The tenant screening process is an essential component of turning a rental property into a cash-producing machine. A landlord's earning potential could very well rest on whether a thorough screening has been conducted. For this reason, it is important to avoid these five mistakes when screening a potential tenant.
1. Not screening tenants at all
One of the biggest mistakes landlords can make is to forgo screening potential tenants. Since every new lease agreement carries a certain level of risk, skipping out on this process could deal a major blow. Not screening applicants potentially exposes the landlord to certain risks such as decreased cash flow, a short-term vacancy period, reletting costs, and court costs -- not to mention some unnecessary emotional toll.
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For this reason, not screening a tenant is an absolute no-no! According to Princeton University's Eviction Lab, landlords file 3.7 million eviction cases each year, with the average judgment amounting to $600. While screening a tenant cannot always prevent a potential eviction, it is a safeguard that landlords can use to limit exposure to financial loss and a whole lot of drama.
The safest bet for any landlord is to always screen potential tenants. Doing so can make them more confident in their investment decisions.
2. Neglecting to screen co-tenants
Much like with tenants, not screening co-tenants can cause a great deal of trouble. Co-tenants can be spouses, domestic partners, siblings, cousins, or unrelated persons. Whatever the relationship, when it comes to co-tenants, there is an additional layer of risks, including (but certainly not limited to) the relationship dissolving or the co-tenant simply wanting to end the living arrangement. In any case, landlords should also vet potential co-tenants to mitigate the risk of any potential loss.
3. Failing to comply with state and federal laws
Another major issue that could arise during the screening process is a failure to comply with federal and state laws. Landlords are bound by the Fair Housing Act of 1968, a federal law prohibiting landlords from discriminating against tenants based on race, color, national origin, religion, sex, marital status, or disability. States may have additional protections, which can be found by visiting the website for each state's department of housing.
Additionally, if a screening company is used, landlords should also ensure that it complies with the Fair Housing Act. Some screening companies have come under fire in recent years for creating biased assessments for landlords to use.
When it comes to complying with federal and state laws, landlords must always cross their T's and dot their I's. If a landlord is unsure whether they or the screening company are in compliance, their safest bet is to consult an attorney.
4. Relying solely on tenant screening reports
According to a 2017 TransUnion survey, nine out of 10 landlords use tenant screening reports. Like the Fair Housing Act standards, these reports can contain errors. Many of the reports provide landlords with negative feedback about tenants based on the data received. For example, a report may show that a tenant has been involved in an eviction proceeding, but the tenant may have never actually been evicted. The screening process needs a human touch to get a full picture of the tenant's circumstances.
Relying solely on reports can leave an entire demographic out of the potential tenant pool, so landlords want to make sure they use the report as a tool to inform their decisions.
5. Failing to check references and employment histories
When renting out a property, the ultimate goal is to generate passive income. When reviewing a potential tenant's application, a landlord should always check their employment history and references to mitigate any possible problems. A tenant with a history of unstable employment, one or more evictions, or bankruptcy could pose a risk to a landlord's bottom line. Failing to check these criteria could not only put the landlord at risk but also expose the tenant to a potential eviction and legal troubles.
Landlords should never rush the process when screening tenants. Taking the time to conduct a thorough review of potential tenants can save time and money and prevent a world of frustration.
