The unfortunate reality is that for every great tenant out there, there is one that is equally as terrible. That’s why when assessing potential renters, landlords should be aware of red flags that may signal potential future issues. Keeping an eye out for these simple but crucial signs can keep your rental process from turning into a lease-long nightmare.
The last thing you want to happen is getting stuck with a tenant who can’t pay their rent. That’s why proof of employment and income is one of the first things you need to check when vetting a prospective renter.
It’s not enough to just run off of savings—as a landlord, you need to be sure your tenants will bring in enough money on a regular basis to continue paying their rent. While the typical recommended income is at least 2.5 times the rent (here at SmartEgg, we require at least 3 times the rent), there are a few exceptions:
- Cost of Living: Certain parts of the country have a much higher cost of living than others. In fact, every 1 in 4 US renters spends 50% of their income on rent and utilities! If you live in an area with a very high cost of living (such as Austin, Texas), renting to someone with a monthly income that is 2 to 2.5 times the rent may be typical and not considered “risky.” Research is key.
- Students: If your property is located near a college campus, it may be difficult to find student renters with steady income streams. In this case, requesting a co-signer (such as a parent) can be a viable option.*
* Note: In Austin, students are legally a protected class. This means that landlords are not allowed to deny an applicant simply because of their student status.
While we’re on the topic of finances, let’s talk about credit. Credit is a strong marker of a prospective tenant’s financial history, and it serves as a great tool for risk assessment when considering applications. Looking into an applicant’s credit score gives you a sense of two things:
- How much debt they have
- How likely they are to pay their rent on time
Generally speaking, you don’t want to rent to someone with a credit score less than 600 if you can afford to. The lower the score, the more risk you’re taking on as a landlord.
Any evictions in a tenant’s rental history are major red flags.
Evictions occur as a result of tenants breaking the terms of their lease, including but not limited to:
- Not paying rent
- Criminal activity
- Subletting without permission of the landlord
- Unauthorized pets or tenants
- Property damage
Evictions are long, expensive suits that property owners want to avoid at all costs. So, if an applicant has been evicted in the past, it was most likely as a last resort, when simple discussion and negotiation failed. And, if it’s happened to them in the past, there’s a good chance that it may happen again on your property.
While an arrest record may be alarming to see on a rental application, it’s important to note that the U.S. Department of Housing and Urban Development (HUD) prohibits the following discriminatory practices:
- Denying an applicant housing solely based on arrest records
- Blanket bans on anyone with a criminal record
- Conducting targeted background checks on some applicants and not on others
In addition, the Fair Housing Act states that landlords must consider factors such as the type of crime and the length of time since conviction when judging a candidate’s application. In order to deny an applicant based on their criminal history, you must have sufficient proof that they are a “direct threat” to the health and safety of others or that renting to them will risk substantial physical damage to the property of others.
Furthermore, local governments may or may not have more stringent laws on what qualifies as discriminatory practices. For example, Texas rental policies directly refer to the HUD’s Fair Housing Act, but other states may differ. Make sure to cross-reference local regulations when making a decision to deny an applicant as a result of their criminal history.
If a prospective tenant is hesitant about filling out the personal info necessary for a rental application or provides false/incomplete answers to questions, it may be a sign that they are trying to hide something in their history.
It’s important to note that some people may be afraid of releasing their social security number on rental applications. In that case, you must explain to the applicant that a social security number is necessary for a credit check. Without it, you have no way to verify their financial health and are taking on unnecessary risk when renting out the property.
The reality is that it’s impossible to know for certain whether a great applicant will be a great renter. That said, being aware of red flags is an important step towards mitigating risk in the rental process, protecting both you and your property from potential future harm.
Need help screening applicants? We’re happy to help. Just send us a message and let’s get started!