Landlording A-Z

Setting Tenant Selection Criteria

This is where you decide how you’re going to choose your tenants. Being intentional and specific about what characteristics you require will help ensure that you end up with reliable long-term residents. Creating tenant selection criteria also makes it easy to decide quickly whether to accept or deny an applicant. It also ensures fairness when selecting tenants.

Here are the factors landlords often use to select their tenants: 

  • Employment Status: Decide whether you require regular W2 income, and what documentation you require if applicants are self employed, contractors, or have other forms of income. We look for tenants who have at least 3 years of employment history.
  • Income: Many landlords choose a 3:1 ratio of gross income to rent. We like to use a debt-to-income ratio. This could be a debt-to-income ratio not exceeding 20% of the applicant’s income 
  • Income Documentation: W2’s, paystubs, job offer letters, bank statements, etc. 
  • Credit History: We generally require a minimum credit score of 650, no current delinquencies, and no more than 3 late payments in the last 3 years. 
  • Criminal Background: Not allowable in certain places, like Seattle, though sex offender status is.
  • Eviction History: It’s a good idea not to accept someone with an eviction history unless it was long ago.
  • Bankruptcies: We also don’t accept applicants unless it’s been over 7 years.

Keep It Legal

First and foremost, make sure you are not choosing, or denying, applicants in violation of HUD’s Fair Housing Act, which protects people from discrimination based on: 

  • Race 
  • Color 
  • National Origin 
  • Religion 
  • Sex (including gender identity and sexual orientation) 
  • Familial Status 
  • Disability 

Also make sure you know your local laws. Some cities now make it illegal to consider criminal background when evaluating applicants, for example.

internal link Also Read: How Can Landlords Avoid Discrimination in Tenant Screening?

Verified Identity

You’re going to want to make sure that any applicant is able to verify their identity. The nice thing about many property management software products is that they request an image of a government-issued photo ID by default. Make sure that the applicant matches with the photo that is submitted.

Verified Rental History and References

You should also be able to verify past rental history. We generally ask for 3 years of rental history. We’ll also check references and ensure that I’m able to get ahold of at least 1.

internal link Also Read: Choosing the Best Questions to Ask Rental References

Smoking

Next, you should decide what your rules are around smoking. For example, Chris specifies that no one who lives on the property can smoke or vape any substance in any form inside. If it’s outside, he’ll specify that they must be a certain distance away from the property. Eli chooses to not allow smoking at all. So during the prescreening process, he’ll ask if anyone smokes.

Co-signers and Guarantors

In the event that an applicant does not meet your set criteria, consider whether you will accept a co-signer or guarantor. For example, students and college graduates may not have the income or history necessary.

Decide how you will treat guarantors. We have them fill out an application and submit screening reports just as if they will be a tenant, and they must meet our selection criteria. Make sure to use an appropriate form to make their commitment legally binding. 

Takeaway

The trick to setting rental criteria is deciding what factors actually help you choose applicants who will actually turn out to be good tenants, while at the same time not making your standards so strict that no one can actually qualify.

When it comes down to it, setting rental criteria ahead of time helps you be clear about what you feel is important in selecting a tenant. With that road map in hand, you then have the option to follow it to the letter, or consciously decide whether a particular tenant or situation warrants making exceptions. One caveat though — in a “first-in-time” location such as Seattle, we are required to include rental criteria in advertising, and to accept the first person who meets those criteria. In this situation, it is possible that making exceptions in some cases could lead to trouble if you deny someone and they later show that you have been inconsistent in applying your criteria. (Talk to a lawyer!) 



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About Eli Secor

Eli Secor, Co-Founder, Landlord Gurus Eli purchased his first rental property at the age of 20, a fourplex in Gold Canyon, Arizona. He was lucky to have the advice of a shrewd real estate investing grandmother, as well as special incentives for first time buyers following the savings and loan meltdown in the late ‘80’s. In 2004 Eli and his wife purchased their first property together, a triplex in Portland, Oregon. The neighborhood was improving, light rail was coming in, and the property needed a significant rehab. They traveled back and forth from their then home in California, improving and managing the property. Eli did a full remodel on the biggest unit, living in the construction zone while doing so. The property has been cashflow positive since day one, and is now worth 3-4 times its original purchase price. Eli has been involved in residential construction since 2001, having remodeled several houses from top to bottom, rehabbed or improved rental units, and built his family’s primary residence. He leverages his knowledge of buildings to improve and maintain rental properties cost and time-effectively. Since 2007 Eli has been managing property in Seattle for family members, and now oversees 20 apartments and 3 commercial spaces. He has a great handyman, who helps make repairs, maintenance, and improvement smooth and easy. Otherwise Eli is a DIY landlord, and single contact for all of his tenants.When Eli isn’t managing rental property he is working on home projects, sailing, mountain biking, skiing, or spending time with friends and family. Once or twice a week Chris and Eli get together to run their dogs, Lola & Peanut. These meetings do double duty as Landlord Gurus planning sessions!Credentials: - BA in History from Whitman College - General Contractor (Ex) - USCG Licensed Captain (UOPV Six-Pack)
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