Newbie to Screening Long Term tenants shady screening

[Rachelle Bisaillon]

Hi All

I am a STR expert but new in the long term rental game. My previous LTR were professionally managed and Im trying to do it myself this time.

Questions: 

What kind of application do you have them fill out?

What tenant screening tools do you use? Currently using SmartMove and Im not impressed but dont have anything to compare it to.

What are your requirements?

What documentation do you ask for as proof they can pay?

*I had someone apply for my rental but there were two fraud alerts that popped up on one adult, 2 collections and 4 late payments on the other though the credit score is 725. They also are quick to want to move in which makes it seem like they are jumping from place to place. Something seems off. They both work for themselves so I suspect that the income proof might be untraceable. 

[Michael Smythe]

@Rachelle Bisaillon too much to write, so below is a copy & paste from our website (this is NOT a solicitation!):

A bad tenant can lead to thousands of dollars of losses via unpaid rents, legal fees and property damages. We’re one of
the few property managers that require W-2’s and a bank statement and we go way beyond the traditional, “income must =
3x rent” qualifier.

Below is more information about what our Applications Department does to screen applicants and find the best tenants
possible for your property.

1. 1. Required Info
      We require the following from each applicant over the age of 18, that is not a dependent of another
      applicant (as evidenced on a tax return):
      • Copy of acceptable state picture ID
      • Recent YTD paystub
      • Recent W-2
      • Recent Bank Statement, all pages, no info blacked out
      • Recent tax return if self-employed

      Applicants are often slow about turning this information in, asking us why we need it and then taking
      several days to submit. Then they complain that our process takes too long!

   2. Credit History
      Many companies use credit summaries, but we find these rarely tell the whole credit story. So, we obtain
      a full credit report and review collections, chargeoffs, age of credit accounts, active accounts, etc.
      to build an overall credit evaluation.

FICO Score	Pct of Population	Default Probability
800 or more	13.00%	1.00%
750-799	27.00%	1.00%
700-749	18.00%	4.40%
650-699	15.00%	8.90%
600-649	12.00%	15.80%
550-599	8.00%	22.50%
500-549	5.00%	28.40%
Less than 499	2.00%	41.00%

Source: Fair Isaac Company

1. Public Records
   We also obtain data from national databases about evictions, convictions and sex-offender histories. These all
   require applicants to submit an acceptable Letter of Explanation addressing each specific issue and occurrence.
2. Rental History
   Because a current landlord may say anything to get rid of a bad tenant out of desperation, we also require
   information for the previous landlord of all applicants. Verifying rental history often takes a long time to
   complete due to applicants not giving us correct landlord contact information, landlords not returning our calls
   or refusing to give us any details.We also deal with applicants trying to have family or friends pose as their
   landlords. To address this, we verify the property owner per government records and use this information to vet
   imposters.Anything that seems suspicious will lead to us requesting an acceptable Letter of Explanation to
   address.
3. Analyze Income
   Many landlords require a month of paystubs from applicants and just use these to calculate a monthly qualifying
   income. In our opinion, this doesn’t result in a viable income amount or analyze income stability. We use a YTD
   paystub and last year’s W-2(s) to calculate income several different ways:
   • Hourly or salary income calculated to a monthly amount
   • YTD income divided by number of YTD months
   • YTD + W-2(s) income divided by the corresponding number of months

   If these numbers vary too much, then we investigate and require an acceptable Letter of Explanation.

4. Employment Stability
   Unless an applicant has exceptional credit, we strive to determine their stability of employment to make sure
   they’ll always be able to pay the rent on time. So, we require a detailed employment history for the last two
   years and verify as much of it as reasonably possible.
5. Assets
   We are one of the few management companies that requires a bank statement as part of our application process. We
   think it’s important as it allows us to check for Non-Sufficient Funds (NSF) issues and to determine if an
   applicant is living paycheck-to-paycheck. Bouncing payments or only being an illness or accident away from not
   being able to pay the rent, are issues considered by our underwriting.
6. Letter Of Explanation
   Any time there are credit issues or we discover an inconsistency, we require a written letter of
   explanation (LOX). Many applicants just want to tell us their excuses over the phone, but if they won’t take the
   time to put it in writing, we find they rarely end up being good tenants.
7. Underwriting
   Traditionally, landlords have only looked at the income of applicants and approved those having income equal to
   three times the property rent. This crude method ignores all the other debt payments tenants have. Given that
   many tenants will make their car payment before their rent payment, we’ve copied the mortgage industry’s method
   of debt-to-income (DTI) ratios. We calculate rent plus all debt payments as a percentage of gross monthly
   income.
   Our underwriters strive to analyze and balance all the information above to determine the statistical likelihood
   of a tenant paying their rent on time.
8. Approval
   Once an applicant is approved, we require a nonrefundable Holding Fee to make sure they are serious and don’t
   change their minds. We actually keep marketing your property and accepting back up applicants until your
   property is actually occupied.