Tenant Underwriting

Bob bought an income investment property and moved in tenants on a year-long lease… but within three months of signing the lease, the tenants stopped paying and Bob had to learn the painful process of evicting a tenant.

Don’t be like Bob.

How could Bob have prevented this headache? The answer is: “Tenant Underwriting.” Underwriting tenants is an important skill that all income investors need to master if they want to be a successful income investor.

What is Tenant Underwriting?

Tenant underwriting refers to the step by step process that investors or property managers use to assess the eligibility of a tenant to effectively pay the rent on time and not default. Tenant underwriting is a three-step process that helps quantify the risks associated with a potential applicant so that you as an investor/manager can make the best decision for your vacant rental unit. Those three steps are credit, income, and criminal history. Let’s look at all three…

1.) Credit:

Pulling a credit report is fairly typical for landlords, providing information associated with an applicant’s basic information and their credit history associated with credit cards, car notes, mortgages etc. A credit report helps creates a FICO score, which can be used to judge their credit-worthiness. It is important to pull the credit report for all tenant applicants who are over the age of 18 and will be going on the lease as the Lessee. The credit report will help give you a better understanding of your tenant payment history and attitude towards payment obligations.

When analyzing a credit report, you are looking at the following pieces of data from the reports:

Median FICO Score

The FICO score is a numerical representation of the tenant payment history associated with the scores provided from three agencies Experian, Equifax and Transunion. You can pull a tenant credit report from various third party agencies including …read more