Avoid rental risks with proper tenant screening, legal forms, and compliant application practices.
Tenant screening
Screening potential tenants with a thorough rental application process is your best form of protection against issues like frequent turnover, unpaid rent, property damage, regulatory fines, and extended vacancies. Even small mistakes and oversights at this stage can hurt you.
That’s why serious investors hire property managers – they’re good at finding quality tenants who follow the lease and pay rent on time. For example, Fresno property management company Green Residential helps Texas landlords acquire good tenants from the start by using standardized, legally compliant rental applications and thorough screening criteria that reduce risk.
If you’re relying on outdated forms or making inconsistent decisions, your rental business is at risk. This guide will walk you through the most common points of failure during the application process and how to correct them.
1. Using the wrong application forms
Your rental application forms must adhere to all applicable federal, state, and local landlord tenant laws. Downloading a general application form online, whether free or paid, won’t cut it. You can’t verify if the forms were created by a lawyer, and there’s no guarantee they’re current. Not only do you need legally valid forms, but you might need to include information specific to your rental units as a pre-screening method to deter unqualified applicants.
The legal risks can be serious. If your application doesn’t follow the law, it could get you sued. Using forms that don’t reflect accurate and current laws expose you to compliance violations. HUD makes updates to the Fair Housing guidelines, and using an outdated form might mean you’re asking prospective tenants prohibited questions.
2. Overlooking incomplete applications
When a prospective tenant submits an application with incomplete information, that’s a red flag. You can’t assess what you don’t know. Missing employment information and gaps in rental history are all too common. Not having enough information can create blind spots in the screening process that only surface after the lease has been signed.
One of the most concerning bits of missing information is a lack of employment data you can use to verify employment and proof of income. Without this information, applicants can exaggerate or even fabricate their earnings. People who lie about their employment and income are more likely to default on the rent.
Another problematic omission is the lack of full rental history. Skipping prior landlord references makes it impossible for you to get information regarding a tenant’s behavior and compliance. Sometimes tenants skip rental history to hide evictions and disputes with former landlords. If you find gaps in an applicant’s rental history or employment information and you have other qualified prospects, skip the incomplete applications.
3. Violating fair housing laws
Many landlords are subject to the federal Fair Housing Act, along with state fair housing laws. Violating these laws can result in extensive fines and legal trouble. For example, you can’t ask applicants about their family status, national origin, disability, or religion. You’re also required to accept service animals and emotional support animals without requiring pet rent or a pet deposit.
If you deny an applicant, it’s critical to document objective reasons for the denial, or you’ll expose yourself to discrimination claims. Undocumented denials, even when valid, trigger cumbersome and costly enforcement actions.
4. Failing to calculate debt-to-income ratio
Accepting a tenant’s application just because they make 2-3 times the rent can be a mistake when their debt-to-income ratio is high. High debt reduces a tenant’s ability to absorb unexpected expenses, which can cause them to default on the rent if an emergency pops up.
5. Charging improper application fees
Application fees are regulated by each state and sometimes local ordinances and violations are common. Since the fee caps vary greatly by state, it’s critical to know your state’s limits. In some states, the fee caps change yearly. If you charge too much for an application fee, you might be forced to provide refunds or find yourself named in a lawsuit.
Anytime you collect an application, you’re required to process it. Charging fees without processing an application when no unit is available has resulted in enforcement actions. To avoid this issue, only take applications for available units.
6. Making decisions based on credit scores alone
A credit score doesn’t reflect rental payment behavior. If you receive an application from a tenant with a high credit score who has a recent eviction and a high debt-to-income ratio – even with a high income – that’s a red flag. Remember to consider all factors together and look at the big picture.
Protecting your rental income begins with your applications
Rental application oversights can turn into unpaid rent and legal disputes quickly. Use your applications to screen prospective tenants as a safeguard against preventable liabilities.
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