Inexperienced landlord needing advice about screening applicants

[Amy Martin]

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!! 

[Amy Martin]

Originally posted by @Penny Clark:

@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!

Hi Penny, thanks a lot for the advice. I know you mentioned no outstanding collections of $1000 or more - do you care if the applicants have some collection of smaller amount ( say for example $400?) I guess I'm trying to figure out what kind of collections are not okay to have. Thanks! 

[Amy Martin]

Originally posted by @Gina McKee:

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).

Hi Gina- thanks for the advice. How do you do the scoring system for tenant screening? Is it some screening service you use? Or is it some formula you have developed by yourself? 

[Amy Martin]

Originally posted by @Bill S.:

@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.

Hi bill- that's very good advice you've given to me. Thank you so much. I didn't feel like I could completely justify turning down their application based solely on their income/types of jobs they have...until the female applicant started rushing me to give her an answer in less than 24 hours. 

She said they got approved to move to a townhouse and needed to sign a lease ASAP with that landlord. She told me that she really loved my house after seeing it and would much rather move to my rental if i approve their applications. After i informed her it would take me 1-2 business days to check all background/references on their applications, she still texted me at night on the very same day asking me what's my conclusion. 

I just felt like she was really trying to rush me. I decided not to approve their applications. Hopefully I did the right thing. 

[Penny Clark]

@amymartin, medical collections, student loans I may overlook if they have a strong income and also don't have more than two late credit card payments. I don't usually overlook unpaid utility bills. Also if the debt shows it was paid yet remains on their credit report and it is more than two years old, I'll overlook that.

Start by asking them how their credit is. In my experience those who have bad credit - from a student loan default or a foreclosure -but are honest about it are worth giving a second look. 

Hope that helps!

[Gina McKee]

@Amy MartinI use a scoring system I developed myself based on criteria I decided upon based on things I had read on BP, and what I personally wanted in a tenant. I use SmartMove to do a credit/background check which factors into their score, eg. do they have credit above 600 - 5 points etc. Then I went through and added up all the items that a tenant had to have to be considered a good tenant for the property, and that was the minimum score required. However, I made it so a tenant with a slightly low score in one area could potentially make it up by having a higher than needed income for example. The rejection worthy items such as evictions I made them very negative so it was impossible to score enough to meet the minimum. Hope this makes sense. 

I got the idea from a BP post however, and then used it as an example to move from.

[Joe Splitrock]

Originally posted by @Amy Martin:

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? 

 In my experience people decide to move in the middle to later part of the month. They start looking for a place and want to give notice by the end of the month. For that reason typically the beginning of the month is slower for renting. That is not true in all cases. People look and move at all times of the month. My best advice is focus on finding the best tenant and try not to worry about letting your property sit for a month. I have rushed to rent in the past and settled for a less than ideal candidate, which can cost you more in the long run. It is a balance. Having rental rules established makes it easier because either they meet the criteria or they don't. That way you are not over thinking it.