Do you know what tenant red flags you should be on the lookout for?
When you are screening tenants for your rentals, it is pretty easy. You take an application, submit it to a screening company and wait for the results. You have pre-set tenant selection criteria, and you compare against the criteria. You let all the incoming prospects know what you are screening for, and you let them self-screen as much as possible. After comparing the results to your criteria, if the tenants pass, you accept them. If not, you move on to the next applicant.
Fortunately for investors, many landlords do not perform the easiest part of the land lording process. They take in subpar tenants, let the tenants put undue strain on the property, and they trade deferred maintenance for profit. At some point, the maintenance can no longer be deferred, rent collections suffer, and other investors come to their aid to buy the property for pennies on the dollar.
All tenants have to meet the criteria, not just the financially responsible one. Not every read flag is a deal killer, but some are. Remember, you want a low-risk tenant to make the highest profit. Generally, all these red flags will show up in a tenants income, or credit score, even if the red flag is unrelated to those two.
Some things that you need to screen for and look for are the following.
Important Red Flags to Watch Out for When Screening Tenants
Make no mistake, if your tenant does not have enough income, you will be stiffed sooner or later. A larger deposit helps, but will not make the difference between profitability and losing money if you have to evict or cause a move out.
A tenant needs at least 3.5x the rent in income to make it affordable. You need affordable housing. I do not care if you are renting for $5 a month, $10 a month in income is not enough, and the rent is not affordable. On the other hand, you can have an apartment renting for $10K a month, with a tenant making $50K a month, and you have affordable housing.
Income will tell you the tenant’s ability to pay the rent.
If you think that credit score only indicates the risk that a tenant will pay rent, you are going to be disappointed. There are far too many studies linking credit score to risky behaviors. Look at it as more of a personal responsibility score. You can say that a person who doesn’t pay their bills and has a bad credit score has an entitlement mentality. You never want a renter with an entitlement mentality. Do not rent to a tenant that has risky habits unless you want an insurance claim.
Anything less than a 620 FICO credit score would garner a ‘D’ rating. Why take a chance?
Credit score will tell you the tenant’s desire to pay rent and will be an indication of future personal behaviors.
Related: How to Dodge the Bad Tenant Bullet
Make sure you use a county level criminal check that will gather open and dismissed cases. You want to know everything, including parking tickets.
No one wants a criminal living in their apartment. But what is a criminal, and what do you watch out for? If a tenant has a single domestic violence conviction, I do not want them. If someone will resort to violence, rather than address the situation in a civilized manner, it is a huge red flag. If a victim continues to live with someone that has committed the violence, you have a recipe for disaster.
More than one DUI or other alcohol related conviction is an issue. Some people cannot take the hint. Odds are, the person with two DWIs doesn’t have insurance either. Avoid them.
More Than 3 Convictions in 5 Years
If your applicant has more than 3 convictions for anything other than traffic violations, it is an indication that they cannot obey rules. Do not look for them to obey your lease. This includes any disturbances, DUIs, driving without a license or insurance or worse. Count all cases, including any that are “dismissed with conditions” or similar. I do not count speeding tickets or expired tabs in this category.
Open and/or pending cases should be counted as convictions until they have been completed in their entirety.
More Than 2 “Stops” in the Last 12 months, or More than 5 in 2 Years
I count everything here, including parking tickets, dismissed charges, etc. Any stop or arrest. When someone is a magnet to the cops, there is generally a reason. They continue to act on the “edge” of what is acceptable in society, so the cops pull them over. Maybe what they were doing was legal, but they had a smart mouth and got arrested. Then the prosecutor dropped the charges.
If they have more than 2 speeding tickets in a year, it tells me that the person does not plan ahead and has to drive fast to make up for their lack of planning. Too many parking tickets mean the person doesn’t seem to obey laws or cannot be inconvenienced by them. The people might actually be great tenants if you take them. I prefer to wait until they are clean.
Bad Landlord References
First of all, if this is your main indicator, I laugh at you. Far too many landlords ask tenants to leave, only to give them a great reference. Any tenant that cannot find a friend to pretend they are a landlord and say great things about them, you do not want anyway. But on occasion you get great information.
Was the entire deposit returned? If not, why?
Some small charges are acceptable; not getting most of the deposit back is a huge red flag. Late payments are a problem. Terminating a lease early is a problem. Not giving proper notice is an issue. Move on to someone that understands how to be a renter.
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