As a landlord in Grand Rapids, Michigan, one of your primary goals is to find tenants who will pay rent on time, maintain the property, and adhere to the terms of the lease. Effective tenant screening is crucial in this quest. A meticulous tenant screening process minimizes the risks of property damage, eviction, and loss of income.
Renting out a house in Grand Rapids isn't easy, but we're here to help! Use this comprehensive guide to help you screen tenants effectively.
Why Tenant Screening Is Important
Tenant screening helps you gauge the reliability and suitability of a prospective tenant. Without it, you open the door to potential financial and legal headaches, including the cost of evictions, non-payment of rent, and damage to your property.
Proper tenant screening not only ensures you are getting the right occupants for your property, but it should also be compliant with the Fair Housing Act and other local laws, avoiding discrimination lawsuits.
How To Screen Tenants
Screening tenants involves a series of steps designed to gather information about the applicants to make an informed decision, such as the following:
Step 1. Set Your Criteria
Before advertising your rental, establish clear, non-discriminatory criteria for tenant selection. This may include income requirements (ideally, landlords prefer that the tenant's gross income is at least three times the rent), a credit score minimum, rental history, employment status, and acceptable background check results.
These criteria must comply with all federal, state, and local laws, including fair housing regulations.
How To Identify Quality Tenants
Quality tenants are those who have a history of being responsible and financially stable. They may become long-term residents of your rental.
Indicators of such tenants Include:
● A good credit score
● A consistent employment history
● A reasonable income
● Positive references from previous landlords and neighbors
● A clean background check and criminal record
Step 2: Review Rental Applications
Start by ensuring that the rental application is comprehensive. It should request the applicant's full name, current and past addresses, employer information, income details, and references. Upon receipt, review applications against your pre-set criteria. Look for consistency in their responses and completeness of the application.
Step 3: Verify Tenant Income and Employment
To verify income and employment, ask for recent pay stubs, bank statements, or a W-2. Call the employer to confirm the tenant’s employment status and salary.
But before doing so, make sure to do your research to confirm the legitimacy of the company. Sometimes, fraudsters will make up names of contact persons at work with fraudulent phone numbers if they don’t have a proper job or employment to declare.
For self-employed applicants, request tax return documents or other proof of income. If you can, visit their business address, or do an online search to verify if the business really exists. This way, they'll be able to pay their rent and security deposit.
Step 4. Contact Prior Landlords
One of the most critical steps in the tenant screening process is contacting previous landlords. Their firsthand experience with the prospective tenant can offer you valuable insights into a tenant’s behavior and reliability. Here's how to approach this step effectively:
● Obtain Consent
Firstly, ensure you have the tenant’s written permission to contact prior landlords. Consent is typically given within the rental application or a separate consent form.
● Validate Landlord Identity
Before diving into questions, confirm you’re speaking with the actual former landlord. You can do this by checking property records to ensure the person you’re communicating with owns or manages the property in question.
Make sure that the person you are speaking with is indeed the former landlord, not a friend or relative of the tenant posing as one.
● Prepare Your Questions
When you have confirmed the landlord’s identity, proceed to ask specific, open-ended questions that encourage detailed responses.
Here are several key questions to consider:
● Confirmation of Tenancy: Start by confirming that the individual was indeed a tenant. Ask for the dates of tenancy to ensure they match up with the application details.
● Payment History: Inquire if the tenant consistently paid their rent on time. Late payments can be a red flag and indicate potential issues with cash flow or financial management.
● Property Care: Ask how well the tenant maintained the property. Did they leave the property in good condition upon moving out? Were there any instances of damage beyond normal wear and tear?
● Lease Compliance: Did the tenant adhere to all the terms of the lease? This includes following rules regarding pets, noise, and other specific policies.
● Neighbor Relations: Were there any complaints from neighbors or other tenants? This could tell you about the tenant's ability to live in harmony within a community.
● Renewal Offer: Perhaps one of the most telling questions–would the landlord rent to this individual again? A hesitant or negative response could indicate underlying issues that weren’t explicitly mentioned.
● Reason for Leaving: Understanding why the tenant left can also be insightful. Was it a mutual decision? Did the tenant leave of their own accord, or were they asked to leave?
● Legal Issues: Without violating privacy laws, ask if there were any legal disputes during the tenancy. Even small claims court issues can be red flags.
● Promptness and Communication: How did the tenant communicate with the landlord? Were they courteous and prompt when responding to inquiries or addressing issues?
● Early Lease Termination: If the tenant ever broke a lease, ask for the circumstances. Sometimes life events like job relocations can lead to a justified early termination, but other times it might reflect instability or disregard for contractual commitments.
● Rent Increases: Inquire if the rent was raised during the tenancy and how the tenant responded to it. This can tell you about the tenant's financial flexibility and their reaction to changes that are often a part of long-term tenancy.
Step 5: Analyze Tenant Credit Reports and Background Checks
A tenant’s credit report can give you a glimpse into their financial responsibility. Look for red flags like bankruptcies, evictions, and consistent late payments. A background check is equally important as it can reveal past criminal activity that could put your property or other tenants at risk. In Michigan, you must have the tenant’s written permission to pull their credit report.
How To Accept or Deny Prospective Tenants
After evaluating all the information, it’s time to decide. If you choose to accept a tenant, ensure that all lease agreements are clear and detailed before signing.
If you decide to deny an applicant, you must inform the tenant in writing. In general, you don’t necessarily need to provide a reason for the rejection. You may simply tell the prospective renter that the property is no longer available.
If the tenant asks for a specific reason, you must be ready to provide one that must be non-discriminatory and based on your pre-set criteria. Make sure to remain in compliance with the Fair Housing Act, which prohibits you from rejecting applicants based on race, sex, national origin, familial status, skin color, religion, and disability.
In the case of denial based on credit information, the Fair Credit Reporting Act requires that you provide an "adverse action" notice, which includes the credit reporting agency's contact information and a statement about the applicant's right to dispute the accuracy of the report.
Tenant screening is a complex process, but it's an essential one for landlords in Grand Rapids, MI. By following these steps, you can find reliable tenants and protect your investment. When in doubt, it’s best to work with a reliable property management company in Grand Rapids like Compass Property Management. Contact us if you need help and we’ll be happy to assist you!