Potential Risks to Look Out for During Tenant Screening

by Ester Adams

Tenant screening is a critical component of rental business management. A skilled landlord can spot warning signs and red flags during screening. Such catches can save countless hours of trouble and hundreds to thousands of dollars in eviction or legal fees.

Due to the severe consequences of skipping screening, you should know what you’re looking for. What constitutes a “bad” tenant or one unsuited to rent your properties?

For the most part, red flags during screening are more obvious than green ones. However, you also need to be aware of fair housing laws and understand when it’s legal to deny housing based on given criteria.

Tools like property management software can streamline the screening process, but you are ultimately responsible for making final decisions. 

Here are some potential risks to be aware of during screening, as well as the consequences of ignoring them.

Evictions

To obtain an applicant’s eviction history, you’ll need to pull their eviction report. Since eviction reports are no longer included on credit reports, use a third-party service provider to obtain the files you need.

Eviction records are typically only filed by name, so always be sure you’re looking at the right person’s information.

Generally speaking, a renter with a prior eviction poses a significant risk. Unfortunately, previous evictions tend to predict future ones, and a single eviction can cost you as much as $3,500. Paired with the fact that one out of 50 US tenants are evicted, this cost grows even larger.

If you’re considering accepting a tenant with a prior eviction, make sure your justification outweighs the danger of being the second landlord to evict them.

Insufficient or Unreliable Income

Insufficient or unreliable income is another red flag during tenant screening. If a tenant can’t afford to pay your rent, they are a poor investment and will cost you in the long run. Unreliable tenant income translates to unstable revenue for you. 

To cultivate a steady revenue stream, only choose tenants you can trust to make on-time payments. Many landlords follow this general rule for income: if a tenant’s current income is not at least three times the monthly rent price, then deny the tenant. 

This guideline is helpful for making objective decisions, but be sure to consider income in comparison with credit history. If a tenant has plenty of steady income but a history of irresponsible spending, they might not be the best choice for your rental properties.

Frequent Late Payments

Late payments are another conspicuous sign of an underqualified tenant. If a tenant has demonstrated a pattern of late payments, they are likely to continue this trend in the future.

You can find information about a tenant’s payment history on their credit report. While a credit-responsible tenant will pay off most debts consistently and on time, an irresponsible one will have frequent late payments and accumulating debts. 

This is one reason to examine all parts of the credit report. The three-digit credit score is a convenient metric, but the tradeline summary, fraud indicators, and inquiry sections will give you a broader picture of a tenant’s creditworthiness.

Criminal Record

Criminal records are exceptionally imperative. If you neglect to review an applicant’s criminal history, you risk accepting tenants with violent or illegal habits who could harm you, your business, or other tenants.

What’s more, you could be penalized for allowing individuals with certain criminal histories (such as those on the Sex Offender Watch list) to rent housing near schools or parks. If you didn’t run a thorough criminal background check, you could miss crucial information and endanger your life and livelihood. 

Although it can be tempting to deny any tenant with a criminal record, this may not be legal in some states. Consult a legal professional or your state’s fair housing agency to ensure you’re complying with local laws.

Weak References

Finally, weak references are a warning sign that a tenant might not be well suited to rent your property. When you create your tenant application, be sure to request references from prior employers and landlords who can vouch for the tenant. 

If an applicant doesn’t provide references or their contacts don’t have good things to say, chances are they are a risky tenant.

Decrease Risk through Tenant Screening

Even if you screen tenants meticulously and catch every red flag, you can’t eliminate every risk. Like all people, tenants can surprise you or develop bad habits after you’ve already accepted them. The purpose of screening is to locate the most dangerous risks for your business before they materialize. By doing so, you safeguard both the work and people at the heart of your rental business. 

 

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