Understanding the Lease Application Process

VOLUME I

From late payers and non-payers to chronic complainers and rule breakers, bad tenants will quickly turn your property investment dreams into the stuff of nightmares. Fortunately, it’s possible for landlords to avoid leasing to the nastiest of occupants—but only if you thoroughly review the tenant applications you receive and vet the information within them.

Start by Standardizing Your Tenant Application Process

Every state in the U.S. has its own standardized lease application, and that’s the form you’ll want to use. Contact your state’s real estate commission or the local office of the National Association of Realtors if you’re unsure where to find the most updated version of this document. Though use of these official forms by persons who are not members of the association or licensed Realtors is not authorized, your Realtor representative can get you access.

Of course, use of a standardized form is not enough. You should also ensure that you follow the same process each time you accept a tenant application. This includes obtaining a copy of the applicant’s photo ID; a signed authorization for a "Release Information" form so you can run a criminal background check and obtain the potential tenant’s credit report; pay stubs to show employment and income; and the contact information of the current and former landlords.

“Uniformity is essential,” said Jonathan H. Coleman, MBA, broker, and Realtor Relations Manager at Go4Rent. “With one standardized process to screen all of your lease applications, selecting the right tenant becomes easier.”

Never Skip the Credit and Criminal Background Checks

If you want to reduce your chances of leasing to tenants who pay late or won’t pay at all, a credit check to evaluate their financial status is essential.

“It will help you determine the financial responsibility of a potential tenant,” Coleman adds. “The credit report will also reveal any collection accounts placed by a previous apartment community or landlord.”

Running a criminal background check, in addition to pulling the credit report, offers another layer of protection against the potential of renting to a tenant who could jeopardize your property. Criminal background checks will confirm if the potential occupant has a relevant felony conviction or is listed on a sex offender registry.

Talk to the Applicant’s Current and Previous Landlords

Collection accounts are one way to identify tenants who have failed to pay their rent in the past, but it’s wise to contact the applicant’s current and previous landlords to gather additional details.

Did they disobey any of the apartment community or property’s rules?
Did other tenants or neighbors complain about them?
Did the property manager find them difficult to deal with?
Did they leave any damage behind when their lease ended?

This is all valuable information to have when making a rental decision.

Take the Time to Confirm Income and Employment

While a credit report may list current employers, it’s important to reach out to them directly when reviewing tenant applications. You should confirm the length of their employment, double check that they are still employed there, and ask about income or wages earned. Compare this information to the potential tenant’s pay stubs and lease application.

“It’s good practice to verify the applicant’s current employment utilizing several avenues of information,” Coleman explained. “At Go4Rent, we don’t just rely on pay stubs. In most cases, we obtain a verification from the applicant’s HR department.”

If your potential tenant is self-employed, Coleman recommends vetting his or her income through bank statements and tax returns.

“We need the ability to see the current and past performance of their business,” he said. “At a minimum, we ask for the last three bank statements and the last two years of tax returns to provide a broader view of their financial stability.”

If you learn while reviewing the application that a tenant is going to be starting a new job or changing jobs shortly, ask for a copy of the job offer letter. Similarly, if you note that the applicant has poor credit, you can request a Letter of Explanation addressing any particular event (such as a health emergency or divorce) that may account for the damaged credit score.

A Thorough Review Helps You Avoid Many Landlord’s Biggest Leasing Mistakes

“The biggest mistake we’ve seen property owners make is not verifying the information provided by the tenant,” Coleman says. “You must view the credit report with a criminal and eviction report. You must verify current employment and make sure the applicant did not terminate employment after applying for the rental. You must verify the current rental history.”

Doing so takes time, but being thorough is better than making a bad leasing decision that could lead to costly eviction proceedings. If you find the process too complex or want to shorten your review time, Go4Rent can help.

“We can do all of these checks for them,” Coleman said. “The credit report will provide a FICO score, along with all the payment history. Our criminal and eviction reports contain nationwide data. For verification, we have an in-house staff conducting daily phone calls and emails to applicant’s employers and landlords. Additionally, Go4Rent provides landlords with two years of rental history.”

The Ins and Outs of Working with Investors

While tenants of rental properties focus on factors such as property quality, location and monthly rent, investors may focus on one overarching factor: return on investment. Here’s what Realtors need to know about how investors generally decide whether they want to invest in rentals.

Rental Inspections: Don’t Wait Until Move-Outs Only

Move-in/move-out inspection and periodic inspections are important aspects of managing a rental property. By better understanding what to look for during inspections and how often to schedule them, it is possible for landlords to avoid common mistakes.

Creating a Go-To Contractor List

Agreeing to a contractual relationship, such as a service maintenance agreement, with a vendor could significantly speed up any frantic searches—especially during emergencies and late-night hours.

Navigating Out-of-State Rental Properties

Today’s housing market is a bit of a seesaw. In 2022, the Federal Reserve hiked its benchmark interest rate six times. Higher interest rates mean loans are more expensive for consumers. But no matter what happens with inflation, people need a place to live. This is leading property owners to look for a means of disposable income. And sometimes the real estate investor may choose a property from another state.

Is That Emotional Support Animal Legit?

It can be difficult for landlords to tell if someone has a legitimate ESA or simply a pet. Banning a tenant with an ESA could lead to legal action against the landlord. Fortunately, there are ways that landlords can fairly differentiate between the two to comply with the Fair Housing Act.

Repairs: Who Pays for What?

For a landlord, a rental property is an uphill battle against mishaps, calamities, the hands of time and sometimes nature itself. To guard their investment, property owners must plan ahead, maneuver tactfully and sometimes be prepared to cut their losses.