Owning and managing a rental property can be a stressful proposition even at the best of times. Add to that the recent financial strain of the COVID-19 pandemic, and the situation has been unnaturally tenuous – for potential tenants and landlords alike.
The past year, landlords have had to decide how much leeway to allow for exigent circumstances, while tenants have been scrambling to clean up their credit.
Of course, performing applicant credit screenings has never been anyone’s favorite administrative duty. What really matters, though, is whether you can do it effectively.
Are you sufficiently skilled to catch common financial red flags, or do you need to hire someone else to support your efforts?
Rule #1: Generalization Can Help
Although you would be unwise to stereotype your applicants, if you’re renting in a hot spot like a vacation destination or college town, a few generalizations may serve you well as you begin to review the applications. For example, when you receive an application from a college student, you can expect to find very little in terms of a financial history, and that makes it hard to determine whether the applicant can keep up his or her end of the lease.
That doesn’t mean you necessarily ought to turn them down the way you might with an older adult who lacks a credit history, but you should ask for information regarding a cosigner. A parent or other relative is often providing financial support anyway, so you might as well get it on paper.
Rule #2: Don’t Over-Automate
Since they don’t know much about tenant screening, many landlords choose to automate the tenant screening process. That seems convenient, all right, but it can harm good tenants and put your property at a disadvantage.
Because of inaccuracies in the system, automated background screening can confuse applicants with similar names, and freeze out promising applicants who’ve been swapped with those with less-than-stellar financial histories. These processes may also simply be behind the curve, so that applicants who have cleaned up their credit come up with old results.
Luckily, there’s an easy solution to this problem: skip the automation. But what if you don’t feel comfortable doing tenant financial checks on your own? That may be a sign you’re not up to managing your property solo.
Consider employing a property management company to help you with tenant applications and financial screenings, collect rent, and handle other administrative tasks.
Rule #3: Know The Tricks
Many people apply for apartments without the necessary financial capacity to take them on, but that tends to have more to do with the lack of affordable housing than any sort of duplicity on their part. On the other, that doesn’t mean there are no bad actors out there.
Some people are serial rental scammers, so you need to know the tricks they use in order to avoid being trapped in their web. Among the many ways tenants try to trick landlords into accepting their application are: applying as part of a group of unrelated adult tenants (often for a too-small space); providing their own credit reports rather than allowing landlords to call them up; and making a cash offer in an attempt to secure the contract quickly.
Some industry experts have historically held that tenants who are living with family are suspicious, but this has become increasingly common, even among slightly older adults. So landlords should be careful about using this as a criterion for exclusion, if the applicant can show sufficient financial capability.
A lot of background knowledge goes into successful screening of rental applicants. While some landlords have mastered this skill set, many others are ill-equipped.
Therefore be honest with yourself as you approach the process, and don’t be afraid to ask for help. It may be in your best professional interest to get support if you need it, even if it costs a bit of money.