Let’s face it. As a landlord the biggest hurdle all of us face istenant screening, and finding a good tenant. Get it right and life is great. Get it wrong and things go south quickly.
I bought my first rental in 1985, and have been screening tenants ever since. Initially I got burned. Probably 50% of the time I would find a bad tenant; a tenant I wish I had not rented to. Back then my screening took the form of “Gee, you seem like a nice person. OK. Let me run your credit report and then you can move in.”
The Credit Report Fallacy
What I quickly learned was that there is a loose — VERY loose — correlation between the credit report and a good tenant. I came to realize that a credit report fails to offer any information about a prospect on things that were important to me in my search. Things like:
- Rental history
- Respect of property
To its credit (no pun intended), a credit report does give some valuable information. Like:
- Is the prospect responsible for the national debt?
- Are there any collections from housing providers?
- Does the prospect pay their utility bills?
Those are the only 3 questions a credit report answers for me. They’re helpful, but they are secondary to the four listed above. When you think about it, a credit report says absolutely nothing about rental tenancy. I needed to find a better system.
A better tenant screening method
Each time I got burned by a tenant I would analyze the situation and ask myself “How did I miss that? What could I have done or asked which might have helped me see that before he/she moved in?” Gradually I got better at judging people.
Pretty soon I got really good at judging rental prospects. I soon realized everyone showed up with their best face on and it was up to me to peel back that onion and see what’s inside. In another post I will list the items I look for.
But even this system wasn’t good enough. I was down to maybe only 10% of the time finding a bad tenant. Some were still leaking through. There had to be something else. Eureka!
The final component
I played around with verifications of rent and found there was a virtual goldmine here. I could call up Ma and Pa Landlord and find out just about anything on the prospect — if they paid their rent on time, if they were clean and respectful. Heck, sometimes they would tell me what the prospect had for dinner last night! Ma and Pa would freely give me any and all of the information I needed. (The same wasn’t true for professional property managers. For them they would only return a form — which gave a lot of good information but lacked the personal info I found both interesting and valuable.)
The Complete Package
In the end I came up with the following tenant screening package.
- 60% personal interview
- 30% Verification of Rent
- 10% credit report
See that? The credit report is a measely 10%. We use it to mitigate risk, and that is about all. We already know by the time we leave the showing/interview whether we want to rent to the prospect. The last two items help us build confidence, or not.
People ask “How do you avoid discriminatory practices?” At the time of this writing is not illegal to discriminate against bad tenants. So we set our criteria such that only good tenants qualify. (Our criteria are posted on our website.)
More importantly, it is crucial for all of us to NOT discriminate against race, religion, sex, etc., etc. There are good people — good tenants — out there in all colors, shapes and sizes. Go out there and find them. Use a system that you have confidence in. Have confidence in yourself. If you are discriminatory by nature all I can say is “Good luck, cuz you are going to need a lot of it!”
Peter Nelson is principal and managing broker of Full Service Property Management. He has over 36 years of landlording experience. In the 9 years since starting Full Service Property Management, he has only had ONE eviction after thousands and thousands of tenants. You can learn more about the company at www.fullservicepm.com.