Help with tenant screening

[Zac Boelkow]

We recently listed a duplex for rent in Milwaukee, WI. We received three applications. After calling the references and verifying income, etc. we narrowed it down to one possibility that looked good. We informed this person that she would need to create a "Smartmove" account for credit and background check. She was hesitant to do so and supplied us with her own credit score printed out from "CreditKarma". Seemed strange to me that she did that. After we told her that it is a requirement to do a credit check/background check she agreed and did the "Smartmove" App. When I reviewed her debts and ran her budget based on her six months of check stubs that she supplied. It was clear that she would not have enough money to cover everything. I called and asked if she could verify any more income. Also she had $100,000 of student loan debt that is in "deferment" currently so I asked her about that as well. I was genuinely trying to figure out her "financial picture" to understand if she can afford the rent. She did not like that I was questioning her credit report, which clearly shows that she has too much debt and is struggling to make all payments. Then she said that I just did not want to rent her because of her race, except she put it a lot more blunt.

My question is does it pay to try to understand the tenants income while in the vetting process or should I just run the numbers and either qualify or deny based on that and not go the extra to try to understand if there is more income or if a 100 thousand dollar debt is going to be forgiven? Also I know I must write her a reason for not qualifying for renting my property because her income/debt ratio is too high. Is that all I need to basically say? "Based on your income to debt ratio you are not eligible to rent the property."

Thank you

[Karl B.]

Hi, I'd give all potential tenants the rental criteria up front (the process, requirements, things considered such as debt-to-income, etc).

Also, you'll want to keep all paperwork from all past and present tenants to show you keep the same criteria for all in the event a potential tenant objects or feels he/she is treated unfairly. 

But having everything outlined up front will have you and the tenant on the same page from the start, so they don't feel like you're making up criteria after the process has begun.

[Ned J.]

Decide on your criteria and make it VERY clear to every tenant that wants to apply. I also rank my criteria from most important to least. I consider income and job stability at the top... then rental history (how long, where, previous rent, landlord references), then credit

When screening, you should basically have the mindset of looking for reasons to NOT rent to them. If you focus on looking for the "good" you will tend to rationalize and marginalize the "bad" and convince yourself to rent to them even though its not smart to do so.

Decide on your criteria and stick with it. Your liability comes up when you have a weak criteria and/or don't adhere to it. If they meet all your criteria and turn them down, that's when you open yourself to implications of discrimination based on race and other protected classes.

[Ned J.]

And another thing...... DO NOT accept tenants submitting their credit or background reports as some written document they provide you. VERY easy to fake...... only accept direct information from those agencies..... no copies or attachments to emails etc

[Marc Winter]

Treat everyone the same. Only accept the credit report YOU run. If the numbers on the application and credit report don't add up and don't reach your acceptance threshold, DON'T RENT TO THEM.

If someone deals the race card, make note of it, lots of details, and keep that in their file.  Doesn't matter if they are Green, Blue, or Purple, treat them all equally--everyone deserves the same rotten service.

[Account Closed]

Originally posted by @Zac Boelkow:

We recently listed a duplex for rent in Milwaukee, WI. We received three applications. After calling the references and verifying income, etc. we narrowed it down to one possibility that looked good. We informed this person that she would need to create a "Smartmove" account for credit and background check. She was hesitant to do so and supplied us with her own credit score printed out from "CreditKarma". Seemed strange to me that she did that. After we told her that it is a requirement to do a credit check/background check she agreed and did the "Smartmove" App. When I reviewed her debts and ran her budget based on her six months of check stubs that she supplied. It was clear that she would not have enough money to cover everything. I called and asked if she could verify any more income. Also she had $100,000 of student loan debt that is in "deferment" currently so I asked her about that as well. I was genuinely trying to figure out her "financial picture" to understand if she can afford the rent. She did not like that I was questioning her credit report, which clearly shows that she has too much debt and is struggling to make all payments. Then she said that I just did not want to rent her because of her race, except she put it a lot more blunt.

My question is does it pay to try to understand the tenants income while in the vetting process or should I just run the numbers and either qualify or deny based on that and not go the extra to try to understand if there is more income or if a 100 thousand dollar debt is going to be forgiven? Also I know I must write her a reason for not qualifying for renting my property because her income/debt ratio is too high. Is that all I need to basically say? "Based on your income to debt ratio you are not eligible to rent the property."

Thank you

I think your reason for not qualifying statement is perfect.

I wouldn't worry about a student loan in good standing that's in deferment.  I deferred mine for years.  It actually improves a credit score having it as an "paid as agreed" and student loan debt doesn't usually get counted much towards debt to income, if it's in good standing and hadn't defaulted.

So, if she still doesn't have enough money to pay her bills without including the student loan debt, she won't have a leg to stand on as far as discrimination - as long as you treat everyone the same way.

And be glad you dodged a bullet.  She knew her debt to income would be an issue by her behavior.  If she's going to bring out the race card right off the bat, she'd be a problem going forward as a tenant.  

Good on you for not just taking one of the first three applicants, if they didn't meet your criteria.   

I learned at one point to have written criteria and I emailed it to myself to establish the date of my criteria.  Not crucial if you haven't done it yet, but I suggest you do write up your criteria in a document, so if fair housing ever does come around you can show them your criteria.

I also had a notebook when I was running ads on Craigslist and made notes for phone calls with applicants and for any who came for a showing and why I didn't rent to them.  I even had criteria that would get a tenant denied like: rude behavior, came with rude friends, showed up late without calling, missed an appointment, didn't fill out application completely after being asked to do so up front, smelled like cigarette smoke, had filthy car, just on and on.  You can discriminate for a million reasons legally, as long as you are consistent.

[Zac Boelkow]

Thank you guys. I asked for documentation on the student loan so I could understand it. If that loan is active then she is way out of budget. If that loan is forgiven then she has enough money. I was not comfortable moving forward without knowing why the student loan was "deferred" and or if it was being "forgiven"...

[E.S. Burrell]

@Sue K.

What if they did not smell like cigarette smoke at the showing but showed up to the initial walk through and transferring of keys smelling like smoke? Do you deny them and then start all over with looking for tenants?

What if their your model tenant but picking up the habit of smoking? This landlord thing is tough.

[Account Closed]

Originally posted by @Zac Boelkow:

Thank you guys. I asked for documentation on the student loan so I could understand it. If that loan is active then she is way out of budget. If that loan is forgiven then she has enough money. I was not comfortable moving forward without knowing why the student loan was "deferred" and or if it was being "forgiven"...

 You can get your loan deferred for different reasons, mainly based on your income.  You still owe the debt, but payments are on hold for some reason, usually because they're still a student or their income has been below a certain amount or they've been unemployed or disabled.  

If she told you she's been making good money, then this does definitely run up a red flag.  You can have good credit and be unemployed, so good call on the Credit Karma credit score attempt.

God, $100,000 in student loans.  That's just so wrong.  People shouldn't have to start out their careers with that much debt.  

[Account Closed]

Originally posted by @E.S. Burrell:

@Sue K.

What if they did not smell like cigarette smoke at the showing but showed up to the initial walk through and transferring of keys smelling like smoke? Do you deny them and then start all over with looking for tenants?

What if their your model tenant but picking up the habit of smoking? This landlord thing is tough.

 LOL, you should be a lawyer if you aren't already.  This is an interesting question, though. Hmmmm.....  I've never encountered a smoker who didn't smell like smoke at a showing, who passed my other criteria, and then showed up on move-in day smelling like smoke.  But, I only used month to month agreements.  I probably would have let them move in and then just considered giving them 30 days notice.  But, if they showed up with a bunch of obnoxious and loud friends and they were all smoking and throwing butts on the ground and being rude to me - on top of my also smelling smoke on the new tenant - I'd probably have sent them all away and told him to go ahead and sue me, but I'm not letting him move in.  It would be better to lose a month's rent than lose the good tenants I wanted to keep by allowing an obnoxious person to move into the building who smoked, when I promised a smoke-free, quiet building.  Most of my tenants were law students and a quiet building was essential.

The main thing about having all of the criteria I had that seemed kind of wacky, which I learned over the years, is that all of those little things are red flags and are part of that hinky feeling you get about an applicant sometimes but maybe you can't quite put your finger on, but you can't explain away a potential discrimination complaint with "I just had a hinky feeling about them, your Honor".  So, if you can say they didn't show up on time and didn't call ahead or they smelled like smoke or they had a friend who did all the talking for them who supposedly wasn't going to move in, or they were super picky and seemed unhappy about everything about the apartment and the building.... and all of those things are on a list of official criteria, which are all legal reasons to discriminate against someone for - you can deny them based on those things and you're good to go.  Dang, that was a long sentence.  

[E.S. Burrell]

LOL @ Sue good answer!! I added some of your criteria to mine. I too keep track of potential tenants especially those who are no shows and when they call again requesting a showing,  I call them out on it and let them know I’m looking for responsible tenants. I have “no show” next to their phone number with an angry face emoji. LOL.... 

[Account Closed]

Originally posted by @E.S. Burrell:

LOL @ Sue good answer!! I added some of your criteria to mine. I too keep track of potential tenants especially those who are no shows and when they call again requesting a showing,  I call them out on it and let them know I’m looking for responsible tenants. I have “no show” next to their phone number with an angry face emoji. LOL.... 

 LOL I love the angry emoji. 

[Josue Vargas]

I would try to understand her situation unless you have more than one qualified person.  If she doesn't want to answer your questions due to her credit report, then I would simply disqualify her and move on to the next.  I also don't provide any explanations for people like her.  Better to ignore any communication received from them.  I'm not sure in your state/city, but where I'm, I have never give to anyone a "Sorry, I regret to inform you are not qualified", unless they ask and want to know why, and I do so verbally.  

Criteria:  Include a max debt/income ratio.  I include also a salary/rent ratio of 4.

[Mark S.]

@Sue K. They don’t have to start their careers with that much debt - they choose to. Go to community college for two years, transfer to state school to finish. Work while you are going to school. Bingo - no $200k debt (m as the dome but no where near that amount) and a degree in hand!

[Angelica M Garzon]

Hey Zac, 

I would say that your criteria should just result on a yes/no answer to for the potential tenant. It keeps you from those awkward conversations and from wasting time =money. 

I would send her a letter/email with a brief explanation and not give it much thought. There's really nothing she could do to prove that you did or did not approve her application for the reasons she stated. Plus, you have proof that she does not make 3x rent and her debt to income is not within your desired parameters. 

[Michael Noto]

If someone isn’t willing to pay for a background check that means 9 times out of 10 that they know they won’t pass your minimum screening criteria so they don’t want to waste money on an application fee. This is the exact reason why though you should have told them it was a requirement to apply online.

We tell people they need to apply online through our portal because the report gives us more than just a credit breakdown. It also gives us criminal background and eviction info and everyone else goes through the exact same checks.

[Marcus Auerbach]

@Zac Boelkow - MySmartMove will make the decision for you; you'll either get an accept, conditional or decline. What was the recommendation in this case?

We have learned to trust the system. Every time we went against it, we found out later it wasn't the best idea. I don't call previous landlords or emplyers - there is not much useful information to be gained. We do check social media though.

I can understand how the aplicant reacted offended when you get into her personal financials. You should have a set criteria for income and thats it. We do pay attention to payment patters, I want to see most payments on time like clockwork. 

[Zac Boelkow]

@Marcus Auerbach she entered in, in error obviously, that her annual salary is over $6,000,000. So smart move recommended accepting her. After running through her report we can see that there’s some missed payments, new unsecured bank loans, and behind payment on another. And with $100,000 in student loan debt in deferment it gave quite a bit of concern.

[Marcus Auerbach]

Originally posted by @Zac Boelkow:

@Marcus Auerbach she entered in, in error obviously, that her annual salary is over $6,000,000. So smart move recommended accepting her. After running through her report we can see that there’s some missed payments, new unsecured bank loans, and behind payment on another. And with $100,000 in student loan debt in deferment it gave quite a bit of concern.

 Okay, she's out at this point anyway, but normally I would have asked her to correct the income so the algorithm can work. If she is has a late payment pattern on a 60k income with high debt you would have most likely gotten a decline.

I am not to concerend about their debt load, as long as they have a good track record of paying on time like clockwork. If she is behind on payments I put more weight on the essentials like utilities (no more), car loan etc - student loans and medical bills are lowest. 

Keep in mind that as much as you are checking them out, they are checking you out as well. This is true in particular for really good applicants, because they have choices and they know it - they will not subject themselves to questions that are to personal. It's a little bit of an art and you'll get good at it over time.

[Charlotte Dunford]

@Zac Boelkow Stick to your criteria. As a landlord who's just finished an eviction, I would advise you to trust your gut. From what I can tell, she is already not cooperating and has an attitude problem. For me, a landlord-tenant relationship is a business relationship. Think: do you want to do business with this person?