If a company or individual owner ever needed to have a “Secret Sauce” this would be it! No job is more important in the entire rental process than screening and selecting tenants. The ultimate goal of any tenant selection is finding a tenant who you can be as assured as possible will pay the rent in full on time every month and take care of your property while avoiding the potential pitfalls of a Fair Housing lawsuit. The cherry on top for the buy and hold investor is finding a tenant that wants to stay for a very long time.
Before any discussion can begin on how to screen and qualify a tenant for a rental property, it must be understood that there are specific Fair Housing guidelines that any owner or property management company must adhere to in screening and selecting tenants. There is a full list of Federal Laws you must comply with anytime you rent out residential property. Take the time to familiarize yourself with these laws and live by them!
Many companies and individual landlords will use an arbitrary cutoff on a person’s FICO score to make a placement decision. This is not the best way to screen tenants. The FICO does not tell the whole story on a person’s ability to pay the rent and take care of the property.
The most common example of a low FICO applicant who is a good risk is a person who just went through a divorce with a financially irresponsible spouse but they were the main source of income in the household, they have 20+ years on the job and make well over three times the rent. This applicant, excluding other issues, could be a great placement because of their job.
Ultimately, you want to find an applicant that has something to lose by not paying the rent. It could be good FICO or other assets. In the worst case scenario, if you had to go after a tenant that stiffed you, had an already low FICO going into the lease but had over 20 years on the job, you can always get a judgement against that past tenant and then garnish their wages. They typically won’t quit their job just to avoid paying you off on a judgement.
In the words of Ronald Reagan you need to “trust but verify.” Mesa Properties processes literally hundreds of applications every month and we find tenant dishonesty the biggest obstacle to getting through all those applications. The deceit ranges from phony pay stubs to having their buddy give the landlord verification.
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