How to show and screen applicants? - Property Management Pete

Choosing the right applicants

This is probably one of the most important steps in the whole process. You will be meeting with people you don’t know, to show them a home that they may be moving into. Unlike a home sale where you may never speak to the buyer again when you are managing a rental property, you will often times have frequent contact with the resident. You will want a thorough and effective screening system in place. There are also a number of fair housing laws that you will need to adhere to no matter what. I want to say also that I am not a lawyer or an expert on fair housing laws. There are certain guidelines that are in our company policies and they are never to be violated. I will share some of those guidelines here with you in this chapter. Always follow the fair housing laws and the instructions of your broker.

Recently I had an owner of a rental property tell me that he didn’t want to manage his rental anymore and that he was getting out of the business. He goes on to tell me a story about how he had this terrible tenant that wrecked the house and didn’t pay. I asked him how he found this tenant and he said that the person had lived in the neighborhood and had called when he saw this house go up for rent. The owner did no background checks or application and was surprised that the tenant didn’t work out! After this bad tenant had finally moved out, the owner set about doing repair work on his rental house. While he was working on it a neighbor came over and asked if it was for rent. Sure was the owner said! The person said they were looking to move soon and would like to rent the house. Once again, this owner let the person move in with no background check or income verification. Needless to say, less than 6 months later he was having to evict the tenant and was facing another wrecked apartment. If he had just followed a simple tenant screening process he could have avoided all the drama and cost of those destructive residents.

Asking the right questions

When showing a unit to a prospective tenant there is always one main question that I always ask. The question is designed to provide me with insight as to what kind of tenant they may be. The answer will often raise a “red flag.” While these responses are never exactly the same for everyone, nor do they guarantee that it will result in an application denial, it is a great starting point to help you in the screening process.

Often times the question can be asked and answered during the very first phone conversation and help you determine the next set of questions or to whether or not you even want to set up a showing. During the first contact with a possible applicant, I always ask one main question, and that question is; “When are you looking to move?” While it may seem like a very normal question, and it is – there is a certain response that I am looking for. Nine times out of ten, if the response is, “As soon as possible!” Raise a red flag. While it’s true that some people may have a legitimate reason for needing to move quickly, it’s my experience that someone who is in a tremendous rush is running from another tenancy situation and they want to lock in their next place before the eviction hits. It’s the most valuable question I ask, and it has saved me tons of headaches. There are lots of owners who think that it’s a great response because of their thinking that they will be able to rent their unit sooner than later and avoid vacancy costs. Don’t be tempted by this. Most of the time it ends up badly. Now, of course, as I said, there can be legitimate reasons why someone needs to move-in quickly, so you don’t want to just end the process if they say those magic words. But if they do seem to be in a rush the next question I ask is plain and simple. I’ll say; “Why do you need to move so quickly?”At this point listen closely. If they start telling you about how the last landlord didn’t fix a thing, and the place is a wreck and they need to get out of there as soon as possible, etc, etc, this is a problem tenant. I would almost guarantee it. Now we have two red flags. At this point, I usually give them the rundown of what the requirements are, the amount of the application fee, the required proof of income, the credit and background check, and the rental history check. Ninety-nine percent of the time I never hear from them again. They know at this point that we are professional operation and that all the boxes will need to be checked in order for them to be approved and they know that will never happen, so they move on. The fact is that most responsible people are aware of their upcoming move and take plenty of time to line up the next home or apartment. Of course, there are certainly times in which someone has a real reason for a quick move. These folks will usually tell you things like, they just got a new job and they are from out of town and are on a time crunch, or the house they were living in had been sold and they weren’t aware of the sale until the last minute and sometimes they may have had a place lined up but, through no fault of their own, it fell through with only a week or two left to move. These things can and do happen. Just give everyone the same spiel. Everyone. All the time. If you use the same words and the same process for every person you meet with you can never be accused of discrimination. Treat everyone exactly the same and just move them through the process in the same way, always.

How to prepare for your showings

Ok, now it’s time for setting up showings. I like to generally go about showings in two ways, and which way I go will depend on a few factors. If you’re in a hot market and the rental is well priced, you will be getting a LOT of calls. In this scenario, it will be in your best interest to set up showings in a shot-gun style schedule. Set up showing times that are on the same one or two days only 15-20 minutes apart for each prospect. One thing you will learn when dealing with rentals is that people are much more likely to stand you up than in a home purchase situation. So this helps you eliminate a ton of back and forth for no-shows. It also creates a competitive situation. If the unit appears to be popular and busy with showings, there will be a greater sense of urgency among the applicants. Now, if the market is slower or the unit is a higher-priced property you may not have the same level of activity. In this case, simply set up showings as you would similar to when you are showing a home that’s for sale. Just be sure to ask the qualifying questions and make sure you confirm the showing a short time beforehand.

Receiving and reviewing applications

Ok, so you had some showings and there is some interest. When it comes time to have your prospects fill out an application, you will want to charge them a fee. Again, charge the same fee all the time, but you must charge a fee. Just by having an application fee you will eliminate a lot of the tire kickers and unqualified individuals. They know for the most part whether or not they will qualify and they don’t want to waste $50 or $60 bucks to find out what they already knew. So you must charge a fee. Not to mention you will be running a credit and background check and those aren’t free, so you’ll want to cover your costs as well. Make sure your application asks for all the pertinent data. Drivers license number, social security number, current and previous address, etc. You can check out my blog at propertymanagementpete.com for a sample application. Many of the popular software solutions have an online application and using this feature will be the most effective way to go. If you do use paper applications, be sure to keep copies at your office in a secure file as they will contain sensitive personal information.

When reviewing the application follow your broker’s or company’s guidelines. When we review an application there isn’t actually an exact result that must be met for approval, such as credit score, etc. I have seen people who have terrible credit but they make plenty of money. Usually, this is the result of a divorce or some other special circumstance, and we will take that into consideration. The one guideline that is not flexible is regarding income. Our office policy is that the applicant must show 3x (times) the monthly rent. If the apartment is $1200 per month, they must show $3600 in gross income for the month. Any less than that and you could run into trouble. You may have the nicest, most well-intentioned tenant but if they simply don’t make enough money, they won’t be able to pay the bills. So save them and yourself the trouble and stick to the income guidelines. Because we are dealing with people and everyone’s life is different, you will come across a myriad of backgrounds. Use your best judgment and go with your gut. If they were pushy and demanding and had a bad attitude during the application process you can pretty much bet it’s only going to get worse once they move in. Luckily being a jerk is not a protected class and there’s nothing that says you can’t deny someone just because you don’t like them. Go right ahead. You as the manager will have to deal with this person on an ongoing basis. So if you don’t have a good feeling about them, that’s ok – go with your initial gut reaction. Follow up with previous landlords and get a feel for them as well. If there are still some things in the background info that doesn’t seem right, set up a phone or face to a face follow-up interview with the applicant and ask them directly about any discrepancies and make a judgment call. If you feel good about them and the income matches up, take all other things into consideration. We normally don’t accept anyone who’s had a recent eviction either. However, I remember one woman who had been evicted about 3 years prior. She explained to me the situation, said that she had gotten her life together since and went to nursing school and turned it all around. Her income was solid and was even able to get her work supervisor to co-sign for her. I liked her a lot as a person and so we decided to take a chance and she worked out great. Remember there are always certain laws and guidelines that must be followed. But, this is a people business and you will have to sometimes put things into perspective and just do what you think is right when it comes to approving a tenant’s application.

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