A successful and profitable investment experience for Boston rental property owners is largely impacted by tenant selection.
Well-qualified tenants deliver predictability and profit; you’ll bring in reliable rental income each month, your property will grow in value, and your ROI will steadily increase throughout the tenancy. You won’t lose money on turnovers, property damage, and eviction. A bad tenant, however, will only cost you time and money. Bad tenants bring risks, including the risk that they won’t pay rent.
It’s often challenging to predict how a tenant will perform but you can protect yourself and your investment with a smart tenant screening process. Tenant screening is critical, and it starts even before the application is turned in.
Take your time and put in the work that’s required to find the best tenant. If you are struggling with time or resources, hand the process over to a professional Boston property manager. Property managers can immediately identify the red flags that would make an applicant questionable.
We’re providing an informative guide that should help you find and place a great tenant who will pay rent on time, protect the condition of your home, and follow the terms of your lease agreement.
Pre-Screening Questions before Showings
Time is money for both you and your potential tenants. So, when inquiries begin coming in, make sure you’re not just automatically scheduling showings for anyone who asks. Do a bit of pre-screening so you have an idea of whether or not the interested party will actually be a good fit for your property and meet your screening criteria. Answer any questions they have, and then ask a few of your own. These should include:
- When do you plan to move?
- Why do you want to move?
- How many people will be living in the property?
- Do you own any pets?
- Do you have any previous evictions?
The answers to these questions will tell you whether your property is right for the person who wants to see it. There’s no sense in showing the home to someone who won’t be ready to move for three months.
Fair Housing Laws in Boston
When you’re looking for the best tenants, you have to follow all state, local, and federal fair housing laws. Property owners may not intentionally discriminate, but it’s easy to make some big fair housing mistakes without realizing it. The language you use in advertising can be scrutinized, for example. Saying that a property is perfect for families or in a neighborhood that’s popular with one particular culture can get you into trouble.
Make sure you know the local, state, and federal fair housing laws and how to follow them before you begin screening any of your tenants. Fair housing lawsuits are expensive, and the fines can be outrageous.
Screening is an easy area to make a mistake. You have to screen every single application the same way.
A good way to avoid fair housing issues and to weed out potentially unqualified tenants is by providing a set of standard rental criteria before anyone completes an application or pays an application fee. When you put your criteria in writing, you’re managing the expectations of a prospective tenant. When you show them exactly what you’re looking for in a tenant and they don’t have the income to meet those requirements, they’re going to understand why they were denied or they won’t bother applying at all.
A documented and fair screening process will demonstrate that everyone is held to the same standards and provided those standards before they even apply.
When someone asks to apply for your property, provide them with these standards. They can be written and printed or in digital form. The goal is to establish that those standards were shared before the application was submitted.
Collecting a Rental Application
Provide a written application for all interested tenants that collects all the pertinent information including:
- Full legal names
- Contact information
- Social security and driver’s license numbers
- Current and past addresses
- Employment information
- Landlord references
Your application must also provide permission for you to conduct a background check and a credit check on your prospective tenant.
Good tenants will fill out the application completely and quickly. Most of today’s tenants want to move as fast as you do; and they appreciate an online application rather than one they need to fill out with a pen and drop off or send through the mail.
To properly screen tenants, you’ll need documentation such as a copy of their government-issued I.D. and pay stubs or bank and tax statements that verify their income. Allow them to securely upload those documents to you. If you don’t have a system that supports this, consider working with a Boston property management company or a screening company so this entire process is automated for you and your prospective tenant.
When you provide your application to prospective tenants, don’t forget to give them your application criteria as well.
Screening: Check Credit and Financial History
The first thing to look for is any past eviction. When you’re looking for a Boston tenant, recent evictions are especially problematic. You also don’t want to see multiple evictions in the applicant’s past. This is an indication that they may have trouble paying rent, even if they have the income to support it.
Check the credit and court records for any bankruptcies or judgments against the applicant. Situations where money is still owed to a former landlord or apartment complex are upsetting because if the tenant didn’t pay those landlords, you might find yourself trying to collect money from them as well.
Running a credit check is a standard part of any tenant screening process. We know that a lot of owners will have a credit score threshold that applicants must meet. This can be valuable in determining who will be considered and who will not. But, the score doesn’t always matter as much as the details in the credit report. Medical debt and student loan debt are pretty common, for example. They can drag down a credit score, but that type of debt doesn’t mean a prospective tenant is a risky tenant.
More important is how they’ve treated their housing-related bills. Are there utility accounts in collections? This is more of a concern when you’re screening.
Make Sure the Income Measures Up
At its most basic function, a screening process lets you know if a potential tenant can pay rent.
For that reason, checking and verifying an applicant’s income is perhaps the most important part of your screening process. Measure what’s earned against the amount of rent you’re collecting. You want to be sure your tenants can afford the rent you’re charging. Don’t set them up for failure by permitting someone who doesn’t earn enough to move into your property.
Best practices in Boston property management say that a tenant should earn at least three times the monthly rent in order to safely cover that expense and meet their other obligations. So, if you’re renting out a home for $2,000 a month, you’re looking for a minimum income of $6,000.
This income requirement should cover all of the tenants who are moving into the property. So, adult partners who earn their own salaries can combine that income to meet your requirements.
Verifying the income by asking for copies of the last two pay stubs or gathering employment contracts and tax returns. For self-employed individuals, bank statements can be useful so they can show you the deposits that are made.
Check Rental History References
Checking references can be uncomfortable, but you should absolutely do it.
A former or current landlord will tell you exactly what it’s like to rent to the person you’re considering for your own property. There’s a lot of valuable information that can be gleaned from checking these references.
Your application should request contact information for at least two landlord references. Once you get in touch, make sure you’re talking to the actual landlord or property manager. Ask them to confirm the dates of residency and the amount of rent that was paid. Find out if the entire security deposit was returned and if proper notice was given before that tenant moved out. You’ll also want to know if rent was paid on time, and how quickly the tenant caught up if it was ever late.
Always ask if there were pets, property damage, and if they’d be willing to rent to that tenant again.
Once you’ve exhausted all of these screening details, consider the entire application. You’ll want to run a criminal background check as well and maybe do a pet screening if there are pets moving in.
Then, you’ll have to issue an approval or a denial. Put everything in writing and make sure you document when and why the approval or denial notification went out.
It’s easy to make a mistake when you’re screening tenants, and those mistakes can often be costly. If you’d prefer to find and place a tenant with the help of expert Boston property managers, please contact us at Platinum Realty Group. We have a lot of experience screening tenants, and we can help you place the best renters.