More than 53% of Starkville residents rent their homes, according to data from Best Neighborhood, necessitating tenant screening that includes applications, financial history, income verification, background checks, references, and interviews. Busy landlords can also hire property management companies to streamline the process with PM software, automation, and compliance oversight.
There's also the ROI factor. Finding good tenants lowers turnover rates, which yields more profit for landlords and makes rental homes more desirable to future property investment buyers.
Build your own tenant checklist with the following screening criteria for renters.
Include a Comprehensive Rental Application Process
The first item on every tenant screening checklist should be a thorough rental application. Applications should be available online and at open houses and offices. You'll need to use an electronic signature (e-signature) software to collect applicant signatures online.
The application must stipulate age restrictions, like age 18+ only. Make it clear that applicants are agreeing to background checks.
Application standards must apply to all applicants across the board, as stipulated by the Fair Housing Act. FHA compliance prevents claims of discrimination. Hiring a property manager will ensure your investment property business is compliant with all FHA rules and local codes.
Financial History
Next, you'll want to gain a clearer picture of an applicant's financial history.
This starts with running a credit report to understand financial stability and payment patterns. Credit reporting is optional, but it can help you gauge an applicant's ability to pay rent long-term. You must gain written consent first, in accordance with the Fair Credit Reporting Act (FCRA).
Gaining a deeper understanding of financial history can help you calculate an applicant's debt-to-income (DTI) ratio. This ratio measures monthly debt payments against gross income. The lower the DTI ratio, the better the financial situation.
Applicants may also submit financial documents, such as bank statements, to offer more clarity about their overall financial health.
Verified Employment and Income
Bank statements also verify an applicant's income. Applicants may also submit pay stubs and tax returns as documentation of income. Supplementing a strong application with employer references also goes a long way.
Most landlords ask that applicants prove they can pay three times the monthly rent amount. Tenants should have a comfortable buffer when they're in between jobs, for example.
Landlords may contact employers directly by phone or email to confirm current employment. Rental applications should have fields for employer references.
If you're renting to a full-time student, you can ask for proof of a parent or guardian's income with written consent. You may also accept financial aid documents to prove financial stability.
Tenant Background Check
The next set of background checks should pertain to criminal history and evictions.
Safety is a top priority for landlords. Consider hiring a property management company that conducts rigorous criminal background checks, leaving no stone unturned. Review all official criminal databases, from local criminal record searches to national databases.
You can also research past evictions by reviewing public court records. Become familiar with Mississippi's eviction laws. Lease agreements should also be written and reviewed by a lawyer to ensure eviction clauses are clear.
Gather References from Previous Landlords
Similar to employment references, tenant applications should have fields to input landlord references. You could either call directly, email, or email the reference a questionnaire form to fill out.
Ask the following questions:
- Was the monthly rent paid on time?
- How did the tenant keep the rental property?
- Did the tenant adhere to all lease terms?
- What was the tenant's noise level? (any noise complaints?)
- Would you rent to this tenant again?
When asking the second question, remember that landlords have a duty to maintain a safe property that's free from health hazards. Buildings must be up to code with functional and safe HVAC and electrical systems. Landlords must attend to water damage from storms, maintain landscaping, and so forth.
Property managers handle all aspects of property maintenance for landlords, ensuring good landlord-tenant relations.
Conduct Applicant Interviews
Applicants who pass all background checks and verification can move on to the interview stage. It's an opportunity to learn more about a potential tenant and their interest in moving into the property.
As a landlord, you can use this first meeting to develop a good rapport. Good landlord-tenant relations keep tenant turnover rates low.
Frequently Asked Questions
How Do Property Managers Handle Tenant Screenings?
Property management companies go above and beyond, using a suite of industry-standard tools to screen for quality leads and tenants. Property managers also consider screening when creating marketing materials, like clearly outlining tenant eligibility requirements in listings.
Property management software allows managers to pull data quickly and automate application processing. PM software helps experts manage multiple properties, which is helpful if you're a landlord with a growing investment property portfolio.
Importantly, property managers ensure your properties are compliant with the Mississippi Fair Housing Act (SB 2421), including any legislative updates.
What Does Low Tenant Turnover Mean to ROI?
Low tenant turnover is a crucial lever for maximizing return on investment.
Every time a tenant moves out, you have to invest in new marketing. There are also move-out maintenance costs, like fresh painting, carpeting, and deep cleaning. That's why screening is so necessary for effective tenant management.
Vacancies also incur costs, since landlords still have to pay property taxes and utilities. Property managers can have a new tenant lined up as soon as the previous one leaves.
Can Low Tenant Turnover Increase Property Value?
Yes! Low turnover rates increase net operating income (NOI), a metric that future buyers consider when purchasing an investment property. A high NOI and stable tenant occupancy are two excellent selling points.
Discover More Landlord Tips in Starkville
Tenant screening may be the most valuable asset in a landlord's property management toolbox. Responsible, long-term tenants improve your ROI and future selling prospects. Good tenant screening is a lot of work, making a trusted property management team essential to the value of your portfolio.
Gnome Homes Property Management is just that team. We're a team of licensed real estate agents with diverse backgrounds in engineering and healthcare. We're a people-first company, dedicated to providing safe homes and protecting our clients' investments.
Drop us a line to discuss your goals!
