Do you know what tenant red flags you should be on the lookout for?
When you are screening tenants for your rentals, it is pretty easy. You take an application, submit it to a screening company and wait for the results. You have preset tenant selection criteria, and you compare against the criteria. You let all the incoming prospects know what you are screening for, and you let them self-screen as much as possible. After comparing the results to your criteria, if the tenants pass, you accept them. If not, you move on to the next applicant.
Fortunately for investors, many landlords do not perform the easiest part of the land lording process. They take in sub-par tenants, let the tenants put undue strain on the property, and they trade deferred maintenance for profit. At some point, the maintenance can no longer be deferred, rent collections suffer, and other investors come to their aid to buy the property for pennies on the dollar.
All tenants have to meet the criteria, not just the financially responsible one. Not every read flag is a deal killer, but some are. Remember, you want a low-risk tenant to make the highest profit. Generally, all these red flags will show up in a tenants income, or credit score, even if the red flag is unrelated to those two.
Some things that you need to screen for and look for are the following.
Important Red Flags to Watch Out for When Screening Tenants
Make no mistake, if your tenant does not have enough income, you will be stiffed sooner or later. A larger deposit helps, but will not make the difference between profitability and losing money if you have to evict or cause a move out.
A tenant needs at least 3.5x the rent in income to make it affordable. You need affordable housing. I do not care if you are renting for $5 a month, $10 a month in income is not enough, and the rent is not affordable. On the other hand, you can have an apartment renting for $10K a month, with a tenant making $50K a month, and you have affordable housing.
Income will tell you the tenant’s ability to pay the rent.
If you think that credit score only indicates the risk that a tenant will pay rent, you are going to be disappointed. There are far too many studies linking credit score to risky behaviors. Look at it as more of a personal responsibility score. You can say that a person who doesn’t pay their bills and has a bad credit score has an entitlement mentality. You never want a renter with an entitlement mentality. Do not rent to a tenant that has risky habits unless you want an insurance claim.
Anything less than a 620 FICO credit score would garner a ‘D’ rating. Why take a chance?
Credit score will tell you the tenant’s desire to pay rent and will be an indication of future personal behaviors.
Make sure you use a county level criminal check that will gather open and dismissed cases. You want to know everything, including parking tickets.
No one wants a criminal living in their apartment. But what is a criminal, and what do you watch out for? If a tenant has a single domestic violence conviction, I do not want them. If someone will resort to violence, rather than address the situation in a civilized manner, it is a huge red flag. If a victim continues to live with someone that has committed the violence, you have a recipe for disaster.
More than one DUI or other alcohol related conviction is an issue. Some people cannot take the hint. Odds are, the person with two DWIs doesn’t have insurance either. Avoid them.
More Than 3 Convictions in 5 Years
If your applicant has more than 3 convictions for anything other than traffic violations, it is an indication that they cannot obey rules. Do not look for them to obey your lease. This includes any disturbances, DUIs, driving without a license or insurance or worse. Count all cases, including any that are “dismissed with conditions” or similar. I do not count speeding tickets or expired tabs in this category.
Open and/or pending cases should be counted as convictions until they have been completed in their entirety.
More Than 2 “Stops” in the Last 12 months, or More than 5 in 2 Years
I count everything here, including parking tickets, dismissed charges, etc. Any stop or arrest. These individuals continue to act on the “edge” of what is acceptable in society, so the cops pull them over. Maybe what they were doing was legal, but they had a smart mouth and got arrested. Then the prosecutor dropped the charges.
If they have more than 2 speeding tickets in a year, it tells me that the person does not plan ahead and has to drive fast to make up for their lack of planning. Too many parking tickets mean the person doesn’t seem to obey laws or cannot be inconvenienced by them. The people might actually be great tenants if you take them. I prefer to wait until they are clean. Bad
First of all, if this is your main indicator, I laugh at you. Far too many landlords ask tenants to leave, only to give them a great reference. Any tenant that cannot find a friend to pretend they are a landlord and say great things about them, you do not want anyway. But on occasion you get great information.
Was the entire deposit returned? If not, why?
Some small charges are acceptable; not getting most of the deposit back is a huge red flag. Late payments are a problem. Terminating a lease early is a problem. Not giving proper notice is an issue. Move on to someone that understands how to be a renter.
Other Red Flags; These by themselves are not necessarily deal killers, but could be.
Moving Too Often
Anyone who moves more than 2 times in a 5 year period could be a problem tenant. Look at the credit report for past addresses. You likely do not want someone that moves every year. Why are they moving — are they being asked to leave? Do they have a habit of annoying neighbors and have to leave?
There are legitimate reasons, but it is a red flag.
Looking to Move in Less than 2 Weeks
If your tenant needs a place right away, it is not a godsend for your vacant place, it is a huge red flag. Why do they need a place so soon? Did they just get a cure/quit notice? Do they realize they cannot pay rent and need to move out? Are they going to stiff their current landlord and move out without notice?
It could be legitimate. Did they just move into town and need a place to move into? Maybe they are living at home and will get their first apartment. Or their soon to be new landlord could not deliver the apartment and they are homeless now.
Living with Relatives or a in a Motel
When someone is living with relatives or in a motel, it is a red flag.
Did they just need a fast place to stay because of a cure/quit and did not have time to look? This is a common theme among people who are getting evicted. They move in with relatives and try to save money. After a few months, they attempt to move out. Solid tenants always have a place, and it is generally not with friends and relatives.
Changing Jobs Too Often
I like tenants with careers, not jobs. I want them to work at places that have paid vacations, sick days, health insurance and paid holidays. I do not want my rent late due to Christmas, kids getting sick, taking time off to go to a wedding, etc. I do not want a tenant who is a cashier today, a tire changer tomorrow and a burger flipper in six months.
If they change jobs that often, you will soon be without rent when they are between jobs. Look for at least 12 months at the same job or career. It is a lot tougher to track down a judgment and get a garnishment with a job hopper.
Owing Money to the State
If your tenant has unpaid traffic tickets or fines, it is a problem. Do you think that they will pay your past due rent when they are willing to risk arrest for having an unpaid fine?
Paying Deposit After Move In
If your tenant doesn’t have the full deposit at move in, do not rent to them. You will likely never get the full deposit. And you will have a very risky situation.
This list was compiled here.