How to find the best renter (what to look for when screening for credit, co-signers, and background).

TL:DR

The impact of having quality renters versus #literaltrash renters cannot be overstated. During my sentence as a property manager I witnessed renters who (true story) designated one of their bedrooms for their cats to use and pee directly on the carpet whenever they needed, didn’t report any repairs, and let mold start growing in one of the closets for months before we eventually caught it during a routine inspection. Can confirm, the smell in that bedroom was OUTRAGEOUS.

I’ve also seen renters who take the initiative to make minor repairs themselves and report those that need further attention, deep clean the home regularly, and treat the yard as if the HOA were driving by every day to inspect it.

The spectrum of the quality of a renter is wide and it’s difficult to know how to select the best renter. How do you do it? By conducting a thorough screening process when a renter is applying to rent a home.

The screening process will give you a well-rounded data set to determine a renter’s responsibility and credit worthiness. Below is a list of items to seriously evaluate before signing the lease and handing over the keys:

*A quick note before jumping into the screening process: make sure ALL screening criteria and qualifications are available for an applicant to view BEFORE they fill out any paperwork. It should be the first page of the application for renters to read through. This saves EVERYONE time. The renter can know what to expect, ask questions before doing the work to apply, and perhaps decide to move on if they know in advance they won’t meet the criteria.

Credit score:

Checking a prospective renter’s credit score is the most valuable insight to how a person deals with money, which subsequently means how they will handle paying rent and any other related expenses. Ideally you’ll want to select a someone with a 700 or above credit score, but depending on certain factors it can be tough to find someone in that range. If you can’t, look for 650 or above. It’s important to note that the numerical credit score alone is not the ‘end all be all’ when it comes to checking credit.


The payment history, types of debt, negative marks, and longevity within the context of the numerical score are what truly matter. Along with this, check to see if they have a ‘substantial’ amount of debt. ‘Substantial’ meaning anything where the combined monthly payments might have a significant affect on the renter’s ability to pay rent, AKA their debt-to-income (DTI) ratio. A quick online search can help you calculate the debt-to-income ratio (Calculator.net has a simple DTI calculator). For example, if an applicant has 2 car payments, $10k in consumer debt, and $80k in student loans, it’s safe to say their monthly payments are going to be a CHONK of cash each month.


However, if they have a high income that offsets this then it might not be worrisome. It’s important to note that not all debt is created equal. There are certain types of debt that should not be viewed negatively when evaluating someone’s credit worthiness. Examples of this would be student loans, medical debt, and a mortgage. Because these types of debt are generally very high and require a longer amount of time to pay off, it shouldn’t be held against a renter for having them as long as they are making timely payments.


Check to see how long their credit history has been established. Four years or more of credit history generally gives you a solid idea of their credit habits. Anything less might warrant the renter needing a co-signer (more on than below).In addition to credit history, check for different types of credit the renter has implemented. Have they responsibly handled car payments, consumer debt, a mortgage, medical loans, student loans, etc? A variety of different debts will show the renter can balance multiple things at once and remain responsible. Are there any missed payments? More than a couple missed payments is a red flag.


Consistent tardiness on credit history will almost always directly translate to the renter paying rent on time. Has anything gone into collections? One or more collections shows a person has been so delayed on payments that the debt has been sent to a collection agency which is obviously not very cash money, my dude. Major red flag if you see one or more collections on a credit report. Along with this, check to see if a person has any bankruptcies on their credit. Bankruptcies can occur for many reasons, but if someone has undergone one in the last 3 years, you’ll want to thoughtfully consider before moving forward with their application.


Lastly and perhaps most obviously, check to see if there are any evictions on the credit report. Evictions are a major red flag as it takes a long time of back and forth with the landlord and tenant, the proper paperwork to be filed, etc. Basically every option of trying to work with the tenant must be exhausted to the point that it must become a legal matter.

Co-signers – yay or nay?

Co-signers can be implemented to help offset risk if the renter applying isn’t entirely qualified on their own. If the applicant has credit or income just below what’s required or it’s ‘on the fence,’ this is when you’d contemplate accepting a co-signer. A co-signer should not be accepted in the cases where the applicant is significantly unqualified in terms of credit, income, rental history, etc. If you choose to accept a co-signer, this party will ‘co-sign’ the lease and assume the same financial responsibly as the renter in case anything gets janky and the renter doesn’t pay.


Usually the main factor that determines if a renter requires a co-signer is credit, but it can also come into play with income and previous rental history (more on these factors in this post). You should also consider the quality of the home before evaluating if a co-signer is the right choice. For example, if you’re renting out basic apartments, it’s probably not a bad gig to allow co-signers. Especially if you have a younger demographic of renters who don’t have much (if any) credit. This is because the cost of any tenant-responsible move out charges or unpaid rent can be much lower than what it would cost to do the same for a bougie abode.


If you have a baller, cribs-worthy home with tons of amenities, probs double think accepting a co signer. You might be asking, “If there’s a co-signer involved, what does it matter what type of housing is involved?” It’s important because as mentioned above, the amount of cost involved is much higher based on the housing type and rent amount. Even with the financial assurance of a co-signer, it’s the renter themselves who will be living in and taking care of the home. Allowing a co-signer in general is inherently riskier because the renter themselves doesn’t fully qualify to begin with.


A renter who qualifies on their own has more to lose if they are the sole, responsible party and could have their rental history or credit score damaged by poor behavior; whereas someone with a co-signer knows there’s someone else who could share or possibly take entire responsibility for their choices.


Important note with co-signers: they should be signing the lease and all the same documents as the tenant as they will be equally financially responsible for all the same things the renter will be. In addition, a co-signer should be VERY qualified in terms of credit and income. They should be able to prove they are able to pay for their own housing in addition to the housing of whomever they are co-signing for. Their credit should be above 700 and follow similar criteria to what’s required of the renter.

If you’re still feeling nervous about involving a co-signer, it might make more sense to ask the renter to pay a higher deposit instead of having a co-signer. This is nice in the sense that you hold the funds should anything go south. But if the renter ends up owning more than their deposit is worth, you don’t have a co-signer to fall back on.

Background:

Run a background check to confirm if the applicant has any misdemeanors or felonies on their record. To clarify, this means convictions and not arrests, as anyone can be arrested for anything; guilty or innocent. We’re scoping for full on, proven guilty convictions. Look for convictions in the state the home is located in but also run a FEDERAL background search in case they committed crimes in a different state as some state background checks do not include this information.


Your rental application should include questions on if the renter has been convicted of anything and to include details surrounding the conviction. Some landlords allow renters with certain felonies such as DUI, fraud, or non-violent crimes to rent homes since these crimes could be considered less risky in comparison to violent crimes such as assault or rape.

This decision comes down to two things: landlord discretion and state laws. Federal law is somewhat vague about renting to felons but it is clear that you cannot reject an application based on criminal conviction alone. However, ALWAYS DOUBLE CHECK your state and local laws for more information on the ‘do’s and don’ts’ of renting to someone with a conviction.

In my previous time as a property manager we had a policy that we didn’t rent to anyone with a felony newer than 5 years old. Regardless of convcition date, we didn’t rent to anyone with a felony conviction of a crime of a violent nature, sexual nature, or manufacturing or distribution of drugs. Drug convictions overall would be considered on a case by case basis as long as they were outside of manufacturing and distribution. What you are or aren’t willing to allow will be up to you as the landlord.

Set up a criminal history policy:

Plan on setting up a criminal history policy prior to allowing folks to apply for your home. Setting a policy up front helps to eliminate discrimination and maintains a clear cut criteria to determine if a person’s criminal history excludes them or not. This saves both you and an applicant time as they can view the policy beforehand and determine if it’s worth their time to go through the application process. You might decide you do want to be felon friendly and help out those who are struggling to find a reasonable place to live. Housing options in general for those with convictions are very few. If you’re really scouring for income and the person is decently qualified and seems low risk (again, this risk depends on either your criminal history policy and what you’re willing to allow), then it might be something to contemplate.

Overall there is a hot heap of criteria to examine when looking at a prospective tenant’s credit, possible co-signer, and background and this list is by no means exhaustive (although the long read seems otherwise). Remember that conducting a thorough screening process helps you determine the quality of a renter up front before they move in. ALWAYS do your homework and evaluate as much as you can before approving or denying an applicant.

In tandem with this post is another one: How to find the best renters for your investment property (what to look for when screening for income, previous rental history, and personal character). This brings the application process full circle and other items to consider when screening an application.

Best of luck in your search for a solid renter who will take care of your spicy investment property!