Thursday, June 17, 2010
I talk to people about tenant screening on a daily bases and everyone is always concerned about credit information. As a property owner you should really be concerned about the applicants income level. If someone has great credit and makes $3,000 a month they may seem like they would be a good renter, unless of course the rent is $2,800. Living on $200 a month is next to impossible and your applicant will struggle to pay their bills.
To decide how much money an applicant needs to qualify to rent your property you need to come up with a rent to income ratio. It's best to establish a ratio as part of your rental criteria so each applicant knows your expectations. The rental housing industry generally uses a 3/1 ratio for income to rent. What this means to you is if the rent is $1,000 the applicant would need to make $3,000 or rent x 3. This is an easy way to make sure your applicant can afford the monthly rent and pay their other bills.
You may not believe this but some applicants lie about their income! If your applicant has told you he makes $3,000 a month you need to verify this amount. Income verification can be done by reviewing pay stubs or bank statements. The only problem with this method is the potential for falsification of the documents by the applicant. The best way to verify income is a phone call to their employer. Verifying the exact amount of income will help you make sure your applicant has the money to pay rent.
Once you have verified the applicants income your ready to move on to the next step in screening your applicant. Now you can factor in the credit report information, eviction records and criminal report as you make your decision to rent.