This article is an excerpt from the Shortform book guide to "The Book on Rental Property Investing" by Brandon Turner. Shortform has the world's best summaries and analyses of books you should be reading.
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How do you screen tenants for rental property? What makes a tenant reliable?
Screening is an important part of the renting process. When researching tenants, you need to do a background check, check with past landlords, and confirm how reliable they are.
Let’s look at how to screen tenants for rental property.
Screening and Accepting Tenant Applicants
For Brandon Turner (The Book on Rental Property Investment), learning how to screen tenants for rental property is everything. Follow an initial application form with a background check, focusing on criminal records, bankruptcy, and evictions. Call the person’s current boss and prior landlords to confirm their monthly income and past rental behaviors.
(Shortform note: It’s possible to find background check services with a quick online search, including those that search credit histories, eviction histories, and criminal records. Alone, each of these checks typically costs between $25 and $75—however, some services allow you to save money by bundling checks together through an upgraded package or premium access to their service. These services may not have income and rental behavior data, meaning approaching a person’s boss and landlord might be still necessary.)
When rejecting an applicant, Turner recommends knowing local discrimination laws to avoid appearing biased against certain attributes or communities. To ensure fairness, accept applicants in order of submission, and always provide written reasons for any rejection to circumvent claims of bias.
(Shortform note: Most housing anti-discrimination laws in the US stem from historical legislation of the 1960s, principally the Fair Housing Act of 1968. This came on the heels of the Civil Rights Act of the same year, which was aimed at helping end widespread racial inequality in parts of the United States. In 1988, the Fair Housing Act gained a significant expansion in the demographics it shielded from bias, growing to include disability and family status protections. Currently, the law prohibits any discrimination of potential tenants based on race, color, sex, religion, or nation of origin, along with the two criteria just mentioned.)
When you accept an applicant, insist on a holding deposit, which obliges them to put down a lump sum of money as a good-faith gesture while you reserve the unit for them. Turner notes that this covers your costs in the event that the applicant ultimately moves elsewhere.
(Shortform note: Just as with leases and many other documents establishing tenant-landlord relations, holding deposit agreements are subject to widely varying state and local laws. As a general rule, though, the law tends to favor the would-be tenant in cases where the terms or execution of the agreement come under scrutiny. Be sure to consult those laws as thoroughly as possible before drafting your terms—this is a good spot for your lawyer to jump in, too.)
Also, find the right kind of lease agreement for your tenants. Turner explains that you could opt for yearly leases in places where you have quality tenants you wish to retain. Alternatively, you may opt for monthly leases if tenants are harder to manage, thus leaving open the option of removing them quickly. Six- or nine-month leases are helpful for avoiding lease terms ending during holiday seasons when you could have more trouble filling the vacancy.
(Shortform note: Another reason to opt for a six- or nine-month lease is that it can allow you a trial period to see if a tenant is right for your property. It’s less binding than the one-year option, especially in cases where the tenant proves not to be a long-term candidate. Simultaneously, it helps reduce the turnover costs that typically accompany having too many tenants come and go under month-to-month arrangements—for instance, the diminished rent that comes with vacancies.)
Before handing over the keys, Turner continues, perform a walkthrough with the tenant, documenting the property’s state with a move-in condition report. This makes it easier to identify damage inflicted by the tenant when they eventually move out.
(Shortform note: If you prefer, you can draft your own version of the move-in condition report. One of the popular formats is a simple checklist of each individual item, including fixtures and pieces of furniture, with columns detailing the property’s condition both at the beginning of the tenant’s residence and when they move out. Consider adding some empty space at the bottom of the list to add additional notes.)
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Here's what you'll find in our full The Book on Rental Property Investing summary:
- An educational guide to locating, buying, and managing real estate property
- The major pitfalls new investors encounter and how to overcome them
- How to hunt down, select, finance, and purchase your first property
