stubs, an employment offer letter or their last income tax return as well as a picture ID (driver’s license or state-issued ID card) and their Social Security card. Military IDs cannot be accepted.
Running the tenant screening report
The heart of every tenant search is a full tenant screening report. It is vital that you never rent to somebody without one. Intuition is a good part of this process but should never replace the information you will glean from doing a thorough background check.
Here are the components of a professional landlord screening:
- Credit report and score. You will be able to see to whom the applicant owes money, if they pay their bills on time, whether they have been put in collection and where they have lived for the past seven years.
- TeleCheck Check Verification. Utilizing their driver’s license number, this report will tell you if your applicant has a history of writing bad checks.
- Previous Address Tenant History (PATH). Any addresses and phone numbers associated with the prospective tenant’s Social Security Number (SSN) will be listed. It will indicate the year the SSN was issued and whether the owner of that number is deceased.
- Landlord Verification. You’ll want to know what kind of a tenant your applicant has been in the past. A call to their last landlord will tell you if the tenant paid their rent on time and treated the property with respect, leaving it in good condition. Did they abide by the landlord’s rules regarding pets and smoking and were they good neighbors? And most tellingly, would you rent to them again?
- Employment Verification. The current employer is contacted to confirm employment status and salary.
- Social Security Number Fraud Check. Over 19 billion public and proprietary records will be searched to verify any potentially fraudulent identities.
- State or Nationwide Eviction Search. Utilizing the applicant’s Social Security Number, the database is searched for eviction filings and judgments for the past seven years.
- State or Nationwide Criminal Search. This will include all records from the last seven years where the applicant was convicted of a crime. Arrests without conviction are not included in the results.
- Sex Offender Report. The sex offender search is similar to the criminal search and also goes back seven years. Results are for convictions only and do not include arrests.
- OFAC, Terrorist Databases and Federal Jurisdictions Searches. This report provides information on some of the most serious national and international crimes, such as kidnapping, smuggling, identity theft and tax evasion. It also includes terrorists, narcotics traffickers, counterfeiters, embezzlers and more.
- Nationwide Bankruptcies, Tax Liens and Civil Judgments. A separate search must be ordered for this information as it is no longer a part of the standard credit report.
Making a decision
Now that you are armed with credit reports, background screening results and personal thoughts about your applicants, it’s time to make a decision about who will be your next tenant.
Review your original list of qualifications to see who most closely lines up with your wish list for the perfect tenant. You are making a business decision, so try to be objective and always keep those Fair Housing laws in mind.
Should you have more than one tenant that matches your criteria, you can choose to rent to the first one who applied. If you expect to use this method, tell applicants ahead of time that that will be your procedure.
If you prefer to decide based on application strength, analyze the data you have accumulated for each prospect. Will you pick the person with the highest income or the one who can move in sooner or perhaps, the applicant with the better rental history? Whichever means you choose, be sure to write down the basis for declining the other applicants in order to avoid legal problems. You’ll want to remain on good terms with the qualified applicants that you have turned down. They might actually become your tenants in the future.
One thing you might consider is where the applicants are in their lives. If you are looking for a long-term tenant, it has been found that pet owners and households with babies tend to move around less often. A student may stay for the four years of their college career with the added bonus of the rent being guaranteed by their parent.
Finally, be thorough during your screening process so that you are confident about who will be living in your property. If any red flags arise or anything needs clarification, don’t hesitate to ask for additional information from the applicant before making a final decision about their application. Sometimes, it might be better to wait for the more financially stable applicant who can’t move in right away rather than accept someone who’s a little questionable but can move in immediately.
And remember, do not let emotions or vacancy fears get in the way of good judgement!