Screening Tenants

Speaking of mistakes, another big one is not screening your tenants thoroughly or at all. After ten years of landlording, I think I have tenant screening down to a science. First of all, all adult tenants must fill out an application and pay a non-refundable $35 application fee per application (as opposed to per person). Tenants are not given an application until they pay the fee via cash or money order. Prior to requiring the fee be paid before giving out an application, I had several problems. First, I was making a lot of expensive photocopies of application forms, and giving them to people who never bothered to fill them out and return them. Very few, although some, did actually pay the fee and not return the application, but at least I made money on them as opposed to losing it. Second, since my Super was showing the apartment, I was never quite sure who had paid the fee and who hadn’t. Once I required the fee up front, I knew all applications that I received (99% via fax) had the fees paid.

The application fee also weeded out a fair amount of potential applicants who a) weren’t very motivated and b) had money problems. Anyone who can’t or won’t come up with $35 to apply for an apartment either has bad credit (and doesn’t want to lose their $35) and just looks for an unsophisticated landlord who won’t check their credit and/or won’t charge a fee; or money is such a problem for them, they don’t’ want to part with their $35. I believe this policy has saved me a lot of time, money and grief.

The application form itself also weeded out a lot of unsuitable applicants. I could tell nine times out of ten, just by reading the application, whether or not the tenant would qualify. If the application looked like it had been filled out by a four year-old with a crayon, they usually failed. If they left out large blocks of important information, they either usually failed, or they ended up not being processed at all because I never got the pertinent information. On the other hand, if the application was complete, legible and included the required information (last two pay stubs, photocopy of photo ID), and they made enough money, the usually qualified. Either way I checked them, because sometimes I was surprised, i.e, neat complete application from a person with horrible credit, or person with horrible handwriting has good credit…

How much is enough money? My formula is 2.5 times the monthly rent in gross monthly income, or 30 times the monthly rent in gross annual income (These formulas are the same, but are presented annually and monthly for the convenience of applicants who are often math-challenged). For example, to lease an apartment that rents for $600, the applicant needs $1,500 month in gross income (before deductions) or $18,000 per year. Where did I find this formula? I don’t know, I read it somewhere, implemented it, stuck with it, and it has always worked for me.

I have always used First Advantage Saferent for screening services, and never found a need to switch. I found their information worked for me, and they were cheaper than the others. They also provide options for criminal, civil and sex offender checks, which I also always do. I require a minimum Fico score of 600. You have to adjust this down if you own properties in a rough area, or your apartments will just sit vacant. If you have high occupancy rates, you may have the luxury of adjusting the Fico requirements upwards.

The Fico score is key. I see it as an honesty history as much as a credit history. It is also a predictor of how well a prospective tenant will care for their unit as well as common areas. It is not just a predictor of whether they will pay. Fico score can also predict timeliness of payments. For example, most of the time, tenants with Ficos above 600 pay on time or even early, the higher the score, the more true this is. Once, I had some persistent vacancies, and I decided to rent to two tenants just below 600, who were otherwise qualified. One had a 592, and one had a 594. I had to chase both of them for the rent, pretty much every month. When renting in rougher areas, I rented to those with a 575. I not only had to chase them for the rent, I often had to evict them. Yeah, it’s that accurate.

So to summarize, to rent an apartment from me, prospective tenants must have:
• Income of 2.5 times the monthly rent in gross monthly income, or 30 times the monthly rent in gross annual income.
• A Fico score of at least 600.
• No eviction filings on record.
• No hits on criminal or sex offender records.