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Quickly trek through the 7 most basic steps you can take to screen tenants for your multi-family buildings, increasing property values and returns on your investment.

 

Problematic tenants can be absolute nightmares for landlords and investors alike, and not always because they’re troubled or horrible people. Things happen. Life’s full of surprises, but what follows are solid ground-floor precautions you can take to minimize risk brought on by renting space to complex human beings.

 

Step #1: Be Specific on Screening Elements

 

If you’re reading this, then logic says you’re either new to managing tenants and multi-family investment, or you’re brushing up. Either way, the first step is always going to be hammering down on the specific elements you want to use to define what is, and is not, an acceptable tenant. Rather than trying to reinvent the wheel, this list from FitSmallBusiness is an ironclad place to start:

 

  • Their income should meet or exceed the ‘3-times rent’ rule.
  • Good work history with apparent tenure on the current job.
  • Verifiable income from employer and/or tax returns.
  • A credit score above the line you set – generally 620+.
  • Not a felon or someone with a recent history of crime.
  • Prior residence and landlord checks show favorable tenancy.

 

Step #2: Tackle Pre-Screening Requirements

 

As time passes and depending on where your property is located, legal complications and considerations can come up concerning the screening process. For example, there may be rules and regulations specific to the questions you can ask, or how you can legally screen potential tenants. New elements like social media profiles and online behavior are now coming into the picture, but laws vary. Ensure these are taken into account while you’re defining the details of Step #1.

 

  • Note: When you work with specialized niche multi-family investment firms like Virtus Property Group all of this is handled by our team.

 

Step #3: Conduct Credit Checks

 

In America, along with screening requirements this is also getting complicated. Why revolves around two things: ballooning consumer debt levels across the nation simultaneously as the government prints trillions, and student debt. Credit checks now serve as a way to see where rental income is compared to debt payments. The more expensive the property, the higher the credit score bar is raised. A very generalized number property managers look for is around the 620 mark.

 

Step #4: Perform Background Checks

 

Simply put, you need to know whether renters are felons or have a recent history of criminal acts, especially those revolving around theft, violence, and drug dealing. Both state and federal checks should be used.

 

Step #5: Establish Income & Employment

 

First, who’s their employer? Do they have a solid history of working and/or income generation?

 

If they’re self-employed, can they prove their income via official bank statements, financial background checks, and/or tax returns? These days more and more tenants could run their own internet-based businesses from home, work for corporations primarily from home, or work online as freelance professionals. As mentioned in Step #1, a general safe approach is the ‘3 Times Rent’ rule which means the potential tenant’s monthly gross income is at least 3 times the cost of rent with considerations taken for debt payments and other outgoing bills.

 

Step #6: Look at Previous Living History

 

Where have they been living for the last 5-10 years and can they prove it? Any bankruptcies (keep in mind many bankruptcies these days are medically-based) or evictions which you can check via housing court records? To be prudent, contacting the last two landlords and performing plenty of due diligence here is where their true quality as a tenant is discovered. Did they get along with or drive neighbors insane? Did they keep their unit and area relatively clean, or was it a disaster zone after they left?

 

Step #7: Accepting or Rejecting Applicants

 

Once all this information and a tenant profile is created, you should have a pretty clear cut method of determining whether an individual is fit to rent a unit in your property. There are likely to be few ROCKSTAR candidates when you’re looking at people’s lives through these prisms, and the full story is going to come out once they set up shop. But generally speaking, good candidates are determined with experience and judgment around these points:

 

  • Their income should meet or exceed the ‘3-times rent’ rule.
  • Good work history with apparent tenure on the current job.
  • Verifiable income from employer and/or tax returns.
  • A credit score above the line you set – generally 620+.
  • Not a felon or someone with a recent history of crime.
  • Prior residence and landlord checks show favorable tenancy.

 

There are a variety of different software and services to help property managers automate a decent potion of this process, and those are worth looking into. However, if you’re coming more from an investment angle and the prospect of dealing with all this wasn’t what you thought, remember companies and investment firms like Virtus Property Group (advisory board with over $100 million in apartments managed) handle all these details for you so you can sit back and collect the bucks. Something to consider. Otherwise, when screening potential tenants be aware of rules and regulations, be specific, use good judgement and have proper explanatory paperwork ready for denials.