The Key to Leasing is Tenant Screening

Modern Home for Rent

With the shift from home ownership to leasing brought on by the aftermath of the mortgage crisis, more people see the long-term investment and cash flow potential of residential real estate as a good place to invest their money.

We’ve all heard the horror stories about the “tenants from hell” who fail to pay the rent and destroy the homes they’re leasing. These tenants cost the landlords an untold amount of money from lost income, expenses of eviction, and damage done to the properties.

The real question is, “How do we minimize the risk and avoid the tenants from hell?”  You have to filter out the problem tenants before you sign a lease and let them take possession. The key is tenant screening.

Before I discuss the various screenings, I want to encourage anyone who is considering leasing their property to establish their lease criteria before ever advertising the property. By establishing criteria in advance and not deviating from those criteria, you can avoid most Fair Housing issues.

When processing applications, we try to verify as much of the information on the application as possible. We verify employment and income with their current and past employers. We verify rental history with their current landlord or we can see mortgage history on a credit report.

We then calculate the rent-to-income ratio. We use 30% as our standard. While some people can support higher rent-to-income ratios depending upon their total debt load, we reject any applicant exceeding 30%.

A credit report is pulled on every applicant. The data is used to calculate the total debt load against their monthly income. Our standard is 50% debt-to-income ratio (including the proposed rent).  Once again, we reject any applicant exceeding 50%.

We pull a criminal background check on all applicants. We reject any applicant with a felony conviction within the past 5 years and misdemeanor convictions within the past 2 years.

Applicants are checked against the Office of Foreign Assets Control (OFAC). Applicants on the OFAC list are rejected.

Last we search for past evictions. Applicants who have been evicted within the past 5 years are rejected.

While this appears to be a high standard for applicants, we find that applicants who meet these criteria pay their rent on-time and generally take care of the property.

If you are considering leasing your property, I encourage you to give some thought to establishing leasing criteria and putting a tenant screening process in-place. While this requires some time and thought, it can save you lots of time and money in the long run.

Looking for an experienced and effective property manager in the north Dallas area? Give us a call at 214-227-6626.

Tom Branch, Broker, CDPE, SFR