Need to Know!

How to Develop Landlord Rental Criteria

September 20, 2012 11:08 pm

paper house and key with Magnifying Glass, House hunting on wooden backgroundExperienced rental property owners and managers understand the importance of rental criteria – developing and consistently applying that criteria as part of the tenant screening process.  They know that doing so protects their investment by:

  1. Reducing the risk of credit loss (bad debt)
  2. Reducing the likelihood of damage to the property
  3. Protecting and retaining good residents.

At the same time, the prospect of developing criteria from scratch might seem a bit overwhelming.  Well, it doesn’t have to be!

The process goes like this:

  1. Select areas of consideration – those things you wish to consider as part of your tenant screening process.
    a.  Credit history
    b.  Rental history
    c.  Employment
    d.  Income
    e.  Public records (criminal & eviction history)
  2. Decide what will result in “denial of tenancy”.
  3. Establish thresholds for unconditional “approval” – applies when the applicant meets or exceeds thresholds in all areas.
  4. Decide which forms of conditional approval you will use.
    a.  Approved with Increased Deposit – applies when applicant falls short of Approval threshold in one or more areas of consideration.
    b.  Approved with Cosigner  – applies when income falls below the income threshold (in lieu of an increased deposit)

Tenant credit or background checks are generally configured to support selected areas of performance and will include some or all of the following:

  1. Credit Report (with or without a score)
  2. Criminal Records Search
  3. Eviction Records Search
  4. Employment & Income Verification
  5. Rental References

A note about credit scores:  Credit scores are in many ways blunt instruments when it comes to screening prospective tenants.  Credit scores are designed to measure credit risk.  Strictly speaking, landlords do not extend credit.  Nor do scores take into account rent payment history – perhaps the most important predictor of future behavior.  Many with marginal credit have solid rent payment histories.  While scores do take into account rental related debt or judgments, they also take into account medical collections and student loan debt – neither one of which is a particularly good predictor of rent payment behavior.

Since that the goal is to approve (not deny) applicants – and since credit scores are of questionable relevance when conducting tenant credit checks – a look at the credit detail is arguably a better approach.  That said, perhaps the most intimidating step in this process is establishment of thresholds for credit.  Well, it doesn’t have to be!

Visit MyScreeningReport.com to access a free Rental Criteria Worksheet. This simple tool includes sample criteria (for a frame of reference) and a step-by-step tool for developing your own – tailored to your property, risk tolerance and occupancy goals.

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