Tenant Screening Checklist for Real Estate Investors

Conducting a thorough tenant screening is crucial for real estate investors who want to find reliable and responsible tenants. The process typically starts with a comprehensive application form that collects information about the applicant’s employment, income, rent-to-income ratio and rental history. Real estate investors can then screen their tenants by contacting previous landlords, work and personal references, as well as verifying their employment and income. By following a detailed tenant screening checklist, real estate investors can minimize risks and find responsible tenants.

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1. Set Tenant Screening Criteria

Investors who know what kind of tenant they're looking for will have an easier time recognizing that tenant when they apply. Critically, though, the landlord's tenant screening criteria must be fair according to Fair Housing laws , which state that tenants may be rejected based on:

• Rental application
• Income
• Rent-to-income ratio (the industry standard is 30%, meaning the monthly rent should not exceed 30% of the applicants' monthly income)
• Rental history
• References
• Criminal history (subject to state and local laws)
• Lifestyle criteria (e.g. pets that are not Emotional Service Animals, smoking, etc.)

None of the factors below may be considered under The Fair Housing Act , which prohibits discrimination due to:

• Race
• Color
• National origin
• Religion
• Sex (including gender identity and sexual orientation)
• Familial status
• Disability

2. Criminal Background Check

Conducting a criminal background check involves investigating an applicant's criminal history. By accessing public records, landlords can gain insight into an applicant's legal record, which may include information critical in assessing a tenant's possible threat to the safety and well-being of other residents and property.

Bear in mind that some states and cities have "fair chance" laws that limit a landlord's ability to run a criminal background check on a prospective tenant or base any rental decisions off a criminal record. Always check local and state laws, as violations may result in litigation, fines and other penalties. When performed responsibly and in accordance with fair housing regulations, criminal background checks can serve as a valuable tool in selecting responsible tenants and reducing the likelihood of future problems.

3. Income and Employment Verification

Income and employment verification can help ensure potential tenants have the financial stability to meet their rental obligations. By reviewing documents such as pay stubs, tax returns , bank statements or employment letters, landlords can gain a clear picture of a tenant’s financial health, made even more clear by contacting the applicant’s employer to verify their current employment status.

Generally, the rule of thumb is that the tenant's monthly income should be at least three times the monthly rent , although many landlords modify this rule in competitive rental markets. Income and employment verification is vital in reducing the risk of rental income loss due to non-payment.

4. Eviction History

Eviction history provides landlords with key insight into a prospective tenant’s past rental behavior. This step involves accessing public records, court documents or tenant screening services.

Understanding a tenant’s eviction history can reveal patterns of problematic behavior, providing valuable information for assessing their reliability as a renter. Including eviction history in the tenant screening process is essential for landlords who want to protect their investments and maintain a stable rental environment.

5. Credit Score

A credit score is a numerical representation of an individual’s creditworthiness, based on their credit history and financial behavior. This three-digit number, typically ranging from 300 to 850 , is calculated using various factors, including payment history, debt levels, length of credit history, types of credit used and recent credit inquiries.

Credit scores are used by landlords to assess a tenant’s financial responsibility and ability to manage debt, providing insight into their likelihood of paying rent on time. A higher credit score generally indicates a more reliable borrower, while a lower score may suggest potential financial difficulties or irresponsible financial habits.

Including a credit score check in the tenant screening process is vital for real estate investors aiming to minimize the risks associated with renting their properties.

6. Landlord and Personal References

Checking landlord references involves contacting previous landlords to gain insights into a prospective tenant's rental history and behavior, such as their ability to pay rent on time, adherence to lease agreements, maintenance of the property and interactions with neighbors.

Speaking with references, including personal and work references, during the tenant screening process can provide valuable perspectives that might not be captured through other screening methods. Positive references can reinforce an applicant’s reliability and responsibility, while negative feedback can serve as a red flag for potential issues, such as consistent late payments or property damage.

7. History of Home Addresses

This part of the tenant screening process involves reviewing a prospective tenant’s past residences over a specified period, typically the last five to seven years. This provides landlords with a comprehensive view of a tenant’s living patterns, including how often they move and their reasons for relocation.

By examining previous addresses, landlords can verify the accuracy of the rental application and identify any inconsistencies or red flags helping to assess a tenant’s stability and reliability. By understanding an applicant’s past living situations, real estate investors can reduce the risk of renting to potentially unsuitable tenants, ultimately protecting their investments.

Bottom Line

A comprehensive tenant screening checklist is essential for real estate investors seeking to protect their property investments and maintain a reliable rental income stream. By thoroughly evaluating potential tenants through credit checks, income verification, criminal background checks if permissible in the property's locale, eviction history, references and a history of home addresses, landlords can make informed decisions that align with federal fair housing laws and other "fair chance" laws. By taking the time to complete a thorough tenant screening checklist, landlords can foster long-term relationships with trustworthy tenants, leading to a more successful and stable real estate investment portfolio.

Tips for Managing Rental Properties

• Proactive maintenance and regular inspections are essential for preserving the value of your rental property and minimizing costly repairs. Address maintenance issues promptly to keep your property in good condition and retain tenant satisfaction. Schedule periodic inspections to identify potential problems early and ensure the property complies with safety regulations.
• Whether you’re a seasoned real estate investor or just getting started, a financial advisor can potentially help you evaluate different investment opportunities and manage your cash flow. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now .

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