How to choose a good tenant for your Bluffton/ Hilton Head property?
Screening a tenant for your Bluffton/ Hilton Head rental property can be a scary thought. How do you know that the person you are putting in your rental is going to take care of the house, pay rent on time, and not be a headache? We’ll be taking a look at how to properly screen your tenant in accordance with South Carolina law.
Information you need before starting the screening process
There are a few different pieces of information you will need to make an informed decision. Everyone above the age of 18 that will be staying in the unit should submit this information. It is imperative that you receive this information from the applicant(s) and follow-up on it before signing a lease.
This information includes:
- Paystubs if W-2 employed
- Prior year’s tax returns and three months of bank statements if self-employed
- Current landlord’s contact information*
- Current and prior employer’s contact information if prospect has recently switched jobs**
- Credit report
- Criminal history report
- Eviction history
*If the prospect does not have a previous rental history then read on below for some workarounds.
**If the tenant does not tell you that they recently switched jobs then looking at their pay stub will tell you if they have. If the pay stub shows them making $20 per hour and working 40 hours per week, but the YTD (Year to Date) amount in October shows something like $10,000 then this indicates they have not been at the job for long.
Beware of tenants who do not want to be screened, or who are looking to get into a property as fast as possible, even if they say they are willing to pay extra. There is a reason why the applicant won’t consent to a background check. And no matter what reason a prospect gives you for needing to move into your unit ASAP, you should still take the time to perform due diligence before signing a lease agreement with them. Although evictions in South Carolina are not as time-consuming as other states, it is still much easier and less costly to reject an applicant than it is to evict a tenant.
1. Tenant Income Criteria
To determine the applicant’s income, this information can be found via their pay stub for W-2 employees, or by looking at the tax returns and bank statements of self-employed individuals.
Making sure that your prospective tenant actually makes enough to afford to live in your rental is one of the most important steps of tenant screening. You’ll want to make sure that the applicant makes enough in gross income to cover the rent at least 3x. So if you are renting your property out for $2,000 then the combined gross income of the applicant(s) should be at least $6,000 per month. This is something you do not want to waiver on. Spending more than ⅓ of gross revenue on rent means that the tenants may not have enough money for other various living expenses such as food, gas, car maintenance, and surprise expenses that may pop up.
2. The Job History of the Applicant
If the prospect has been at a job for at least 1 year then you don’t have to call up their current or ex-employer as it can be assumed that they have stable employment. However, if the applicant has been at a job for only a few months then it’s usually a good idea to call their old boss as well as their new boss. Ask both bosses if they have had any problems with the applicant and ask the old boss for the reason why the applicant left. You’ll want to know if it was because the employee was fired, which may cast some doubt on whether they will be able to consistently pay rent. Some companies are unable to answer questions pertaining to how an employee performed at their job, or why they left so you may have to make a judgment call on if you are ok with not knowing if the applicant is in danger of losing their job due to a poor performance.
Pro Tip
An applicant who has had a poor working history may put their friend’s phone number down instead of their employer’s number. To make sure you are talking to the right person you can try performing an online search for the phone number to see if it comes up as a business number for the current/ former employer.
3. Reach Out to the Previous or Current Landlord
Next you’ll want to call the applicant’s current landlord and ask if they had any issues with collecting rent or the tenant following the rules. There is a risk of the landlord saying the tenant is great when in reality they just want a bad tenant out of their hair so you could instead ask for a prior landlord’s contact info to make sure you are getting an honest answer as a prior landlord has no incentive to lie about a tenant, while a current landlord does. You’ll also want to have the current landlord fill out a Verification Of Rent (VOR) form, which can be found through a quick google search. The VOR will confirm that the tenant has paid their rent on-time and is in good standing. The form is pretty quick to fill out so it should not take the landlord much time to do. If the applicant does not have a current or past landlord then it is up to you if you want to take the chance on this person. If you do wind up selecting this applicant then you can always charge a higher security deposit.
Using the websites listed in the “What Tools Help with the Tenant Screening Process?” section will search eviction records across the nation to see if the applicant has any prior evictions. An eviction is a major red flag and a sign that you should not rent to the applicant.
Pro Tip
Just as with the employment history, applicants with a poor rental history may put their friend’s phone number down instead of their actual landlord’s. An online search of the number may determine if the number is legitimate or not, but if you are unable to find out then when you call the number pretend to be a prospect looking for an apartment by asking if the landlord has any units available. If you were given a friend’s phone number then they will have no clue what you are talking about. Once you determine that the number is legit then you can proceed with asking questions.
4. Credit Score, Green Flags and Red Flags
As stated above, you’ll want to make sure that everyone over the age of 18 who will be living in the unit has filled out a background check. This is to ensure that all of the adults are liable to pay the rent and follow the rules. Check out the websites in the tools section below for sites to help you with getting credit reports. When looking at the credit report, you will probably want a tenant with a credit score of at least 600. The higher the score the better, but it is important to remember that many applicants may not have a high credit score as they do not have a long credit history, or they may have had a medical bankruptcy that ruined their score. However, if everything else on their application is fine then a low credit score may not lead to an automatic rejection of their application. An applicant should be looked at holistically and not just as a credit score. A good score indicates that the applicant has been able to meet their obligations over a somewhat long period of time and most likely knows how to prioritize their finances. Usually, a tenant will prioritize paying rent over most other obligations so if they are consistently covering all of their outstanding obligations then this bodes well for their ability to make the rent every month. Someone with a poor history of paying their debts should be disqualified.
5. Check the Criminal History of Your Future Tenant
When it comes to criminal history there is no hard and fast rule on this. Technically you can disqualify someone for any criminal history, but it’s best to look at the severity of the crime and how long ago the crime occurred. As with the eviction report and the credit report, the websites in the section below will also provide you with a criminal history report. You can also use the Beaufort County court records. Note that these records will only tell you if the applicant has a criminal or eviction history anywhere in Beaufort County, but not the rest of the country.
If someone has a misdemeanor on their record then it isn’t that big of an issue. A felony however is different. Some of the HOAs in Bluffton and Hilton Head do not allow anyone with a felony conviction to live in the community, in which case you will have to reject the application. Even if the HOA does allow felons to live in the community you may still want to reject the application. However, if you do believe in second chances then if the rest of the application looks good, and the felony occurred over 10 years ago, you might not outright reject the applicant.
What Tools Help with the Tenant Screening Process?
Websites such as mysmartmove.com, avail.co, and apartments.com can be used for this. Typically these screening websites will have you create an account and send an invitation to the prospective tenant. From there the prospect fills out their information and consents to the background search. Once the search is complete you will be sent the results that you can then use to see if the applicants fit the criteria.
How to Prevent Discrimination Lawsuits
Up to this point we have talked about what criteria you can reject a tenant for, but there are certain things you can not reject them for. Anything that is considered housing discrimination under the fair housing act is illegal. You can not reject an applicant due to any of the following: race, color, national origin, religion, gender, gender identity, sexual orientation, familial status, or disability. Basically, you should only reject someone if they do not meet the minimum criteria as outlined in the sections above. To mitigate any chance of a lawsuit you should be consistent with applying the criteria to every applicant, and you should accept the first applicant that matches the criteria. Anyone who does not meet your criteria should receive a notification of their rejection as well as the reason as to why they were rejected in writing. This is important to do with all rejected applicants to prevent discrimination lawsuits. Also, if you know someone will not qualify for your property, but they insist on submitting an application, then you must let them fill out an application. Once it is submitted you can then send them a notice of rejection with the reason why they were rejected. Yes, it may seem like a waste of time, but doing this can save you a ton of money in lawsuits.
Conclusion
The tenant screening process can be long and time-consuming, but it is one of the most important components of making sure that your rental property investment is profitable. You can almost think of your tenant as your business partner that you hope will hold up their end of the deal. You wouldn’t do business with any random stranger without getting to know important information about them. Therefore, you shouldn’t accept a random stranger as your tenant without determining if they are worthy of living in your property. Beware that background screening is not a perfect science. Just because a tenant has been good in the past does not mean they will continue to be good in the future. As with all investments past performance is no guarantee of future result, but by properly screening your tenants you drastically reduce this risk and stack the odds in your favor.