In this video, Chris and Eli, founders of Landlord Gurus, discuss everything in the tenant screening process. They talk about how to make a rental criteria checklist, as well as tips for making the process easier.
Topics in this video include:
- General rental criteria knowledge [0:25]
- Rental history [4:49]
- Income and employment history [8:55]
- Employer references [13:00]
- Credit reports [14:09]
- Criminal history [18:51]
- Additional criteria [20:47]
Transcript
Chris Lee: Hey there, this is Chris and Eli with Landlord Gurus. Thanks for joining us again today. Today we are gonna continue talking about the process of finding a new tenant for your rental once your old tenant has moved out. Before, we talked about the steps that you’d take to get your place cleaned and get ready for listings.
Also Read: Rental Turnover, Preparation, and Upkeep: Video Extra
General Rental Criteria Knowledge
And the next thing that we’re gonna talk about today is having rental criteria. Before you start showing it to new tenants or new applicants, it’s important to have a set of criteria that you know what you’re looking for and that you can communicate to potential applicants so that they know what to expect.
Having a checklist is a great way to do it. We have a sample checklist on our site that we’ll put a link to in this video so you can download one for yourselves and you can see what we are including in our checklists. In some cases, like where we are in Seattle, we’re required to have a checklist and we’re required to show this checklist to anyone coming to view the apartment and anyone interested in it.
We’ll just get right into it and we’ll kind of go through the general topics that we have in our checklist and then, you know, kind of discuss some of the things that we look for within each section. I think the first thing that we have on our checklist is just sort of general criteria. Eli, we sort of talk about questions about whether they’ve received an application, whether they provide ID, things like that. Why is that important?
Eli Secor: Yeah, so the general criteria I’m using are: did you complete an application?, do I have everything I need to start?, which includes all of the rental references, history, employment history, personal data, and a copy of a government-issued ID with photo. And I collect some kind of employment documentation: a W2, a pay stub, income statement of some kind. And it’ll depend on the person. But you know, that’s important because it’s important for the tenants to know what they have to do upfront in order to be considered a viable applicant.
I go off of our checklist. We’ll talk about some of the things that you do that are in addition to that, but that’s what falls under the general criteria for me.
CL: Right, yeah. This is to let them know upfront, like you said, what sort of things they’re gonna need to submit along with their application, so that they’re not taken by surprise and so that they have an idea of the things that, as landlords, we’re looking for specifically. And we can get into what those specifics are, as we proceed through the checklist.
ES: Yeah, and it could be a huge waste of time if you get applications that don’t have all the information that you’re going to require. The applicant can fill it out and pay for a screening report, and you can take your time looking at it and corresponding with them and it will come to nothing. It just saves everybody a lot of time. And just to touch really quickly on a prior topic, which is to have a few questions that you ask as pre-screening questions before you ever get to the application.
For me, that’s smoking, pets, income, and move-in date.
CL: So the potential applicant has already been asked those questions by you and they responded in such a way that you’re willing to proceed further and that you would be showing the place to them and potentially accepting an application.
ES: Exactly, yup.
CL: Another good point about telling them what you need upfront is if they submit an application but have not submitted certain parts of it, like they didn’t upload their pay stubs or they didn’t know that they were supposed to do that kind of thing, then it just delays that application process even further. Then you’re waiting, you’re going back and forth, and then you’re waiting for them to get their documentation in order and upload it to you. And meanwhile, you could be losing other potential applicants while you’re waiting.
So it’s a good idea to let them know what’s expected, so all of that is there upfront when they’re ready to apply.
ES: Exactly, yup.
Rental History
CL: So next in our criteria checklist, we talk about rental history. Have they provided a certain amount of rental history, how many years of rental history that you think is important?
ES: I ask for three years.
CL: Three years or two years, whatever it is. And that’s the thing with this checklist, is a lot of these specifics you can alter to fit whatever you think is more important. In some cases, some landlords might want to see three or four years, some are okay with seeing only one year of rental history.
ES: In practice, I get a lot of applicants who have spent some of that three years living at home or in some kind of informal arrangement. So I don’t say that I have to have the records for three years and it has to only have been a rental situation.
I just require the history. I do say at least one landlord who can be reached as a reference because I rely fairly heavily on being able to reach references. Somebody who you can just get a sense from about what it’s like to deal with this person.
CL: We also look for things like whether they’ve got prior evictions, whether they’ve received complaints from other residents, landlords, or property managers, things like that. Again, you can alter that to what’s important to you. But for us, I want to know if that applicant has been a good tenant or not. You know? So, like you said, getting landlord references, things like that.
ES: I do specify that I want to be able to reach two references, and that can be a combination, if rental references aren’t available, of an employment reference, sometimes personal, although that’s subject to kind of fudging on their part, so I don’t like to. That’s my standard that I communicate is that I like to have two references.
CL: Along the lines of when you’re checking those references, you’re asking those previous landlords about whether they had complaints against them or whether they paid their rent on time. Did they take care of the property and abide by the terms of the rental agreement? Things like that, that I look for when I’m checking on their rental history.
ES: Right. I don’t think you do it, but I’ve got a set of questions that I communicate to the applicant that I’m going to ask their rental references.
So they include what I call financial obligations, I don’t just say rent. It can be utilities and fees of some kind, it could be late fees, for example. So I leave that somewhat general. Complaints from tenants or neighbors or past property managers. I do ask about whether or not they have pets or they’re smokers so that I can verify whether what they’re telling me on the application is accurate. Any illegal activity, did they leave the property in good condition? Kind of a standard is would you rent to the applicant again? I ask that. I think it’s kind of silly because the answer I always get is, “Well it depends,” which is basically what I’d say. So I kind of understand that. That’s the gist of the questions that I ask.
CL: Well, I’ve had some prior landlords answer that question like “Absolutely yes.” You know, in a heartbeat. They can say good things about them. So we’ve looked at their rental history and then we move on to their income requirements.
Income and Employment History
This is where we lay out, and this is what I do tell all applicants as well, is what kind of income requirements we’re looking for. Whether that’s a certain multiple of what the rent is, like in my case I require at least three times the rent. Income to rent ratio at least three.
ES: That’s gross income, right? You use gross income?
CL: I use gross income, yeah.
ES: Yeah, so do I.
CL: I ask has the applicant been employed continuously? The past again, x number of years, whether it’s two years, three years, five years. If not, what are the circumstances? Again, like you said, I’m not requiring them to have been continuously employed in that period of time. But I wanna know. Yes or if not, then what the circumstances were.
ES: That touches on something. Where there’s a judgment call, like in Seattle, we are required to tell, as part of our advertising, potential tenants, potential applicants, what the criteria are for acceptance. So that, “if not, why?” question I think is good practice. But in general, I’m not sure about it in Seattle.
CL: So you might need to say, you know, that the applicant has been employed continuously for the past 12 months or something like that. You might need to come up with a hard deadline or something like that.
ES: Right. Which I don’t like to do because I want to give applicants who have gone off and traveled, done something interesting and enriching, an opportunity just the same, and not have to discriminate against that. That’s the problem with all these rules. But, you know, people make them with good intentions, but there are issues around them. So, anyway. You do a debt to income ratio standard, right? I do things a little differently, but how do you do that?
CL: You can have, along with a credit score requirement, which we’ll talk about, and that’s our next section. When you talk about income to debt ratio, you’re looking for an income of at least two and a half times your debt or three times your debt, things like that. So that you know that they’ve got enough money left over after they’ve paid off all their other obligations that there’s still money left over for rent.
Ideally, and I’ve emphasized this to some tenants, is rent comes first, right? Ideally, and then your other debt obligations. But obviously, that’s a choice that each person has to make on their own.
ES: Yeah, I approach it a little differently, although I think maybe I like your approach better. I may change, but what I say, and I say it as a pre-screening question, I say, do you make at least two and a half times the rent after any significant debt payments? So that leaves it subjective. Your way of doing it is objective. You know, do you have what it is, a 25% or lower?
CL: Yeah, so a debt-to-income ratio that does not exceed 20%.
ES: That’s, that’s a calculation and I do think that’s easier and less prone to problems. I think I may convert how I do that.
CL: I also ask for pay stubs. I wanna see, and they can upload this with their applications, but I’d like to see at least two months of prior pay stubs. Some people ask for more, and if not, if they don’t have pay stubs, then tax returns or bank statements, things like that.
Employer References
ES: Do you contact employer references?
CL: I do. I contact their current employer just to verify. And again, some employers are more forthcoming than others, some make you go through their HR departments and all they will do is verify that the person is actually working there.
But yeah, I want to know that what they’ve told me, as far as where they’re working, whether it’s full-time or part-time, roughly how much they’re earning, whether it’s a monthly wage or hourly wage or a salary. That what they’ve told me is true and correct.
ES: Right and most employers will answer, is this correct type of questions. So, that’s the way I do it too. And usually what I say about the income level is that so-and-so has told me that their income level is in this ballpark. Is that in the ballpark?
Most times, an employer will answer that question. And that gives you what you need to know, right? So, Yeah.
Credit Reports
CL: Like we mentioned, we wanna see credit reports as well. And so that comes with the application process. I use a third-party screening service where the applicant will fill out the application online and pay the screening service themselves. In my case, I use ApplyConnect. I know Eli, you’ve used Avail and you like to use Avail. They all do the same thing, right? They ask for certain information, they verify that the information is, to the best of their ability, that the applicant’s knowledge is correct. Then they submit it and in minutes or whatever, we get results.
Part of that is their credit report, either through TransUnion or Experian, or one of the major credit bureaus. But in the criteria checklist, I specify what that credit score minimum needs to be. And that’s one thing that’s, again, is sort of one of those hard and fast numbers, that they gotta meet that minimum in order to proceed. In my case, generally, I set that at 620, depending on the property.
Also Read: Top credit screening services for landlords
ES: And you decided on that because you talked to a friend who’s a mortgage broker.
CL: Yeah, I talked to a mortgage broker, to a lender. He spends all day, every day, looking at credit reports and in his opinion, 620 was a number where if you’re below it, you know, be careful, you’re above it, generally pretty good qualifications. That’s the number I use. But again, anyone can change that to whatever you like.
ES: Yeah, I set mine at 650. Again, sometimes I’d like to be able to accept somebody who’s lower, higher is great, but sometimes they’re people who got out of school. The income or the student loans hit like a ton of bricks. And you know, they had a while before they were on their feet with employment that would cover those costs. It’s nice to be able to be subjective, but increasingly, we have to be objective. And that’s why we have to pick a number.
CL: Yeah, exactly. And along the same line in the credit report, I believe they’ll show if you’ve had evictions or bankruptcies or anything like that. I do say no prior evictions, bankruptcies, I believe stay on the record for seven years.
It’s one of those things that there may be mitigating circumstances. In some cases, particularly in Seattle, where you have to have that minimum criteria. If they don’t pass that, you know, if you lower your criteria for one person, you gotta lower it for everybody. If you’ve had previous applicants that you’ve denied, then you would have to go back and offer them the opportunity to apply with the new criteria.
ES: Yeah, that’s explicit here. You have to think about how you have to do that. So not every place is as restrictive, but there are more and more regulations everywhere. There’s a growth in in landlord-tenant regulations.
CL: So because of that then it’s really important to have that criteria really thought through in advance. So that when it does come time, when people are pushing those limits on your criteria or not meeting the criteria, that you know what you have to do. What the ramifications are, I guess.
ES: I include no more than three late payments in the last three years. I mean, things happen here and there. Late payments that actually make it to a credit report are not a good sign, cause generally there’s a grace period in there. I also require that they be up to date at the point that they’re applying. I don’t like to see being in arrears, being behind on payments as they’re applying, I wanna see that things are going the right way.
CL: Yeah, exactly. Maybe they’ve made mistakes in the past, but they’re beyond that.
ES: Exactly, yeah.
Criminal History
CL: Next in our rental criteria checklist, we do have a section on criminal history. Criminal criteria. That’s a sticky one. Here, in Seattle, we cannot check for that at all. The beauty of using these third-party systems, the ones that specifically say that they are valid for every state and every local jurisdiction. In my case, when I use Apply Connect, they don’t even show me what the criminal history is.
ES: Same with Avail.
CL: We can’t ask and so we don’t wanna know.
ES: Yeah, if you don’t get it, nobody can accuse you of using it.
CL: Right. Exactly.
ES: Which is actually now the criteria, in Seattle. You can get it, but you can’t consider it.
What we do get is sex offender history. You’re allowed to use that as a criteria. I think that’s the only case where you can use criminal history as a factor.
CL: Right. If you’re in a place that does allow for looking at criminal histories and allows you to make a judgment based on their criminal history, that’s a section that you would include in your criteria checklist. You would outline what things are acceptable to you and what things are not.
Whether it’s okay if you got a misdemeanor, versus a felony. Or whether it’s, whatever. Whatever you deem is acceptable criminal history.
ES: Tricky.
Additional Criteria
CL: Yeah, again, be clear and explicit on what that is. Lastly, we’ve got other criteria. You touched on this before, Eli, about asking about pets. We’ve talked about how many residents are allowed to live in the unit. Again, some places have rules about that, or if you’ve got your own rules about how many people you’ll accept in a one-bedroom.
Also Read: Emotional Support Animal Housing Laws: A Landlord’s Guide
ES: Yeah. Here, we don’t get to dictate an occupancy level. So what I say is that the occupants must be less than or equal to the maximum number allowed. Which is a lot here. Probably other places will allow you to dictate how many, but we can’t do that. Also—sorry, go ahead.
CL: I was gonna say, other questions in this category, I ask, does the applicant smoke? I even go on to ask, was the applicant on time for all scheduled appointments? That means a lot to me, if they’re prompt or if they respect my time or not. I can have that in the criteria. If they’re a no show, when we’ve scheduled a time to show the place and they don’t even show, or they don’t call or let me know they’re gonna be late or whatever. And then they come back around a week later and apply. I’ve got it explicitly stated that you were a no-show without any advanced warning, that you’ll not be considered.
ES: Right. I think it’s a good objective way of doing things. I do make a note about being late without notifying me. A no-show is a no-show and that’s not okay. Some people say, did you take your shoes off when you got there? I’ve heard people use that one. I don’t use it cause I don’t always do it, and it’s not necessary all the time.
CL: Yeah. And along those lines, I’ve heard people ask, did they follow all stated rules and regulations? If your building has signs posted, you know, no parking even signs and they park and the no parking spot. That can say things about that individual.
ES: So you can do yourself out of any qualified tenants if you’re not careful though. You get too picky, if you say did they take their shoes off, and they didn’t, then you, they’re just qualified, you can shoot yourself in the foot.
CL: Yeah, definitely. So again, with anything else in this criteria checklist, you can modify any of it to your own stated preferences, but again, it’s important to think it through and know what you’re looking for and what is a disqualification in your book.
Once you’ve come up with that, and you can change that, maybe this time around you stated a credit score of 620 and you didn’t get very many applicants. Next time around, at your next vacancy, you change that to 600 or whatever it is. That’s something that you can constantly adjust for each future vacancy. It is important to have it, to think it through, and then to use it and follow it. Protect yourself from any claims of discrimination and to not allow yourself to get fooled by a good story or someone who’s got a lot of charisma that can convince you of why this and why that.
ES: It makes your life simpler. One note on the other criteria. You touched on no smokers and it’s a tricky one because the application usually says, are you a smoker? Right? But then, smoking addenda often say no smoking on site. So I try to be extra clear both in pre-screening as well as the application process. Avail lets you customize both pre-screening questions as well as questions on the application, which I like.
So I say, do you smoke? In any substance, in any form. I’ll go on to say including vaping. Cause I don’t want people who are wiggling, “Oh, I only smoke outside.” We’ll get into it another time. I’ve got this going on right now and I’m trying to figure out how to navigate it. So, tricky.
CL: Yeah, it’s tricky. And again, yeah, you’re right. You can outline all that upfront and your expectations are clear and your own expectations on yourself are clear. You know what’s acceptable to you and what’s not in advance. Then it does make it, hopefully, a little bit easier down the road when someone does try and pull something or if they try and get around something, that you’ve got it explicitly stated.
ES: Exactly. Yeah.
CL: That’s basically the gist of our rental criteria checklist. It sort of outlines the major things that we’re looking for and then comes up with specific qualifications and specific minimum criteria that you need to look at and that the applicant knows upfront as well.
ES: Yeah, streamlines things, makes for better decisions. More transparency for everyone makes things run smoother.
CL: That’s where we are with this video. In the future, next ones, we’ll then talk about when you do receive that application and your screening reports and how you go about accepting or denying applicants. As we continue getting your apartment filled. So check back again, subscribe to this channel and you’ll be notified when the next video comes up. Share it.
ES: Yep. Thanks for watching. See you next time.
CL: Bye.
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