Tenant screening: Flags to watch out for in rental property management
Picture this. It’s February. Lease sign-ons are sluggish, and profits have dipped. Eagerly wanting to get tenants through the door, your team skips key tenant screening steps. A few renters have moved in, and everything has been going well for a while. At least, that’s what you thought. But now, the cracks are starting to show. A few tenants refuse to pay rent, and you get daily disturbance complaints. Worse, one tenant moved out, taking your furniture with them. The other has pulled a Houdini, but not before turning their unit upside down. 😔 If you’ve ever experienced something similar, you’re not alone. In 2022, 85% of landlords said they were rental fraud victims, up from the 66% pre-pandemic level. Also, 52% of landlords say disruptive tenants are now somewhat or extremely common. So, it’s not surprising evictions average 2.6 million a year, costing landlords thousands in legal fees. But don’t worry. In this article, we’ll cover the issues property managers and landlords face in the changing rental property management landscape. We’ll also reveal the red and yellow flags to look out for when screening tenants. Plus, we’ll cover hassle-free ways to structure your tenant screening process to secure better residents. Common tenant screening challenges Sophisticated fraud schemes 👀 As technology advances, fraudsters have developed more cunning ways to deceive landlords and property managers. The issues start at the beginning of the rental process, with plots ranging from criminals using falsified rental applications, pay stubs, employer verifications, and stolen identities. Savvier tenants backed by law👩⚖️ Today’s tenants are more informed of their rights and have increasing legal protections. While these changes can have positives, they can also make it harder to manage problematic tenants who know how to exploit loopholes. Take New Jersey’s law on evictions, for example. Landlords can’t evict or force a tenant to vacate the property without probable cause. This allows tenants to stay in their unit until their tenancy ends, provided they don’t break any rules. A volatile rental market 📉 Economic fluctuations and housing crises impact your company’s pockets, but they also affect your tenants’. As a result, renters’ behavior can become unpredictable. For example, you could experience tenants becoming more transient. Residents could also want lower rates than typical and be at higher risk of rent payment arrears and defaults. You’ll need to adapt continually to stay on track with your occupancy and revenue goals. 7 Tenant screening red flags for rental property management🚩 Red flags are serious warning signs that a potential tenant is bad news. Spotting these tell-tale signs early on is critical to protect your rental property management business from wasted time, money, and stress. Let’s run through a few of them. Red flag #1: Previous evictions If a prospective tenant got the boot from previous landlords for significant issues they caused, you could have a problem on your hands. These scenarios could look like a renter evicted for non-payment or disturbing the peace. Red flag #2: Unsteady or unverifiable income Have you found inconsistencies in a potential tenant’s income frequency, or can they not prove their declared pay? It’s time to hit the “Stop” button. 🛑 If their income is questionable, the security of your revenue and profits will be, too. Red flag #3: Frequent payment issues Say a tenant has built a reputation for failing to pay rent or other bills. Well, this habit could signal future problems. If the potential tenant’s credit score shows many late payments for bills or the previous landlord shares that it was an issue, this is a major red flag. Get this: 73% of landlords say late rent payments are somewhat to extremely common. Red flag #4: A checkered past, a.k.a., criminal history 👮 While it’s important not to discriminate, checking a potential renter’s criminal background for actions that could pose safety or security issues is essential. For instance, if a tenant has convictions for violent crime, terrorism, drug offences, or fraud, don’t ignore this information. Look into parole terms and recent activity to determine whether they could pose a threat. Red flag #5: Gaps in rental history This issue may not seem like a red flag. After all, a tenant could have gaps in their rental history due to time living abroad or with family. But this is a bad sign if your investigations uncover reasons like time spent incarcerated for serious crime or non-payment leading to eviction. Red flag #6: Multiple recent addresses 🏘️ While “variety is the spice of life,” constant address switching can suggest a tenant has difficulty maintaining stable housing. A long-term tenancy is also unlikely. Considering costs for things like wear and tear maintenance, having high tenant turnover can lower profits, so it’s a “no” for such renters. Red flag #7: False documentation and information Shady documentation and information, whether fake references or shady employment details are serious red flags. Such moves could be the start of a fraudulent plot that will put your business at risk. One out of eight rental application documents is fraudulent. 6 yellow flags in tenant screening for rental property management 🕵🏻♀️ Yellow flags aren’t as severe as their red counterparts, but you’ll still need to do some further digging and proceed with caution. Here are a few to look out for. Yellow flag #1: Poor credit history 💳 While not as bad as an eviction, a poor credit history can signal a lack of financial savvy, inexperience, or irresponsibility. So, looking closer at reports for signs like late payments and young credit history will help you distinguish which one you’re dealing with. Yellow flag #2: Limited or no rental history New renters may be model tenants, but they still pose a risk to your business since there’s no track record to assess. So, you may need to do some more checks and put in place security measures. For example, if you’ve got a recent graduate trying to secure their first apartment, you could use higher deposits, guarantors,
