What’s the best way to choose a tenant?
If you’ve never rented out a property before, you might think you can trust your instinct. If you’re a good judge of character generally and you like what a prospective tenant has to say, you might think about running a quick credit check and then pulling together a lease.
It’s not that simple.
At least it shouldn’t be.
Choosing the right tenant has a huge impact on your investment experience. The tenant you choose for your San Francisco rental property will influence whether you enjoy a successful and profitable tenancy or a lease term that’s full of conflict, disputes, and unnecessary expenses.
This underscores why tenant screening is so important.
Your screening process should focus on choosing tenants who are responsible, consistent, and reliable. You want residents who will pay rent when it’s due. You’re looking for tenants who have an easy time communicating with you, are willing to help you maintain the property, and will follow the terms of the lease agreement.
What kind of criteria will deliver these outstanding tenants?
Let’s take a look at how we screen San Francisco tenants.
Why Do You Need Documented Rental Criteria?
Fair housing laws are strict, and it’s imperative that you screen each tenant consistently and fairly. The best way to do that is to establish some qualifying rental criteria. This will not only help you find the best possible tenant; it will also provide you with some strict guardrails when it comes to fair housing. You probably don’t think that you discriminate from application to application, but it’s easy to let our own inherent biases or preferences take over without us even noticing.
Qualifying criteria helps you prevent that. It keeps your screening process consistent and objective.
It also delivers a well-qualified tenant for your property.
By establishing this criteria, putting it in writing, and providing it to all potential applicants, you’re really limiting your tenant pool to only those who are likely to qualify.
Always provide the criteria before a prospective tenant fills out an application. You can even get ahead of this by providing some of what you require in your listing.
- State the rental amount in your ad so you’ll only hear from people who can afford the rent.
- State whether pets are allowed
- Share any credit standards you have
- List the move-in date and length of lease term.
- List the security deposit you’ll want to collect.
When you include as much information as possible in your listing, you know that only qualified tenants will apply.
When you are transparent about what you’re looking for during the screening process, you’ll waste less of your time and less of your applicants’ time and money. You’ll also find that the criteria you set up will reduce your eviction rate and cut down the amount of time that’s spent managing bad tenants.
San Francisco Rental Applications
California has some strict laws around what you can and cannot ask on a rental application. There are also limits to the amount of a rental application fee you can collect. This amount changes annually and in 2022, you can charge just over $50 in an application fee. Make sure you aren’t asking any more than that.
When a prospective tenant asks for an application, be sure to provide that qualifying rental criteria that you’ve established and documented. Then, provide the application so you can screen every adult 18 years of age or older who will be living in the property.
You need a complete application in order to screen properly. Don’t let applicants get away with skipping portions or leaving questions blank. Check signatures as well. You need to have them sign these applications so you’re granted permission to check things like credit and backgrounds.
Most tenants will expect an online application. Make sure you’re using one that’s legally compliant and allows applicants to submit the application electronically as well as all the supporting documentation they might need.
Fair Housing Laws and Tenant Screening
Before we talk about how to evaluate each application against your rental criteria, you need to be prepared to follow all state and federal fair housing laws. The Fair Housing Act prohibits you from discriminating against any tenants or applicants based on the following protected classes:
- National origin
- Familial status
California, of course, goes further and provides extra classes of people against whom you may not discriminate when making housing decisions. These additional classes are:
- Sexual orientation
- Gender identification
- Gender expression
- Veteran or military status
- Primary language
- Marital status
- Source of income
- Genetic information
These protected classes are always evolving, and in some cases fair housing laws extend to screening practices in new ways. For example, you need to consider Section 8 tenants because they can use their housing vouchers as proof of income.
Qualifying Criteria: Income
Income standards should be set against the amount of rent you’re collecting. You want to be sure your tenants can afford the rent you’re charging.
Best practices in San Francisco property management say that a tenant should earn at least three times the monthly rent in order to safely cover that expense and meet their other obligations. So, if you’re renting out a home for $2,000 a month, you’re looking for a minimum monthly income of $6,000.
This income requirement should cover all of the tenants who are moving into the property. Adult partners and roommates who each earn their own salaries can combine that income to meet your requirements.
Verifying the income is as important as setting the criteria. Ask to see recent pay stubs that reflect what a tenant claims they earn. You can also use employment contracts and tax returns. For self-employed individuals, bank statements can be useful so they can show you the deposits that are made.
Qualifying Criteria: Credit
You always want to run a credit check. Some owners will have a credit score cut-off as part of their criteria, and that can be valuable in determining who will be considered and who will not. Look past the score, however, and check into the details. Some debt is an acceptable risk when you’re renting out a home. Other debt isn’t.
You want to know that housing-related bills are paid. You don’t want to see utility accounts that are overdue or in collections.
Qualifying Criteria: Evictions and Rental History
Checking for past evictions is one of the first things you should do when choosing a tenant. It’s not so easy to evict a tenant in California, especially not over the last few years. So, if your prospective tenant has a recent eviction, you might not want to choose that applicant.
Those evictions are a red flag because a lot has to go wrong in order for a tenant to ultimately be evicted from a property. It means they were unable to work out a payment arrangement with their landlords. Instead of vacating the property and canceling the lease agreement, they stayed in place without paying until they were legally required to vacate.
It’s also a good idea to check for judgments against the applicant and situations where money is still owed to a former landlord or apartment complex.
Ask for at least two landlord references on your application and verify the contact information so you can be sure you aren’t calling the applicant’s friends or family members.
Send an email or make a phone call and do a little interviewing:
- Ask the former landlord to confirm the dates of residency and the amount of rent that was paid.
- Find out if the entire security deposit was returned and if proper notice was given before that tenant moved out.
- Ask if rent was paid on time, and how quickly the tenant caught up if it was ever late.
- If the tenant had pets, ask if there were any issues with those animals.
- Find out if there was property damage left behind when the tenant moved out.
The most important question you will ask a former landlord is whether they would be willing to rent to the tenant again. If they say yes, you can be assured that the renter is a pretty safe bet. If they say no, you might want to reconsider.
Choosing a tenant depends on the information you gather during the screening process. You’ve looked objectively at all the information you gathered and measured it against your criteria. When a prospective tenant meets all of your requirements, you can safely offer them a lease agreement. If you’re going to issue a denial, make sure you send the proper notification.
These are some of the most important tips we can provide when it comes to choosing a tenant and setting consistent rental criteria. The screening process shouldn’t take more than a day or two, especially with the technology that’s available to us today. If you’re not sure you have the resources you need to effectively screen tenants and make a smart choice, we welcome you to contact us at Sharevest Property Management. We can help you find a fantastic San Francisco tenant.