One of the biggest fears that landlords face is the vacancy period in which their rentals sit empty. This is often followed by a second fear, which is a high tenant turnover rate. The average turnover rate is currently 47.5%, and although that’s the lowest level in 20 years, it’s still extremely high.
Every time a tenant vacates a rental property, it costs landlords an average of $1,800. As a landlord, your best defense against having to go through costly, time-consuming tenant turnovers is to make sure you have great tenants to begin with.
The Tenant Selection Process
The process each landlord uses to choose tenants must be thorough, legal, and effective. There are certain things that should be included in this process and other things that should not be.
What You Should Include in Your Tenant Selection Criteria
A basic tenant screening needs to include several things for maximum effectiveness. Landlords will want to verify employment and income, do a background check, and perform a credit screening of each applicant.
If you’re a landlord, you’ll also want to do a reference check and verify rental history, as well.
Landlords will want to make sure that the applicant:
- Makes enough income to cover rent, expenses, and utilities
- Has a steady work history
- Maintains a decent credit score
- Doesn’t have recent evictions or bankruptcies
- Has a history of on-time bill payments
- Does not have a history of dangerous criminal activity
It’s also a good idea to make sure that your prospective tenant has good references from previous landlords
What You Cannot Include
There are eight federally protected classes on which you cannot base the selection of your tenant. These protected classes are race, national origin, color, age, familial status, religion, sex, and disability.
These eight criteria do not affect a person’s ability to be a renter; therefore, it is illegal to base your decision on any of them.
How to Choose a Renter from Several Qualified Applicants
As long as your decision regarding your next tenant is compliant with fair housing laws and you’ve refrained from being influenced by any of the eight protected classes, you have the right to choose whomever you want as your next tenant.
Landlords may want to consider basing their final decision on a “first come, first served” basis. If not, there are some additional questions about each applicant that can be considered to help narrow the selection:
- Why did they leave their last rental?
- How long did they stay before leaving?
- Do they have pets or smoke?
- How do they spend their spare time?
Contact each applicant’s previous landlord and add more questions to expand your tenant selection criteria, such as:
- Would you rent to them again?
- Were they ever late on rent payments?
- How could they have been a better tenant?
- What are the hours they work?
- How would you describe their overall character?
If you have two (or more) applicants from which you are having trouble choosing, focus on long-term finances.
If one applicant can move in tomorrow but barely has enough income to pay rent and bills, and another applicant is more financially comfortable but cannot move in for another month, choose the second applicant.
Don’t fall into the trap of choosing quick cash now at the risk of losing more over the long term.
How to Legally Deny an Applicant
Your tenant selection criteria not only helps you to choose a renter, but it can also help you know who to bypass. It may not be easy for you to deny applicants, but it goes with the territory of being a landlord.
There is a right way and a wrong way to deny an applicant. As a landlord, you don’t ever want to lie to a prospective renter; this can come back to haunt you later. Always make sure you have a legitimate reason for the rejection and make sure to tell them what that reason is. Do it in writing, if possible.
When an applicant is denied a rental due to their credit, the written notice is known as an adverse action notice. Be professional, polite, and direct. More than anything else, in order to legally deny an applicant, a landlord must be able to prove that every applicant was screened using the same tenant selection criteria.