For most landlords, making informed decisions about tenants is a top priority. It’s essential to identify untrustworthy or risky tenants before you allow them to rent your property.
The consequences of forgoing tenant screening can be harsh if you end up with a bad tenant. In a best-case scenario, a problem tenant might make a few late payments and incur late fees. In a worst-case scenario, however, you could be looking at thousands of dollars in eviction fees and property damage, plus tenant grievances and legal liability.
So what is the best way to avoid these consequences? One solution is to employ a tenant scoring system in your screening process. Tenant scoring helps you document your standards for accepting tenants and prevent those worst-case scenarios.
Here are four benefits of screening tenants and using a scoring system.
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It Reduces Tenant Turnover
Landlords strive to reduce tenant turnover as much as possible. Every month a property lies vacant is a month of rent you’re missing out on. One way to avoid unnecessary vacancies and reduce turnover time is to employ thorough tenant screening.
Reviewing a tenant’s credit and eviction reports gives you an idea of how well prepared a tenant is to meet their rent responsibilities. If you choose a highly qualified renter, there is a minimal chance they will violate their lease terms or need to be evicted.
A tenant scoring system is a useful tool for determining which tenants are trustworthy. A scoring system is a weighted point system for calculating and comparing tenants’ eligibility. For instance, you might assign “credit score above 700” two points but “bankruptcy” negative two points.
Tenant scoring introduces objective, numerical scores with which you can quickly make decisions about potential tenants and limit vacancy periods.
It Prevents Legal Liability
Perhaps the most important reason to use tenant scoring is to prevent legal liability. According to the Federal Fair Housing Act, landlords need to apply the same standards and screening to each applicant equally. Equality in housing is not optional. A tenant scoring system helps landlords abide by this law.
For instance, clearly documented scores are an excellent defense against favoritism or discrimination claims. You can easily prove that you screen all your tenants the same way and that a tenant you denied didn’t meet your standards for credit, income, or other valid factors.
It Helps Make Judgment Calls
Tenant decisions are not always easy. Sometimes, you’ll encounter renters with similar qualifications and comparable incomes and credit scores. What do you do then?
For instance, some applicants are highly qualified in one area of screening, but not in another. Say a renter lists a very strong income, but their credit report shows multiple late payments. How do you compare this applicant to another with strong credit but a lower income?
A tenant scoring system can help you weigh the risks and benefits objectively. It can be difficult to make decisions when no one renter is clearly the better option. Scoring helps you make judgment calls as objectively as possible by assigning comparable scores.
Remember, you are ultimately responsible for making final decisions about tenants. However, a scoring tool is an invaluable resource that can ease the strain of tough decisions while simultaneously protecting you from future liability.
It’s Individualized
A final benefit of tenant screening with a scoring system is that it’s highly individualized. No two landlords are the same. Not all landlords have the same principles, values, and standards for their tenants.
Tenant scoring accommodates your individual needs. Scoring systems are fully customizable, meaning that you can manipulate point values to fit your standards for tenants. For example, if you rent properties in a high-income neighborhood and want to ensure tenants will be able to afford their rent, you can place extra weight on income in your scoring system.
Reduce Risk in Your Rental Business
Tenant screening is an important but detailed endeavor. Property management software can simplify the process, but final decisions are still in your hands. Using a tenant scoring system as part of your screening procedures is the best way to protect your rental business from risk. Use scoring to streamline decision-making and clarify your own standards, and you are sure to find great renters for your properties.