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The Ongoing Work After Buying a Good Investment Property

Congratulations! After months of dedication, research, and perseverance, you’ve successfully closed on your first investment property.

The initial stress might have eased a bit after your celebratory dinner, but now it’s time to get serious about your investment and property management.

Avoid the temptation to search for “free tenant screening” or take shortcuts, as thorough and fair housing-compliant tenant screening is crucial.

Many experienced investors have learned, sometimes the hard way, that skipping this step can be both stressful and costly.

The Importance of Tenant Screening

You’ve likely come across countless articles stressing the significance of thorough tenant screening, but what exactly does that entail?

The good news is that the process is straightforward. In fact, it’s so straightforward that some investors may underestimate its effectiveness or believe their judgment surpasses a tried-and-true objective procedure.

Fortunately, in this instance, government regulations work in favor of investors.

The U.S. Department of Housing and Urban Development (HUD) provides valuable tenant screening best practices that not only simplify the process but also offer protection against fair housing complaints.

Winning at Tenant Screening: The Simple Steps

These steps are easy to follow and establish a paper trail, safeguarding you against professional tenants who prey on inexperienced landlords.

Whether you’re in a tenant-friendly or landlord-friendly state, these steps streamline the process, ensuring you secure a dependable tenant.

Define Your Screening Criteria: You can establish your screening criteria, but they must not address federally protected classes, such as income, credit score, criminal history (note that some states offer protections to felons, so research your local regulations), or previous landlord references.
Document Your Preliminary Acceptance Process: Create a clear process for preliminary acceptance before advertising the property. This process outlines how long an accepted applicant has to sign the lease and pay the initial required fees. Documenting this process is crucial.
Publish the Criteria in Your Advertisements: Include your screening criteria in all your property advertisements. This not only serves as documentation but also discourages unqualified tenants and deters scammers who target inexperienced landlords.
Screen Applications as They Arrive: Don’t let applications pile up. Screen each application individually as they come in to avoid appearing biased when choosing a tenant.
Offer Preliminary Acceptance: Offer preliminary acceptance to the first applicant who meets your criteria and agrees to your documented timeline for lease signing and fee payment. Request written acceptance of this timeline.
Continue Screening: If the first applicant doesn’t meet your timeline, move on to the next applicant who meets your criteria or continue showing the property to attract more potential tenants.

Why These Tenant Screening Steps Are Crucial

There are two important reasons to follow these steps and avoid the temptation to choose tenants based on personal preferences or biases:

Income Disparity Doesn’t Matter: It doesn’t matter if one applicant makes significantly more money than another as long as they can afford the rent. An applicant’s higher income is irrelevant if they meet your financial criteria.
Avoiding Fair Housing Violations: To protect yourself from fair housing violations, it’s not enough to claim you didn’t violate the regulations; you must prove that you didn’t. Proper documentation and following a consistent process are essential. If you deviate from your documented process, you open yourself up to potential fair housing complaints.

In summary, adhering to documented processes and best practices in tenant screening provides benefits beyond fair housing protection.

It significantly increases the likelihood of securing a reliable tenant who pays rent on time and takes good care of your property. Real-world data supports this approach: By following strict protocols, you can achieve a low eviction rate, ensuring the success of your real estate investment.

For example, a property management company with a 25-year track record reports zero evictions when adhering to published criteria and rigorous protocols. Consistency in policy and procedures yields favorable outcomes in nearly all cases.

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