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Updated almost 9 years ago, 02/29/2016
Inexperienced landlord needing advice about screening applicants
I'm in the process of renting out our first rental property. I started showing the home yesterday for the first time- did 5 showings and received 1 application. I am fairly new to real estate investing and would like advice from more experienced landlords:
Income: The application was from an engaged couple in their late 30s. The man works in a fairly popular restaurant as a cook and makes $2000/mo. The girlfriend works as a waitress in a different restaurant and makes $2600/mo (80% of which are tips).
Rental History: The girlfriend seems to be moving every year...for the past 3 years, she has stayed at 3 different rental homes. Her reasons for moving are "moving closer to work; moving in with fiancé; needing a bigger space". The boyfriend moved about every 2 years.
My questions are:
1. Is it a good idea to rent to an unmarried couple both of whom work in the restaurant industry? To me restaurant jobs are not stable. Plus, if they break up during the lease term and one leaves the house, the other one wouldn't be able to pay rent on his/her own.
2. How do you guys analyze an applicant's rental history? Is it a bad indication if an applicant constantly moves from one rental home to another, every single year for the past 3 years?
Any advice would be greatly appreciated!!
You have good instincts.
Step one of screening is to verify all data on your application is FACT. You should be able to verify the employment, last landlord and the one before that.
Falsification IS disqualification(DQ).
Screen the combined income for your threshold, 2, 2.5 or even 3x the rent, else DQ.
Constant relocation OR job changes is a REF FLAG.
Unmarried persons need an application for EACH and if you get that far, both should sign the lease.
As you are concerned on the stability of the industry workers (quite valid) and of the relationship, offer a short term (3 or 6) month lease holding over with m/m.
I worked 20 years on tips. Yes, it is just fine. Sounds like you have verified a whole year income.
The typical restaurant business fails in the first year (MBA marketing studies) and even the biggies close specific locations due to - - wait for it - - CASH FLOW.
That said, offer the shorter term lease and let them prove themselves.
sure, why not? It's better to have a vacancy for one month that 12 months of drama and hassle!
I turn a vacancy in 30-45 days, depending upon the cleanup - - I will NOT show in a non-move-in condition.
Typically tenants start looking early and are ready on the first.
(btw: ask if they have given notice yet and be sure to verify it)
Beware of an applicant in a rush;
- "I've got to move-in THIS weekend. I can pay in cash right now". RED FLAG
Ask them to pay an application fee and screen them through smart moves by transunion . Verify their income and employment . Do they have kids , what if they break up which is very common in this kind of renters. Both in the same industry is a big risk . Hope this helps.
@Kay Kay Singhyes that's very helpful! I don't even know if I should proceed with anything else (background check, employment/rental history verification) if I feel weird about the types of jobs they have. Am I correct on this?
good for you with getting started! I was a loan underwriter for years. 1. Trust but verify - everything. Income must be verified - bank statements, paystubs, etc... If it isn't verified, it didn't happen. 2. Be sure to use a reputable screening company for background etc.. many actually will auto decision for you! NTN online is one I use. 3. A general rule of thumb to follow (and is good to advertise) is applicants must make and be able to prove 3 x monthly rent. If they don't it is an automatic turndown. I hope this helps.
I qualify unmarried couples based solely on the person with the most income. If that person cannot meet the 3x rule, then send them the "not qualified" letter. In Colorado eviction is easier with only one name on the lease IMO.
How long has she been a waitress? How long have then been employed where they are? Does he have any ownership interest in the place he works at?
When are they looking to move in? March 1 or April 1? If it is April 1 I might hold the application and see who else applies. Hopefully you get a more interest and then can choose the best qualified.
Good points above. Just be careful you don't disqualify due to the fact that they are unmarried, that is discrimination in FHA eyes. The other questions I would ask are:
1. How long have they been employed (I use 1 year of stable income)?
2. Is their credit report good/clean?
3. Talk to their current landlord and one before that and ask questions about if they were ever late, ever break terms, leave the place nice etc.
I would be very careful of throwing out their application, you need to have very specific criteria and guidelines that you need to follow for every applicant. If they don't meet the criteria then you have documented reasons for denying their application. Generally its safer to process applications first come first served, so make a decision on this couple then move onto others..
This is just my opinion, I have just done my first tenant turnover and it was enlightening. I learnt a lot about being very careful on how you qualify/disqualify applicants by using my criteria (and a scoring system-I think its makes it very clear cut, if they score X then they qualify, if they don't score X you can give the opportunity to score higher with a double deposit for example, except if there is an automatic disqualifier such as past eviction).
@Amy MartinOk I would say this. Take a step back. Put their application in a file drawer. Sit down at your computer and write your rental criteria down. You should do this for two reasons. 1) it protects you in a discrimination case and 2) it protects you from making bad decisions when you are feeling pressed to fill a vacancy. The next thing is to promise yourself and anyone that you discuss these things with that you will never ever change your criteria to fill a vacancy. The reasons are the same as item 1 and 2 above. I would say this if I did what Lauren did and only considered income from unmarried couples based solely on the person with the most income all of my two+ bed units would be vacant and some of my one bed units would be as well. What about roommate situations do you require one roommate to carry the whole load? No.
Again write down your criteria and screen against that criteria. Nothing you have stated so far would disqualify these folks for me and I would also do the following.
1) turn over every rock on them. Call employers, call former employers, call former former employers call previous, prior and current landlords.
2) Keep showing the property and taking applications. When more applications come in screen them as well while you are waiting for others to get back to you. Perhaps someone will come along in the mean time that you are able to screen faster and they end up getting approved before all the first applicants references get back with you.
While these folks are not super stable they are better than nothing IMO. Sometimes couples get together and it stabilizes them both and they end up being with your for multiple years. Sometimes it blows up and then one moves out and then they get back together. I happens with married people just the same in my observation. Sadly I don't really see more stability from a rental stand point between married couples than unmarried couples.
Lastly write down your criteria then screen the applicants.
@Amy Martinyou cannot deny someone for being unmarried. I am also not sure that denying someone because they are in the restaurant industry or because someone moves once a year is really acceptable either. Your best plan is to establish criteria such as:
1. Income 3X monthly rent
2. Two rental references showing demonstrated ability to pay on time, leave property in good condition
3. Credit score of 600+
I am not saying this is your criteria, but find something similar that works for you. Stay away from using job type, marital status or perceived long term stability as your criteria. Just because she moved every year doesn't mean she will move this year. She is getting married and starting a new life. I used to worry about things like that, but I have learned it is hard to predict how long someone will stay.
End of the month is the best time to rent, because they need to give notice at their current place. If you pass on them, your place may sit vacant another month. I do take into consideration time of year and how early someone can move in.
I am not telling you what to do, but you do need a legitimate reason for denying them. Then keep in mind every applicant needs to follow that criteria. In other words you cannot require 4X rent for the unmarried couple and only 3X rent for the married couple.
I would recommend reading up on fair rent practices just to protect yourself.
I'm totally dating myself with the E. F. Hutton comment, but...
When @Bill S.talks, people should listen.
You should ABSOLUTELY write down your rental criteria. Not only write it down, but laminate a copy and keep it at the rental when you show it. Give it to prospective tenants, and tell them that if they do not meet EVERY criteria, they will be turned down.
Then stick to the criteria. That's another Bill S. nugget of gold. You do not want to be caught up in a discrimination lawsuit. Stick to your criteria.
Originally posted by @Lauren H.:
I qualify unmarried couples based solely on the person with the most income. If that person cannot meet the 3x rule, then send them the "not qualified" letter. In Colorado eviction is easier with only one name on the lease IMO.
Do this uniformly; highest income -OR- combined income, otherwise you violate Fair Hosing Regs
Hi Amy
You can always call a previous reference to see if they paid on time and how they were as tenants. They make enough to pay the rent. Do you have a multi family property or a single family home?
Gino
In most cases, screening is not simply a yes-or-no decision; it's a matter of assessing risk.
If you are the landlord then you control the terms of the rental agreement.
Most rentals with higher perceived risk can be offset by requiring an excess security deposit and/or a third-party guarantor for the lease, and/or prepayment of rent.
Consider these options for your less than ideal applicants. Good luck.
@amymartin these are all worthy suggestions! I would advise the following:
Develop a written rental criteria and stick to it. For example, income 2 1/2 to 3 times ratio to rent, credit score minimum of 690, no evictions in past 5 years, no outstanding collections of $1000 or more.
Have each adult married or not fill out an application and go through screening process. Call the current and their previous landlord and ask specific questions about their payment history. For example, did they have any late payments or were there any tenant charges for repairs?
I also look at the credit report and check the income to debt ratio as a loan officer would. I want to know if they can afford the rent and still meet minimum payments on their other bills.
Also check with an attorney or take a Fair Housing class to ensure your rental criteria is non-discriminatory.
Quality tenants will not mind this process and will be cooperative. Those who do mind or don't follow through aren't worth renting to.
Good luck!
Originally posted by @Mindy Jensen:
I'm totally dating myself with the E. F. Hutton comment, but...
When @Bill S.talks, people should listen.
You should ABSOLUTELY write down your rental criteria. Not only write it down, but laminate a copy and keep it at the rental when you show it. Give it to prospective tenants, and tell them that if they do not meet EVERY criteria, they will be turned down.
Then stick to the criteria. That's another Bill S. nugget of gold. You do not want to be caught up in a discrimination lawsuit. Stick to your criteria.
Do you really want to give out this information before hand? I can understand the no pet/smoking criteria. Can you explain more? I totally agree with writing it down but don't tip your hand to the future tenant. I failed at some levels with screening with my first tenants. They did pass the credit and background check. Now I have score sheet with criteria but I have yet to use it and a better defined process.
Originally posted by @Gino Barbaro:
Hi Amy
You can always call a previous reference to see if they paid on time and how they were as tenants. They make enough to pay the rent. Do you have a multi family property or a single family home?
Gino
It's a SFH. I turned down their application after reading through all the posts/ comments on BP.
I hope I didn't make a mistake by saying no to them- something just didn't feel right. The gf was pretty pushy with me. After I informed her that it would take me 1-2 business days to complete the screening process, she said she couldn't wait for 2 days, because she's supposed to sign a lease with another landlord from whom she just got approved of. Then, at 8:36pm that night, she texted me again saying " hi Amy, any words yet?"
I guess I didn't like how pushy she was. I felt like she was trying to train me to do things her way. So I didn't even get to phase where I call and verify her information with her precious landlords. I just decided not to have her and her bf in my rental.
Originally posted by @Joe Splitrock:
@Amy Martinyou cannot deny someone for being unmarried. I am also not sure that denying someone because they are in the restaurant industry or because someone moves once a year is really acceptable either. Your best plan is to establish criteria such as:
1. Income 3X monthly rent
2. Two rental references showing demonstrated ability to pay on time, leave property in good condition
3. Credit score of 600+
I am not saying this is your criteria, but find something similar that works for you. Stay away from using job type, marital status or perceived long term stability as your criteria. Just because she moved every year doesn't mean she will move this year. She is getting married and starting a new life. I used to worry about things like that, but I have learned it is hard to predict how long someone will stay.
End of the month is the best time to rent, because they need to give notice at their current place. If you pass on them, your place may sit vacant another month. I do take into consideration time of year and how early someone can move in.
I am not telling you what to do, but you do need a legitimate reason for denying them. Then keep in mind every applicant needs to follow that criteria. In other words you cannot require 4X rent for the unmarried couple and only 3X rent for the married couple.
I would recommend reading up on fair rent practices just to protect yourself.
Hi Joe- thank you for the advice. Those are very good tips.
I do have another question for you regarding your comment about " end of the month" is the easiest time to rent: since it is already the end of February and I am not getting any qualified tenants, does that mean that if I get to March, I won't be able to rent my place out until May 1? ( reason being that prospective renters won't get serious until the end of March. Then towards the end of March/early April they will give notice to their current landlords, then after a 30-day notice they can move in to my rental).
If that's the case - i should expect my place to sit vacant for March and April?