Please note that this post is an excerpt of the webinar hosted by our sister company, The Landlord Code, where our co-founders coach DIY landlords how to avoid problem tenants and maximize rental profitability. Get access to more training like this in our (free!) private Facebook group HERE.
Today, we’re going to be talking about how to avoid problem tenants. And it starts with the application screening process. We’re going to go through three things that we’ve used in our business that have contributed to us managing over a billion dollars worth of real estate with less than a 1% eviction rate.
Number one: The first step to avoiding bad tenants through your screening is to always, always, always pull your own credit report. Do not accept a credit report supplied to you by the applicant. It is far too easy to forge these in today’s day and age. We’ve seen forgeries from as long as 10 years ago. And along the lines of having pulling your own credit, have an established credit score criteria. For us, we use a credit score of 700 or higher because in our experience, people who have maintained a score of 700 or higher have shown a willingness to pay their bills on time and are financially responsible, Especially in today’s environment. You need to ensure that this is a tenant who has not only the ability to pay their bills, but a willingness to repay their bills.
Number two: Have a set criteria for income and income verification.
For us, we use a gross household income of three times the monthly rent. And we have a two point verification system, which means, we require both a paper and a person reference. By paper, we’re going to want to see the pay stub, the tax returns or six months of bank statements, whatever that applicant is providing to show and verify that they earn the income that they state they do.
In addition, our team is going to back that up by making a phone call to an actual person. So if it’s a pay stub, you’re going to call the supervisor. If they’re using their tax returns, you’re going to call their CPA and verify that basically you want to use a two point system. We call it paper and a person And you do want to avoid accepting any P and L’s that come from QuickBooks or Excel because those can be easily manipulated to show the numbers that you need to see to show that applicant is qualified.
Number three: Make sure the addresses on the credit report and application correspond. If there are gaps, if there are things that don’t ‘make sense’, these are red flags that you want to avoid at all costs. If a tenant or if an applicant is trying to hide a previous landlord and a previous landlord reference the easiest way for them to do that is forge the dates and just leave those addresses off of their application.
But if you’ve checked the references from the credit report that you pulled, you will spot any possible address gaps and be able to ask questions from that applicant. And here’s a bonus tip: Leave the emotion out of it. Especially in today’s time where there’s a lot of things going on in the world, people are going to have stories, but you really want to just focus on your established criteria,
and stick to the numbers because they are going to be what is going to dictate how that tenancy is going to flow and the ultimate success of your journey as a landlord and your experience with owning this rental property.
Now, we would love to hear from you. Do you have a screening tip that our audience should hear? Do you have something you’ve been doing well over the years that has just crushed it for you and and your results? Or if you made some mistakes, maybe a mistake you’d like to share, drop it in the comments below. We want to hear from you.