The Landlord’s Ultimate Guide to Rental Applications
This article is the third in a 5-part series that describes what a good screening process should entail. This part of the series describes the real meat of the screening process, the rental application. We’ll talk about what should be on the rental application, who should fill it out, and how you should use the information provided by the prospective tenants to help make your decision easier. In our previous post on this subject, we talked about how to use the time during the showing of the apartment to look out for any red flags that could be used to continue the pre-screening process.
A Quick Recap: Five Stages to a Good Screening Process
Stage 1: First Contact – The prospective tenant calls you for more information about the property and the lease. Ask some pre-screening questions to make sure this prospective tenant isn’t going to waste your time.
Stage 2: The Showing – The prospective tenant has passed stage 1. Now, you’ve scheduled to show the apartment and will meet the prospective tenant(s) face-to-face for the first time. Watch out for these tenant red flags.
Stage 3: The Application – Your prospective tenant is still interested and so are you. Have him or her fill out an application that includes references from prior landlords and employers. Run a credit report and criminal check.
Stage 4: Approval Process – This tenant seems like a good candidate. Accept him or her and gently decline all other applicants. Until you have a signed lease, though, you’re not done screening.
Stage 5: Lease Signing – You and your prospective tenant(s) are ready to sign a lease. Go through the lease with him or her carefully and make sure all the rules are completely understood. It’s not too late to rip up the lease if things aren’t going well, even at this point.
Who Should Complete the Rental Application?
In a simple answer, all interested tenants should complete the rental application. If the person will be living in the property OR paying any part of the rent on the property (think parents of students or guarantors), they should complete an application. When someone says they’re interested in your property, you’re immediate response should always be “I require that all prospective tenants or persons paying any part of the rent complete a rental application and authorize a credit and background check. Are you OK with that?” First, from a legal perspective this shows that you treat all applicants the same and are not being discriminatory. But from a tangible business perspective, this is a great way to allow tenants to self-select or self-reject their candidacy for your property.
What do we mean by self-select or self-reject? There are two types of tenants you don’t want to deal with and you can allow them to filter themselves out of the screening process. The first group are those who would potentially be good tenants, but they’re not ready to commit yet. For instance, if a tenant is at the beginning of their search for a property, they’re not always that serious about renting just yet. They might be shopping around to determine if their budget can get them two bedrooms or three. You don’t really want to waste a lot of time with these tenants as they’re unlikely to move in by the date you would need. Instead, let them know they have to fill out an application, pay an application fee and they’ll just go away until they become more serious. This can be difficult to do because often you’ll feel that you’re turning away good tenants. But in the end, they’re unlikely to rent from you in the timeframe you would need.
The second group of tenants that you don’t want to deal with are just plain bad tenants. Yup, bad tenants will often filter themselves, or self-reject, so you don’t even have to. By requiring all prospective tenants to complete the application process, you’ll automatically turn away tenants who otherwise know they wouldn’t pass your screening process. For tenants who have a less-than-desirable credit report or history of criminal activity, they won’t bother completing the application and paying an application fee if they know they’re unlikely to meet your standards. We’ve seen plenty of tenants who have 3 or more evictions on their record easily sign a lease with a landlord because that landlord didn’t want to follow the full screening process. Just as much as following a process repels bad tenants, not following a process is a magnet for bad tenants. Being upfront with these tenants that you require all this information means you won’t have to deal with those applications in the first place.
We also often get asked by our customers, how many tenants should they meet and screen before deciding on who to accept. Our response is really simple: “as many as you need to find the right one”. It’s just so much of a hassle to have a tenant that may be delinquent and lead to an eviction (often evictions can take 6+ months with no rental income coming in) that it’s better to have a vacant property for an extra month than it is to take the risk and have a property generating no rental income for months-on-end and can’t be re-leased because there’s a tenant that you can’t evict. However, at a minimum we suggest that you at least meet and screen three tenants for each property (when we say tenants, we often mean groups of tenants – so if there are two roommates, that would be one group of tenants).
What Questions Should I Ask on the Rental Application?
Fortunately, you don’t have to create your own rental application template to use. You can just use ours. It’s printable and free. However, we’ll talk about what questions are on our application and why they’re there. You’ll want to understand the questions, just in case you ever get pushback from a tenant or do indeed want to create your own from scratch.
Applicant contact information:
Not sure we need to say much about why we ask for contact information. You’ll want his or her full legal name and either a social security number or driver’s license number in case you ever need to go through an eviction process or court battle. Of course, if you take a SSN, you need to be really careful about how you protect the tenant’s information and privacy. Today, most people use their cell phone as their primary phone (and this is especially true for renters). You’ll want this in case you need to contact the tenant for an emergency. And of course, we ask for an email address – for any regular communication. This tends to be the preferred method of contact for our customers and their tenants.
Current and prior residence information:
We recommend asking for at least five years of residence history. This allows you to see patterns (e.g. does this tenant like to live in one place for many years or not) and gives you enough references to follow-up with. Each residence history, specifically if they were rentals, should include the name of the landlord or manager and their contact information. You’ll want to call these people and confirm the history as well as ask some questions about the tenant.
Often we recommend not even wasting time calling the current landlord and just skipping to all of their prior landlords. Current landlords, if having trouble with this tenant, might be incentivized to just tell you how awesome the tenant is to get them off their hands. However, prior landlords are quite happy to tell you the truth if the tenant didn’t pay their rent on time, if they had to evict them, or if they caused any damage.
If you’re not looking forward to making calls and don’t know exactly what to say, here’s some things to ask:
Explain why you’re calling:
“Hi, I’m calling in regards to Jane Doe. She is interested in renting an apartment from me and put your name down on the application. How do you know Jane?”
Sometimes tenants may give you a friend’s phone number rather than the real owner or manager. You can tell immediately if the person is not really the manager with this question because we left if vague as to the relationship between the tenant and the person we’re calling. The person on the phone will be stumbling to figure out what role they are supposed to be playing (are they the friend, former landlord, employer) if they are indeed not the landlord.
Ask about their tenancy:
“While Jane Doe was a tenant in your property, do you recall if rent was paid? If it was always or typically paid on-time? Was the property clean and in good order when Jane moved out? Was Jane disruptive to other tenants or neighbors?”
Employment history and proof of income:
First, if the tenant(s) are making the rent payments (so its not their parents in the case of a college rental), then they should have jobs or an income to make sure they can cover the rent payments. Again, we recommend asking for several years of history here so you can see how stable their employment has been. Typically, its more risky if the tenant has held several jobs in just a few years and there may be gaps in the employment (i.e. time periods with no income).
Contact information for someone at the employer should also be provided so that you can validate employment. Before you call the employer to verify employment, check the phone number against the phone book or company website to make sure its a legitimate phone number and not that of a friend. For privacy and liability reasons, employers will typically only be willing to provide an answer to whether the employee is still currently employed or not. So there’s no need to try and bother with other questions.
We therefore also recommend asking for proof of income from the tenant. Typically this can be provided with recent pay stubs, a W2, or an employment offer letter. A general rule of thumb is to make sure that a tenant’s gross income is at least three times the rent amount. This determines, at a very basic level, whether the tenant can afford the rent.
Authorization to contact prior landlords, employers and pull credit and criminal histories:
You’re digging quite a bit into someone’s personal history here. So make sure to get authorization from the applicant for you to call prior landlords and employers. You’ll also want to have the tenant authorize you to see their credit report and criminal history. This is just to make sure you’re abiding by laws and keeping yourself and the applicant’s information protected and private. If you’re using our online service to conduct the application process and credit/background checks, then we automatically get all the proper authorizations for you. But if you’re not using our free, simplified, no-brainer online process (sorry for the plug, wink), make sure to get the authorizations.
Other questions – potential adverse attributes:
There are some questions that professional landlords and property managers like to ask on the application. These are typically just yes/no questions with a blank box to explain any “yeses”. The purpose here is to get the applicant to admit to any conditions that might be considered negative and give them a chance to explain them. These things will likely come up on the credit or background check, but this is their opportunity to give an explanation.
So the questions are as follows:
- Have you declared bankruptcy in the last 7 years?
Have you ever been convicted of a felony?
Have you ever been evicted from tenancy?
Have you ever intentionally refused to pay rent?
Do you smoke?
Based on the explanation, you can judge whether these are patterns of behavior that have ended or are likely to keep recurring. The credit report and background check, which we’ll discuss next will shed much more light on these things.
The Credit Report
Why get a credit report?
To their own detriment, many landlords skip the credit report and criminal check. This is your chance to get a neutral third-party (the credit bureau) to tell you about the tenant’s credit worthiness. We suppose that landlords may skip this report because they don’t necessarily view the relationship between them and the tenant the way they really should – as a creditor to the tenant. In our opinion, this is a huge mistake.
Your tenant(s) are about to move into your property and in exchange promise to make a series of payments over a period of time. You’ve delivered the service up front, the property, and the stream of payments come in equal installments over the period of the agreement, the lease (if you’ve ever been through an eviction, then you know what we mean when we say you’ve delivered the service up front – evictions take months). This sounds like a creditor relationship to us. Therefore, wouldn’t you want to check how your tenant’s have faired with other creditors.
Landlords that review credit reports are 60% less likely to have to go through an eviction process. It’s just that simple.
View their total debt and monthly debt payments:
With the credit report, you can see how much debt the prospective tenant has. You can use this, along with the income they reported, to determine if they can still afford to rent your property. The credit reports we deliver, in partnership with TransUnion, calculate the total monthly payment of all debts that the applicant must pay. Subtract that from their income to get to their real disposable income. Does it still look good enough?
View their payment history and determine if there are bad behaviors:
You can also see payment history on each of their accounts to see if they’re always on-time, sometimes on-time, or never on-time. Then ask yourself whether you want to constantly deal with the headache, heartache, and misery of late payments.
Validate items on their application:
The credit report should have a few lines for prior residences as well, which you can bump up against what the applicant listed on their application. Check for any bankruptcies, payments sent to collections, evictions, and other public records and see if an explanation was provided on the application.
For more, check out our guide chapter on how to analyze a tenant’s credit report.
Why get a tenant background check? It all comes down to minimizing your risk exposure. Did you know that you are liable for any illegal activity, violence, or disruption that your tenants cause? Well, it’s true. And it’s true whether you do the background check or not. If you rent to a sex offender and something happens to your neighbor’s children because of your tenant, you’re liable! If drugs are found on the property, you’re liable. So you want to check on people’s history and make sure that they don’t have any convictions that you’re not comfortable with. It is not against fair housing laws to reject a tenant because of prior convictions.
And besides the liability you could face, do you really want to play hard-ball with a convicted violent criminal who hasn’t paid rent this month? I didn’t think so.
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