Avoiding Bad Tenant Nightmares! Our Step-by-Step Tenant Screening Process
One of the big fears that people have when getting involved with investment rental properties is dealing with tenants. There are plenty of nightmare stories out there about tenants squatting, destroying property, doing illegal activities in the home, being impossible to work with to collect rent, the list goes on. In fact we have a few of these stories ourselves (mostly from tenants inherited when purchasing property), but you can minimize the risk of bad tenants by having a good tenant screening process. Do your due diligence and put the time in now when looking for a tenant and it will save you tons of time and money down the road. Be picky and be patient! We typically have 30-60 day notice when tenants move out and can fill the property without an issue in that amount of time. With following this process and pricing your rental correctly you should have no problem filling your home in a timely fashion and have plenty of interest.
So here is our step-by-step process:
Take photos of the property, inside and out (keep them in a file for future so you don’t have to do this every time)
Post your listing on Zillow.com, which will automatically posts to Trulia and Hotpads and often is pulled by other websites
Post to craigslist (get link from Zillow) or any other local sites that are popular in your area
When you receive an email or phone call, have interested people fill out an application—BEFORE doing a showing. Assure them the background and credit check are not done until after they see the property and want to move forward, you just need to prequalify them (this prevents you from wasting time doing lots of showings for people who wouldn’t even be able to qualify).
If tenant’s application meets basic criteria, set up a showing (Our criteria: income is 3x rent, lists no previous crimes or evictions, 2 people max per bedroom, currently employed, no smoking)
Let them know they have been preapproved and set up a time to conduct a showing.
After the showing, ask if the person is still interested in the home and would like to move forward with the background, credit, and eviction check.
If they say yes, create an application on www.mysmartmove.com, select tenant pays for report if you have not already collected the fee (do report for every adult in household). The Application fee is $35/person and they can pay via credit card through the website so you don’t have to collect it
View credit, background, and eviction report
Call current and previous landlords
Call employer or get a copy of a paystub as proof of employment
Accept or deny person to live in property
Once person has been accepted, sign a lease and collect security deposit to hold the property
Collect first month rent and give keys to tenant on move in day
The process is actually pretty simple, and it is worth putting the extra time in to do the background check and phone calls. We have tried a lot of different resources for background and credit check and www.mysmartmove.com has been our favorite. It is simple to use and comprehensive for an affordable price (which is all covered by the applicant). There are some laws that you need to keep in mind when finding tenants though—they may vary slightly by state so consult with other investors or lawyers that are local but here are a few general ones to keep in mind:
You must only collect application fee in the amount that covers actual report costs. I.e. you can not charge a $100 application fee and pocket the extra $65 as an “administration cost”
You must review prospective tenants one at a time. You cannot collect fees and run reports on 5 people then decide which one is your favorite. Once you collect money and run a report of one person you must accept or deny them before moving forward in the process with another.
You must give the applicant your screening criteria when you give out an application so they know what is evaluated before applying.
You must give a reason why a person is denied. Not only is this a law, but it prevents them from coming back and accusing you of racism, sexism, or any other inequality issue.
Finding good tenants does not need to be something you are overwhelmed by, just follow this step by step process and you will be set! Bookmark this page or print it out to keep it as reference for when you are looking for you next tenant!
Have additional questions or suggestions? Leave a comment below!