Common Criteria for Renters?

Question

• Hi guys,

I'm getting ready to list for rent for the first time and am curious about your rental application criteria for tenants? This is what I'm thinking. But honestly, it seems like it might be too cumbersome? I'm not sure.

1. I've always seen gross income must be 3x rent. Must be willing to submit to employment verification

2. Must be willing to submit to and pass a criminal background check

3. No pets

4. 1 month's rent to be kept as a security deposit due upfront

5. Tenant responsible for all utilities

6. Must provide 2 years of residential history and contact for previous land lords

7. Tenant required to maintain renter's insurance

Are these reasonable or too picky. Is there anything I'm forgetting?

Richard F. · Answer

Aloha,

Here is a chart that provides a little more insight into credit scores. Different investors have a different level of acceptable risk...

Katherine Thompson · Answer

I require  a gross verifiable income  of4xRent for my houses.

My reasons:

1) Reasonable budget...Any reasonable balanced buget program recomends housing  expenses  should be no more than 25% gross income.

Uncle Sam will take a minimum  of 25%  off the top.

The remaining   must  cover utilities,  instances, medical groceries, cars, phones. Internet, entertainment,  consu debt, education  loans and any other household   expenses.

2) "But apartments  only require 3xRent" -- my house is not an apartment.   Tenant expenses  rel ated to being in a housef will be higher.  Utilities  & rentrr insurance  will be more.  Will they need to buy landscaping  equ or jire a service to maintain  property  according  to lease requirements.

I am not a large corporation  and don't have a built in margin for vacant units or spare funds legal fees to handle slow-pay& no-pay issues.

3)"inflation is so bad now...shouldn't I  be compassionate  & reduce my requirements?"

Inflation  in one very good reason to insist on 4xRent.  That " everything  else" category   will be used up even faster with higher prices  and MY expenses  have jumped drama as well. Taxes, repairs, vendor services  have skyrocketed.

if my tenant doe pay or can't afford to keep up the property, it may take months to get them our.

Or worse,  if they declare bankruptcy  to get a "clean start', my back rent & legal  expenses  can be eliminated  from their liability,  just like their credit card debt... & it will never show up in their credit report  or landlord history.

Dave Kush · Answer

These are solid. I especially like the requirement to get rental insurance. In the past, I advised this, but didn't verify it, and when disaster strikes, literally, the tenants will expect you to pay for the things that their insurance policy should cover. Your policy will not cover those things.

This is less of a requirement and more a piece of advice for you: I always screen the prior landlord. Not the person they are currently living with, but the person they rented from before that. If they are not a good tenant, they're current landlord may say anything to get rid of them.

Another good strategy I have found is that after I hear what the landlord has to say, I follow up with, "Is there anything else that you can tell me off the record?" I am surprised at how often more information, frequently critical information, arises from that question.

Nathan Miller · Answer

@Austin Bright

No criminal history

No evictions

Credit score better than a threshold you specify

Also fake paystubs are a thing these days, just google it.  Running an actual income verification report tends to provide a more accurate picture and removes the risk of getting fake stubs.

My advice..  be picky!  One eviction can cost you 2+ years of revenue, so be picky up front and make sure you have the best possible tenant for your rental.

Daniel Molina · Answer

Hi Austin, take a look at their credit score. I would require a high credit score 700+. This would most likely narrow your size of applicants but for good reason. Typically, if someone has a 700+ credit score they take pride in having earned it and wanting to maintain that score. This usually means they are more likely to pay rent on time. I would also add no prior evictions. Zero exceptions. The home you are renting, is it in the Dallas area? I have been looking at the DFW area to purchase a rental.

Nathan Miller · Answer

When setting your criteria and determining where to order your background reports from note that it's illegal in many states to base a decision on a conviction more than 7 years old.

Somebody suggested a credit score of 720+ above, which is much higher than most landlords set the bar at from what I see.  Maybe for luxury NYC apartments, but most renters for normal properties fall in the 650-700 range.

Aaron Lewis · Answer

I agree with @Bruce Lynn that you should rethink the common "no pets" philosophy. Some 70%+ of households have a pet.. do you really want to cut out 70%+ of your target market? (Hint: no. No you don't lol). A better approach is to mitigate the risk by qualifying the pet alongside the human. Licensed, has all shots and immunizations, name/breed/age/weight, pic, maybe even a meet-and-greet. Then get a larger security deposit due to the increased risk, possibly even a premium on rent (we call it "pet rent"). Another point that is hard to overstate: pets are reflections of their owners. Thus, obnoxious, untrained, unrestrained, and pets likely to cause damage are owned by tenants who are less responsible themselves. And if you've got experience underwriting rental applicants, the less responsible applicants stick out like a sore thumb. On the other hand, mature and responsible tenants with good jobs, responsible credit, good references, and the discipline to manage their money well--those people's pets are responsible and well trained, and tend to cause very little, if any, additional wear and tear on the property. If you source a quality tenant and have a good security deposit, you shouldn't be concerned about pets. PS: pro tip--get a property manager. They're the pro. Your home is worth how many hundreds of thousands of dollars? It's probably worth it. Bad tenants prey upon DIY landlords. Good PMs sniff them out nearly every time. Even if you don't want them to manage, many (including us, if you want to engage our services) will do a Lease Only service where they vet the tenant on your behalf. The #1 most critical thing in rentals is proper tenant selection. Using an expert for the #1 most important thing is something you probably want to do. Aaron Lewis, BrokerValley ONE Property Management

Bruce Lynn · Answer

Personally I like the no pets policy for so many reasons.   However I am gradually changing my mind.  In a room a few months ago with probably 200 PM type people.   Facilitator was a huge property manager from San Antonio.   He asked the question....how many people in the room have pets....probably 80% put their hand up.    So if you have a no pet policy you are cutting out about 80% of the potential renters.....just a thought.

Otherwise you pretty much covered it.    You could be more specific....like on the criminal part...no felonies in past 10 years...no sex offenders...

@Richard F.   Interesting chart...never seen that before.   I believe it.

Ryan Kelly · Answer

@Austin Bright as others have stated, I would reconsider the no pets policy. You can restrict to 1-2 pets if you wish. 100% of my tenants so far have had pets. I charge a non-refundable pet fee up front versus a pet deposit to help compensate for any wear and tear.

Benjamin Sulka · Answer

Austin, This is a super useful thread. Definitely include a credit report and check W2s and pay stubs.

I'd highly consider allowing pets as well. Losing a lot of your tenant pool by excluding these individuals. As a dog owner myself, I'd check the demeanor of the pet and see how it behaves around humans/other animals.

Good luck!

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