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, and character references. 🏠
Yellow flag #3: Short-term employment
Have you received applications from prospective tenants with zero-hours contracts, seasonal jobs, or short-term fixed contracts? While these are common employment formats, the instability of today’s market may also impact their financial stability. Next, their ability to make timely rent payments could go south. Tenants with short employment durations or frequent job changes may lack the financial stability to pay rent consistently.
Yellow flag #4: Minimal or weak references 📑
Say you have a tenant who meets all the requirements except for references. Despite having past tenancies, they only list friends and family to vouch for them. This situation could be a concern. There’s a chance the previous landlord won’t give them a positive reference, or they’re hiding something negative. It’s best to enquire about alternative references before granting a tenancy.
Yellow flag #5: A high debt-to-income ratio
If prospective tenants shoulder debts like personal loans, car notes, and credit card balances, their disposable income could decrease. All it takes is a job loss and an unexpected bill, and your rent payments are on the line. So, to guard your rental property management company, put in place some protective measures before signing the tenancy agreement. These include flexible payments, co-signers, higher security deposits, advance rent payments, and rent guarantee insurance.
Yellow flag #6: Inconsistent application details ✍
We all make mistakes, so sometimes rental applications have discrepancies. For example, the job start date or applicant name doesn’t match what the prospective tenant said in the interview. If you notice some details don’t add up, it could be an error, but maybe not. So do some further investigation before signing the prospective tenant.
Top tip💡: Pay attention to the details and make a list of common errors to look out for, such as different aliases and (middle) names with various spellings.
Keys to effective tenant screening in property management for rentals 🗝️
You’ll need to take a structured approach to ensure your tenant screening process does your rental property management company justice. Let’s cover some things to do.
Conduct thorough background checks using innovative technology 🤖
When your team already has packed schedules, it’s easy to miss something. Luckily, these days, you don’t have to handle the tenant screening process manually. You can use technology to automate most of the process, from verifying pay stubs to checking a tenant’s history. AI-backed solutions can also conduct mass-cross checks in a fraction of the time it would take a staff member. These features make your company more efficient and, in time, more profitable. Here are some tools to research:
- Application fraud checks: Real Page, Snappt, Orcolus, Resistant AI
- Identity verification: Jumio, Trulioo, SheerID, Telesign, Sumsub
- Tenant screening software: Yardi, Entrata, MRI, Appfolio, Real Page
- Income checks: RentSpree, RentPrep, FirstAdvantage, Innago, and Rentec Direct
Note: Some tools do more than one type of tenant check, so pick the most comprehensive and reliable solution(s)
Interview the prospective tenant and ask for more documentation
We get it. It’s easier to communicate by text or phone and use virtual reality to show properties and close the deal without seeing a potential tenant. But if something sets your antenna off, you’re due for an in-person or virtual face-to-face interview. Conducting an interview will give you access to subtle insights that aren’t obvious on paper so your team can vet more effectively. 📚
For example, an interview could reveal body language and variations in identities or details from those disclosed on the application. face-to-face or virtual interviews can provide insights that aren’t clear on paper. For best results, delve into their reasons for moving, previous tenancies, landlord relationships, income, and expectations.
Top tip💡: Consider visiting tenants where they currently live to assess their living conditions. Unkempt units could be a sign of what’s to come.
Consider a probationary lease for borderline cases
If you aren’t sure whether a tenant will be the right fit due to things out of their control, like limited rental history or credit history due to age, consider a trial run for 3-6 months. You can state terms and conditions to pass the probationary period and offer a regular lease. This could look like on-time repayment, no disturbances, and maintaining a well-kept unit. So, if the tenant fails to compile, you can send them on their way quickly (and legally!). You’ll also have a process to spot and keep great tenants around.
Offer flexible payments through a mobile app 🤳
This solution may not be the first thing that comes to mind when improving tenant screening, but it is an effective hack. Flexible payments through solutions like Flex not only conduct due diligence on tenants but can also close more deals. How? By salvaging the deals, you would have had to decline due to financial infeasibility.
For example, Flex allows tenants to split rent payments into two affordable portions over one month, increasing the odds of timely payments and reducing the risk to your business. We also guarantee rent payments to landlords and property management companies, no matter what. Our solution uses automation, protecting your team’s time by making rent collection faster and more efficient.
The secret to nailing your tenant screening process 🔍
Tenant screening has always been integral in rental property management, but the game has changed. The rise of sophisticated fraud schemes, savvier tenants, and a rocky economy means more is at stake. Your tenant screening must be top-tier from start to finish to shield your business and secure the best renters.
So, invest in innovative and comprehensive technology, train staff to spot fraud schemes, and continually review and update your process as the market evolves. In particular, you can add flexible payments through a rent payments app to accept suitable tenants you would have turned away on financial grounds. Take these steps, and soon, you’ll have a robust tenant screening process that keeps the money rolling in.
Need a hand implementing flexible payments? Chat with us.
