How to Avoid Bad Tenants at Your Investment Property

Before you list your property, write down your screening criteria. What is your minimum credit score? How many years of rental history do you require? What is your policy on prior evictions? What income-to-rent ratio do you require?

A written policy protects you in two ways. First, it forces you to think through your criteria before you are under pressure to fill a vacancy. Second, it protects you from fair housing complaints by demonstrating that you apply the same standards to every applicant.

Common criteria include a credit score of 620 or higher, monthly income of at least three times the rent, no evictions in the past five years, and no felony convictions within the past seven years (subject to applicable state law).

A thorough rental application is your first line of defense. It should collect the applicant's full legal name, date of birth, Social Security Number, current and previous addresses for the past five years, current and previous employers, and personal references.

Ask for the names and contact information of previous landlords — not just the most recent one. A bad tenant may have a good relationship with their current landlord (who wants them to leave) but a poor one with the landlord before that.

Review the application carefully for inconsistencies, gaps in rental history, or vague answers. These can be red flags worth investigating.

A comprehensive tenant background check should include a full credit report, nationwide criminal history search, sex offender registry search, eviction history, and identity verification.

On the credit report, pay particular attention to payment history and any balances owed to previous landlords or utility companies. A pattern of late payments is a strong predictor of future non-payment.

On the criminal history report, focus on convictions that are relevant to the tenancy — crimes involving property damage, violence, or drug manufacturing are more relevant than a decade-old minor offense. Be aware that fair housing laws in some jurisdictions restrict how you may use criminal history.

An eviction on record is one of the strongest predictors of future eviction. Even a single eviction in the past five years warrants careful consideration.

A tenant who cannot afford the rent will eventually stop paying it. Require documentation of income — pay stubs, tax returns, or bank statements — and verify employment directly with the employer.

A common rule of thumb is that monthly income should be at least three times the monthly rent. For a $1,500/month apartment, that means the tenant should earn at least $4,500/month.

Be cautious of applicants who offer to pay several months of rent upfront in lieu of meeting income requirements. While this may seem reassuring, it can be a sign that the applicant knows they will not qualify on income alone.

Landlords sometimes override their screening criteria because an applicant seems nice, has a compelling story, or is eager to move in quickly. This is almost always a mistake.

Apply your written criteria consistently to every applicant. If an applicant does not meet your criteria, decline the application — politely, in writing, with the required adverse action notices if a consumer report was involved.

The vacancy cost of waiting for a qualified tenant is almost always less than the cost of evicting an unqualified one.