By Kari Negri, Chief Executive Officer, Sky Properties, Inc.
Dear Kari, I worry about who I rent to. What is the best way to go about selecting only “great” renters for my property?
It is often said that there are only two times when rental housing providers get into trouble selecting renters: (i) when they are rushing to rent quickly, and (ii) when they take pity upon an applicant. When choosing your renters, always remember to rent to someone who can and will pay your rent on time, tend to their civic duties, and take appropriate care of their homes. As a rule of thumb, it is better to have no tenant than a bad tenant. There is another problem you may face but it is unpopular to state aloud, so I will “not” mention that renting to a family member or a friend is an unbelievably bad idea.
There are some basic steps you can follow for selecting a great tenant. The first step includes validating everything they have provided on their application. Validate information such as phone numbers (call their work number and ask for them) and addresses (e.g., Does their driver’s license and utility bill have the same name and address as the application?). If you cannot verify the information by matching a utility bill to the address on a prospect’s application or find inconsistencies matching their paystub net pay to their bank deposits, those are grounds for rejection in my experience.
The second step is to have rental policies and standards that all tenants must abide by. For example, set an appropriate income level for your building. Examples include requiring minimum credit scores, or three-times (3x) income of the monthly rental amount. Only offer reasonable accommodations when appropriate. For example, if a prospective renter does not earn three-times the rent but has other assets (e.g., substantial savings account), you may wish to relax your requirements and though I do not really recommend doing this, in some cases, an accommodation may be required by law (e.g., Section 8 or other rental voucher holders). It is fine to refuse to accept a tenant who has been evicted or owes money to a housing provider or has had a past with convictions related to illegal activities such as drugs or violence.
Additionally, make sure any applications you receive have been filled out completely. If the application is not filled out to your satisfaction, the application may be returned to the applicant to be properly completed in its entirety. Before accepting an application, glance through it to make sure none of the required information is missing. All areas must be filled out, checked, or have “not applicable” noted. You do not want to have to call the applicant for any incomplete information. Back-up documentation is also very important. It is a good idea, for example, to ask for several months of past bank statements, or evidence of employment such as pay stubs – you should use these to verify paychecks are being received and deposited, and that deposits match the pay stubs. With the bank statements, you can also verify that the rent is being paid on time for the amount stated in the application. You may also want to request a copy of a current utility in their name to see if this matches the address on the application, the pay stubs and/or tax returns (if self-employed).
Some time ago, a woman came to one of our buildings and asked to see a unit, and while we did not have vacancy at that building, we had a vacant unit at our building across the street. We asked if she would want to go there and look and so she did. We have a policy of not only looking at the driver’s license but also taking a photograph of it and sending it into our leasing office, so we have a record of who has been to our building, plus, it is safer to keep a record of who our leasing agent or onsite manager is with. The manager across the street assumed the other building had already checked this person’s identification, and did not look at the woman’s driver’s license so it was never verified that the person standing in front of them was the same person applying for the apartment. This turned out to be a big problem as the person on the paperwork was not the same person who would physically occupy the apartment. Going forward, we do not rent an apartment to someone we have never met in person and have not seen their identification in person. We also always look up the website of the company they work for, call it, and ask to be connected to them. If we had done that in this case, we would have been connected to the real person who could have told us that she was not applying for an apartment in California.
It is a good idea to keep checklists around to help keep you stay on task. The best time to go through your checklists is when you get a new move-in or application. Just go through your list to make sure not to skip any steps which may be crucial to the move-in/new application process. Be thorough but try to expedite as we have found that if you do not act quickly your prospective tenant could just move on to the next apartment; however, do not let anyone rush you through the move-in process.
A lot of problems can be avoided by making sure you have given out a qualification list prior to a tenant applying and by setting up what your rental criteria is ahead of running the applicant’s credit report, so you do not waste their time and money or yours. Your rental criteria sheet should list what you will be checking and what your expectations are for the ideal candidate. This must be done in compliance with Fair Housing laws, which means you should know the current laws and take continuing education to stay up to date on Fair Housing – these classes held regularly at the Apartment Association of Greater Los Angeles (AAGLA).
On your rental criteria, you should also list your income and credit requirements, your occupancy limitations, pet policy, insurance requirements, security deposit policy and any other relevant items that a prospective resident should know before moving in. Even though the credit report gives information on how well someone pays their bills, it also provides information which you can use to verify their application is accurate and gives you an idea of what the income to expense ratio is.
The most important thing you can do when dealing with prospective tenants is to treat them fairly, be consistent and use the same criteria each time you rent. Exceptions should only be made if related to a request for reasonable accommodation. It is perfectly fine to judge prospective renters by their ability to pay the rent; however, you must be able to back up in writing what criteria was used to make your decision. It really comes down to having procedures in place, so you do not accidentally violate any laws. Illegal discrimination can consist of race, religion, national origin, familial status, color, ethnicity, disabilities, and others as the list can change with new laws passing – stay current. Legal discrimination includes bad rental history, poor credit, insufficient income, lying on an application, and past eviction to name a few.
Although it may seem obvious, you need to use an extraordinarily strong, well-written lease that covers the local jurisdiction where you own property. If you use a bad lease, you might be unable to evict a tenant for nonpayment of rent, or for certain damages, or for too many people moving in, and so on.
In conclusion, tenant selection is one of the most important jobs a housing provider has. A bad tenant takes up space that could be used by a good tenant. A bad tenant may also cost you by losing good tenants at your property. Lastly, good tenants can lead to future financial stability and a bad tenant can cost you lots of money.
At SKY Properties, we genuinely believe that it is one of our best qualities and it is one of the best things we can do for you; place good tenants in your property – this has paid off for us during the pandemic more than anything else.
Kari Negri is the Chief Executive Officer of Sky Property Management and is a member of the Board of Directors of the Apartment Association of Greater Los Angeles. Do you have a question for me? Please send your questions and comments to me at Kari@SKYprop.LA.