How To Legally Qualify A Tenant

Posted on: 13 January 2016

When a landlord brings in a new tenant, they take the risk of the tenant not paying rent plus losing time and legal fees in the eviction process. Some landlords may try to choose tenants based on a gut feeling, but this is both a bad business practice and something that could leave them open to accusations of discrimination. To select well-qualified tenants, perform the following checks.

Income Verification

Common real estate thinking is that a tenant should make at least three times the rent to be able to afford a rental. One of the easiest ways to verify this is through a W2 and phone call to their employer.

To verify self-employment income, bank statements should be used. In addition to regular deposits, look for a large cash balance, perhaps worth 6-12 months worth of rent, to ensure that they actually have adequate funds and aren't simply shifting money around.

Credit Check

A credit check will show past debts such as unpaid rents or other obligations that may impact a tenant's budget and reduce their ability to pay rent. Many landlords aren't necessarily looking for a high credit score but a lack of negative history.

General guidelines should include late payments being few, far between, and not within the past few months. Large credit card balances could be a sign of an inability to meet monthly expenses.

While bankruptcies may damage a credit score, they should be of minimum concern to a landlord. If the tenant has current, stable employment, the bankruptcy only means that they are no longer burdened by high debts.

Reference Check

Always contact a potential tenant's last two landlords. Ask about things like on-time payment history, property damage, and complaints from neighbors about disturbances.

The reason for contacting the last two landlords is simple. The current landlord may alert you to recent problems, or they may neglect to inform you about problems so that the tenant becomes your problem instead of theirs. The landlord before that is your backup in case the current landlord neglects to tell you about ongoing problems with the tenant.

Things to Avoid

You cannot deny a tenant for having children, not being single, or having too many people in their family. The only exception is if the fire code sets a limit on the number of occupants.

Federally protected classes such as race, religion, and national origin cannot be considered in your application process. Also check local laws for other limitations such as discrimination based on sexual orientation.

To learn more, contact a local property management company today.