Monday, December 9, 2013

Small Time Landlords: Tenant Screening Process

We are just winding down our tenant search for the 3rd floor apartment.  We have offered it a couple and expect them to sign a lease later this week.  This was our third time through the process and by now we have developed a clear process.

1. Apartment ads are just about the apartment.  Being an owner occupied, less than four unit place we are exempt from discrimination laws but I still make sure we stay safely within them.  Our craigslist ads simply talk about the apartment.  Once people inquire I tell them our application process (below).  Sometimes this discourages them from taking further action (they do not follow through when we tell them we require the equivalent of two month's rent upfront and will be checking their credit).

2. Meet in person to view the apartment.  We haven't been targeted by offshore scams on Craigslist yet, but I have heard they are quite realistic.  Someone from overseas moving to the area and can't look at it in person. We require someone to come look at the apartment, if not the person themselves (preferred), a proxy.  And we certainly are smart enough not to accept a check for more than we agreed to from someone we've never met and wire them the difference (how the scam works).

We also go with our gut on applicants.  We try to evaluate the person, not in terms of whether we personally like them but if they'll be a good tenant. So far, knock on wood, our gut has been correct.  I was happy when one person who looked at the apartment didn't follow through and submit an application because I had a feeling she would be way too social.  I bet she would have had lots of parties up there which may or may not have been a nightmare for us. We picked the tenant who just vacated because he was socially awkward and we thought he'd be quiet and respectful.  We were correct, he was a model tenant until he ran into some health issues and needed to move back in with his parents. So our goal is somewhere between the two extremes.

4. Rental application.  Our rental application asks for:
  • References (needs to be a landlord within the past two years)
    • We also ask for their current landlord's name and phone number, as well as if the landlord knows they are looking to move.  Sometimes we call the current landlord if we feel like we are getting a biased or inaccurate reference from the one they list.
  • Employment status & salary
  • Pets and medical records
    • Kevin goes over these with a fine tooth comb.  We already have told one couple they could not have their cat because the medical records indicated inappropriate urination.  I am happy Kevin knows this information so we can keep our apartments in tip top shape.
  • Whether they have ever been evicted or threatened with eviction
  • Whether a landlord has ever sued or threatened to sue them
  • Whether the police have ever been called due to their activities
    • If police have been called because of a noise violation or worse, we'd like to know.
The application states very clearly that smoking is prohibited in the apartment and on the premises.   It also states that providing false information will be grounds for immediate termination of any lease and eviction so hopefully that prompts honest answers.

5. Income requirements. We require a take home pay of 1/3 the amount of the monthly rent. Since our target market is young professionals and/or graduate students, we accept salary or student loans as income.

So far we have not had anyone request to use public assistance as part of their income.  While right now it is not illegal in New York to not accept public assistance as income I anticipate it will be very soon.  (Governor Cuomo introduced a bill over the summer that will make it illegal for landlords to discriminate against public assistance funds).  Our apartments are priced well above the monthly stipend public assistance provides (2-3 times actually) so I am not sure we will ever have to address this.

6. Check the references.  We call the references listed and ask the following questions.
  • lease start/end date
  • rent amount 
  • did they pay their rent on time
  • any complaints or other issues
  • did they leave the apartment in good shape or was there damage
  • would you rent to them again
  • anything else they think I should know 

7. Check social media.  We always Google our prospective tenant and try to find their social media (Facebook, YouTube, etc) pages.  So far we haven't found anything alarming, except that the couple we just researched are republicans.  Republicans are not a protected class so we could decline them on this fact alone, but we won't.  :)

8. If everything is good up until this point, we check their credit. Experian has a service for this.  We register and promise multiple times that we are asking for a legitimate business reason.  We enter in their email address(es) and Experian contacts them seeking permission.  They grant access and pay a fee and we can view their credit report for 30 days.  This way we don't have to deal with storing social security numbers.

9. Require first months rent and a security deposit equal to one month's rent.  Since our apartments are on the higher end for our area this is a significant investment on the tenant's part. 

Here is the lease we use. I created it from a combination of leases we had been asked to sign in the past and general contract law.  Feedback is welcome!

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