What criteria should be used to make a decision on a prospective tenant?

americanheritageproperties • May 12, 2014

In my experience there are four factors to take into consideration when deciding to rent to a prospective tenant:

1)  Credit–as I written previously, credit is an extremely important factor.  It’s not about the credit score, it’s more about the overall analysis of the credit report.

2) Income–this should be stable and substantiated.  A typical guideline for qualifying is 2.5 times to 3 times the monthly rent as gross income.  However, other factors should be considered such as how much rent they are currently paying and the amount of outstanding debt that they are carrying.

3) Landlord reference–this is a very subjective area because in most cases you are receiving the feedback from their current landlord who may be anxious for them to leave.   However, this important information should still be requested.

4) Terms–move in date, lease term, requested upgrades, as well as rent negotiations are all factors that need to be considered.

When you consider a tenant using criteria from the above areas then you will have good picture of the quality of tenant, and whether you should consider them for your home.

It doesn’t take much skill to decide on a tenant who is perfect in all of the above categories.  However, most people are not perfect in all of these areas, so it takes skill to determine how important each area is when considering an applicant.  For example, you might get an application from a person with excellent income, excellent credit, but they are living with family, so they have no landlord reference.  In this case, I would recommend this tenant because credit and income are extremely important and he has met the requirements in those areas.  Of course it would be nice to have a landlord reference too, but this is not a perfect world and there is no reason to decline a tenant for that reason.

Another example is a tenant who has excellent income, an excellent landlord reference, but horrible credit with recent delinquencies.  I would typically recommend declining an applicant like this because the very object credit has indicated a serious problem with the applicant not following through on commitments.  The landlord reference is nice but again this is a very subjective area.

Using the above areas of consideration we have been able to maintain an eviction rate of less than one percent.

Keep in mind that proper screening goes a long way with an investment property!

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