Tenant Evaluation: Key to Successful Property Management

 

Question: We are going to put our Dillon condo onto a long-term rental program and feel that we can handle obtaining the rentals by ourselves. Naturally we don’t want to rent to anyone who won’t take care of our place. How can we screen prospective tenants?

 

Answer: According to Peter Meer in a recent article in the Colorado Realtor News, a key ingredient to successful residential property management is the selection of a quality tenant. Remember that under federal and state law, there are 10 protected classes: disability, race, creed, color, sex, marital status, familial status, religion, national origin and ancestry.

 

Bottom-line, evaluate a prospective tenant on the basis of identification, employment, income, rental and credit history, and not on any other basis.

 

All residents that will be living in the unit 18 years of age or older should have a current ID picture issued by a government agency. At the signing of the lease make a photocopy of this identification. Be cautious of the would-be renter who cannot provide this.

 

As regards income, there is no standard level within the industry. A safe standard would be that the resident’s income be three times (after taxes) the rent on the unit they plan to occupy. You can verify income by: 1) current pay check stub, 2) self-employed previous tax return or W-2, 3) interest or dividends from investments, CD’s, trust funds, etc., 4) social security or disability payments and 5) alimony and/or child support. For items 3,4 and 5 a variety of documentation may be requested.

 

Rental history is an extremely important item and two years verifiable rental history is a good norm. Tenants may try to falsify this critical information. They may provide phone numbers of friends or relatives who will give them an outstanding reference. If the applicant was a homeowner for the previous two years, you may want to require proof of sale, closing statement or proof of satisfactory mortgage payments. Should the prospective tenant not have a rental or homeowners history, you might consider increasing the security deposit.

 

A credit report should be done on each applicant. If the applicant has no credit or poor credit you might consider a larger security deposit. If you turn down the applicant due to poor credit, he/she is entitled to know the name of the credit reporting agency and how to reach them, and you must tell them the reason you have turned them down.

 

As a property manager you have the legal right to determine the number of occupants for the property. The Department of Housing and Urban Development (HUD) has, over the years, attempted to define the correct number of people per housing unit on the basis of number of people per bedroom per square footage and most recently per number of rooms. There’s no federal, state or city law that truly defines the correct number. The safest way to go is to set a standard for you and apply it uniformly. For example, you could have a policy of two persons per bedroom with the exception of children under the age of five. Critical to all of this, no matter what our standard is (be sure it is reasonable), apply it uniformly or you could be in violation of fair housing laws.

 

In regard to the first month’s rent and the security deposit, it is very common to require certified funds for both upon signing the lease.

 

Applicants may be denied occupancy for the following (but not limited to) reasons; falsification of application, incomplete application, insufficient rental or employment history or a criminal record.

 

If you are a property manager acting for another, remember that you are the agent of the owner. You now have a fiduciary responsibility to place the best tenant available in that client’s property. Failure to use a reasonable tenant evaluation process could create a liability for you, the property manager. Bottom-line – don’t put just anybody in the property. Be certain that the new tenants meet reasonable standards.

For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - [email protected] or visit their web site at www.SummitRealEstate.com. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field.  Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.