LAX Leader

Screen Your Prospective Renters Like the Pros

This article is contributed by Jesse Sasomsup, President, Earnest Homes

As an owner of a residential property management company for many years in the Los Angeles area, our firm has screened thousands of prospective tenant applications and we have had less than a 1% eviction rate. What is the secret to our success? Property management companies typically run tenant screenings with 3 main criteria which are: (i) Credit scores, (ii) Income, and (iii) Criminal and Eviction History.

Credit Scores

Our credit minimum score threshold is 650. I understand some property owners and managers may seek higher scores, but 650 is acceptable for most management companies. There are some students with no credit history. We considered no credit history as better than bad credit!

Income

The rule of thumb is the prospective tenant must earn 3-times the amount of income compared to asking rent (so-called “Rent Coverage Ratio). However, in some expensive neighborhoods or cities like Los Angeles, a 2.5-times Rent Coverage Ratio may be acceptable.

Criminal and Eviction History

We only screen for eviction and felony charges. Most misdemeanors are acceptable unless they relate to violence such as domestic violence or battery. If the prospective tenant passes all 3 criteria, the chances of you having a tenant paying rent on time are much higher than average. If they failed to pass 1 of the 3 criteria but you feel that they will make a good tenant, you can increase the security deposit or ask for a guarantor that lives in the same state as the rental property to co-sign the lease as a guarantor. You may also ask for stricter criteria for the co-signers such as 700+ credit scores and 5-times the amount of income compared to rent. 

How to Verify Landlord References

Most management companies have the ability to perform a title search on the previous and current landlord but the landlord verification process is always a tricky part of the tenant screening process. Think if you have a tenant you want to get rid of and another landlord called you to say he or she wants to take the tenant away, would you be more inclined to say “yes or no?” We have found that the landlord verification process is always 50-50, so you may have to go with your gut about trusting an opinion from the current landlord reference.

How to Verify Employment

During the employment verification process, if you have a prospective tenant working at a big, “Corporate America” company which can take up to 3-10 days to get an answer, you will probably lose the tenant by then. When screening with smaller companies, you must be extra diligent in making sure you are contacting the correct person because the tenant can also provide you with a phone number of a friend pretending to be a “supervisor” at the job. So, it’s best to always do some independent research to find a company directory if available.

For applicants who are business owners or independent contractors, their tax returns often show lower taxable income than what they claimed on the rental application. Who doesn’t want a tax break?!!

Alternatively, we recommend you conduct due diligence on your own such as adding up deposits from bank statements to see if they match income stated on the rental application, looking up the applicant’s LinkedIn profile, searching for the tenant in the company’s directory, etc.

After conducting your due diligence, we will use all the information gathered to make a decision on whether to approve or deny the tenant's rental application. If you own or manage a multifamily building or any other type of rental property, you will need to use the same set of criteria for screening every applicant in order to comply with Fair Housing regulations. For example, you cannot ask for a 650 FICO score from one applicant and then a 700 FICO score for another applicant. It is important to keep detailed records of your screening process and clearly document the reasons for approval or denial of any applicant. You can now run tenant screening like a pro!

Original source can be found here.