One of our lawyers has a favorite quote: “it is cheaper to leave your house vacant than to rent to a bad tenant.” As a landlord, the critical distinction between a property that cash flows and one that does not can often be distilled to this one decision. A good tenant can help maintain the value of your investment; a bad tenant can quickly make you feel like you are on the road to ruin. Selecting a good tenant may seem like a daunting task, but if you are careful and consistent in your prerequisites and your process, the odds are distinctly in your favor.
Have you actually considered what standards are important to you, what identifies a “good tenant?” Each landlord sets their own unique priorities, but how do you DEFINE your critical criteria? As a first point of reference, your requirements should be measurable, and should not run afoul of Fair Housing laws. Your expectations should directly relate to obtaining information helpful in evaluating whether your prospective tenant can and will likely pay the rent, whether they will likely take appropriate care of the residence, and whether they will likely live peaceably in the residence and neighborhood. What information can you obtain that will help you make such determinations? Once you decide your measurements and “benchmarks,” – what distinguishes an acceptable tenant from an unacceptable one – you should create and implement processes that will allow you to apply those standards CONSISTENTLY for each and every prospective tenant.
At Dede’s Rentals in Santa Rosa, for example, we presently set income requirements of at least 2.5 times the rent in combined monthly income, a credit score of 600 or above, and references from present and prior landlords and employers. We verify such references going back five years. While income and credit are fairly easy to analyze – either an applicant does or does not meet those benchmarks – it’s important to ask the right questions of landlord and employer references, in order to obtain useful information and not overstep your legal boundaries. It’s best to ask questions that can be answered with simple, quantifiable responses.
By implementing clear qualifications and systems, every prospective tenant that comes your way will be able to be evaluated on a consistent and standardized basis. In addition, if you encounter an applicant who is “on the fence” due to a minor shortcoming in one or more criteria listed above, you may be able request a higher security deposit or a cosigner – if you have defined circumstances and policies that would allow it, and can explain what would warrant such an increase.
In the course of our application processing, we retrieve credit reports from one or more of the major reporting companies. On occasion, a prospective applicant may offer, with their other paperwork, a credit report that they have reportedly obtained themselves. At DeDe’s Rentals, while we are predisposed to believe every applicant is trustworthy, we do not collect or consider credit reports unless we’ve pulled them ourselves. Although not typical, it is certainly possible that an applicant-provided report may have been been altered, and is therefore not accurate. Furthermore, if we accept an applicant-delivered credit report from any one individual, we have to be prepared to do so for EVERYONE. Our qualification process is based upon the concept of independently verifiable documentation – everything we take into consideration should be be able to be confirmed by someone or something other than the applicant themselves.
Often, credit reports or similar documentation can include eviction reporting, which is tremendously helpful to the decision-making process. However, it is important to recognize limitations that may be inherent to your own state and community. In some states, unlawful detainer filings are reported to credit reporting agencies immediately and automatically. In other states, including California, there are “masking laws.” For example, California CCP 1161.2 prohibits evictions from being made part of the public record for the first 60 days after filing. Some jurisdictions electronically upload judgments to the reporting database, while others do not. It is important to find out from your reporting agency what you reasonably should expect regarding eviction history reporting – how comprehensive and up-to-date is the information you are likely to receive? If there appear to be limitations or gaps, is there another resource or recourse that would allow you to get the full story?
It’s up to you, the landlord. You need to institute a consistent application policy, and to the best of your ability, work strictly with objective and verifiable facts. Due diligence requires it. State and federal laws allow you to be careful BEFORE you allow a tenant to move into your rental property – but those same laws sometimes make it difficult to REMOVE that tenant if you discover you’ve made a mistake. Like our friend Chuck the Lawyer points out, it’s cheaper to leave the house vacant than to guess wrong.
If you have any questions please feel free to contact us at DeDe’s Rentals. We will be happy to help you.