If you’re ready to find the perfect residents for your rental property, the resident screening process will be your most useful tool. By establishing clear and effective screening criteria, you will attract the right people and minimize the risk of potential issues down the line. In this article, we’ll explore four key areas to consider when developing your screening criteria: income, background checks, references, and federal Fair Housing laws.
Income
Establishing the Right Income Threshold
The first and most obvious criterion to screen potential residents for is their income. It’s crucial to evaluate the income level of your residents to ensure they can comfortably afford to pay rent as well as the utilities and other expenses that are required to keep a property like yours in good shape. We always recommend setting an income requirement of three times their monthly rent amount and this has become the standard for rental managers everywhere. You can choose whether to accept the net or gross equivalent of this amount but either way, it should be no lower than 3x. Anything below 3x is almost certainly going to be a disaster. Anything further above (3.5-4x) is going to be exponentially better.
Acceptable Sources of Income
Now that you understand what income threshold to use in your resident screening process, it’s important to discuss what sources of income are common and acceptable. You will likely see various sources of income in a resident's application and these details give you valuable insight into their financial stability. One of the most common sources of income is employment but in today’s market, freelancers or self-employed individuals are becoming more prevalent. While some landlords and property managers prefer residents with a steady job and regular paychecks because of the reliability it extends, it's essential to be open to alternative sources of income as well, especially if they meet the required threshold. For example, freelancers or self-employed individuals may not have a traditional employment arrangement, but they can still demonstrate a stable income through contracts and invoices. Government assistance programs can also be a valid source of income. Programs such as Section 8 housing vouchers or disability benefits can provide a reliable monthly payment for rent. It's important to familiarize yourself with the specific requirements and regulations of these programs to ensure compliance and a smooth rental process. You may also come across retirement benefits as another potential source of income as many retirees rely on pension plans, social security, or other retirement savings to cover their living expenses. These sources of income can be stable and predictable, making them a viable option for meeting the income requirement for a rental property. By considering various sources of income and taking a comprehensive approach to the resident screening process, you can ensure that financially responsible and reliable residents occupy your rental property.
Rental Background Checks
Rental background checks are incredibly useful for landlords and property managers when assessing potential residents. Many companies offer rental background checks as a standalone service for landlords looking to manage a property themselves. Good property management companies also utilize these kinds of software when hired to place a resident on an owner’s behalf. Rental background checks often include credit, criminal, and eviction history and each check helps landlords gain critical information.
The Importance of Credit Checks
Understanding a potential resident’s credit history provides valuable insight into their history of financial responsibility. By running a credit check on each resident, you will be able to identify a pattern of late or missed payments or a general lack of financial stability. However, it’s important to consider any extenuating circumstances that may have contributed to their negative credit history. For example, they may have experienced a job loss or a medical emergency that temporarily impacted their ability to make timely payments.
The Importance of Background Checks
At Evernest, we go a step further in evaluating potential residents by running a background check on each person. We recommend adding this extra step to your resident screening process because the security of your rental property and existing residents is incredibly important. We consider a good rule of thumb to be no violent felonies, no felonies less than 10 years old, and no history of multiple misdemeanors.
The Importance of Eviction Checks
Eviction records provide insight into an applicant’s rental history and the likelihood that you may experience an eviction as their landlord. While it can be a red flag, it is important to allow applicants to explain the circumstances as there might have been a misunderstanding or other elements to the story that led to an eviction. These are important factors to consider when making your decision. It’s important to remember that conducting background checks is not about making snap judgments or discriminating against potential residents. It's about ensuring the safety and security of your property and existing residents. By approaching the process with fairness, open-mindedness, and a willingness to consider individual circumstances, you can make informed decisions and create a positive living environment for everyone!
References
Just as with the employment process, references go a long way in illustrating a potential resident’s behavior and character as a resident. We always recommend that rental property owners speak with previous landlords and personal references so they can paint the full picture of the potential resident. When contacting previous landlords, it's important to ask specific questions that explore the resident's history. Some examples of questions to ask landlord references include:
- What was their payment history? Were there any instances of late payments or non-payment?
- Did the resident respect the property and its rules?
- Were there any instances of lease violations or complaints from neighbors?
- Did the resident communicate effectively with you as their landlord when problems arose?
- Were there any significant maintenance or repair issues that happened while they were living there?
While previous landlords can provide valuable information about the applicant as a resident, personal references can offer a different perspective on the applicant's character and reliability. Personal contacts, such as friends or colleagues, can shed light on the applicant's personal qualities that may not be evident from their rental history alone. Some examples of questions to ask personal references include:
- Are they trustworthy and responsible?
- Do they exhibit good judgment and decision-making skills?
- Are they a reliable communicator?
By gathering references from previous landlords and personal contacts, you can pick up important information about an applicant as both a resident and an individual. These insights go a long way in helping you make a fully informed decision about who will live on your property.
Federal Fair Housing Laws
In the resident screening process, the ultimate consideration to bear in mind is ensuring compliance with Federal Fair Housing Laws. These laws aim to safeguard individuals from discrimination based on race, color, national origin, religion, sex, familial status, or disability status. Review your screening criteria closely and ensure you are not taking any of the following actions throughout the rental process;
- Refuse to rent or sell housing;
- Refuse to negotiate for housing;
- Make housing unavailable;
- Deny a dwelling;
- Set different terms, conditions, or privileges for sale or rental of a dwelling;
- Provide different housing services or
- facilities;
- Falsely deny that housing is available
- for inspection, sale, or rental;
- For-profit, persuade owners to sell or
- rent (blockbusting); or
- Deny anyone access to or membership
- in a facility or service (such as a multiple listing service) related to the sale or
- rental of housing.
Examples of Discrimination in Rental Practices
Some discrimination in renting is obvious, but there are more subtle ways it can happen. That’s why it is important to understand the nuances of these regulations and how to always stay in compliance. One common example occurs when it comes to familial status. Property managers need to be aware of the definition of “family” under the law as it includes not only the nuclear family but also single parents, pregnant women, and individuals with legal custody of children. Landlords cannot deny access or alter rental prices based on familial status. Another common way discrimination can arise is for applicants with disabilities. Property managers should be knowledgeable about reasonable accommodations and modifications that may be required for individuals with disabilities. This includes making necessary changes to policies, procedures, or physical structures to ensure equal access and opportunity for all applicants and residents. Unintentional discrimination is more common than you might think so it’s crucial to regularly review and analyze your screening process to identify any unintentional biases and make necessary adjustments to ensure fairness and equal treatment. Moreover, staying up-to-date with Fair Housing laws is an ongoing responsibility. These regulations can evolve, and it is essential to stay informed about any changes or updates.
Final Thoughts: How to Establish Your Resident Screening Criteria
Establishing robust resident screening criteria is essential for promoting fairness in the rental process and ultimately ensures you find the best residents possible. By incorporating income verification, comprehensive rental background checks, and reliable references, you can be sure that your resident selections will be the result of well-informed and comprehensive research which ultimately means fewer headaches for you down the road. If you’re ready to list your property and want a team of property management experts on your side, consider Evernest. Whether you're seeking expert guidance, enhanced resident relations, or a streamlined management process, our services are tailored to meet your unique needs. Visit our website today to discover how Evernest can redefine your approach to property management and help you unlock the full potential of your investment!