Landlord files: How to vet a rental application

After you have received an application and the application fee from your tenants, you will want to process the application in a timely manner. I ask tenants to notify their employers and previous landlords to expect my call so that I can process the application as quickly as possible.

By Kathryn Eaton Clinical Assistant Professor, Marketing

After you have received an application and the application fee from your tenants, you will want to process the application in a timely manner. I ask tenants to notify their employers and previous landlords to expect my call so that I can process the application as quickly as possible. There are a couple of reasons for the quick turnaround: one, your prospective tenants are likely looking around at other places, and you don't want them to lose interest; and two, if these tenants don't qualify, you want to be able to move on to the next ones immediately to minimize the chances of having a vacant property. With the application in hand, use an online service to do a background and a credit check.

There are plenty of these online who will do it for a nominal fee. Don't skimp here: the money up front is far less than what a bad tenant would cost you. You want tenants with no criminal history and either good credit or a good explanation for their bad credit. In today's economic climate, you will see a lot of fantastic tenants that have bad credit because of a foreclosure or a short sale. If you rule them out, you are significantly narrowing your applicant pool. What you want is a tenant who is straightforward and doesn't try to hide anything. I had an excellent tenant once who brought up his short sale during the initial walk-through — he very calmly told me his story and what to expect on his credit report as a result. I appreciated his candor, and it reflected on how he would treat me if he were to become my tenant. He never had a late rent payment.

While reviewing the income information on the application, I look for job security and stability, and I want to make sure the tenants will be able to afford the property. A call to the employer to verify the employment and stated income is a must. For stability, 1 and 1/2 to 2 years with their current employer is generally a good rule of thumb. This amount of time shows that the tenant is invested in the company, and he or she isn't likely to jump around from job to job. To determine whether the tenant can afford the property, I try to use roughly the same calculation that mortgage companies use: the rent shouldn't be more than about 40 percent of the tenant's net income after taxes and any other debts they might owe. The credit report will help you do the math.

You also want to check the credit report for late or non-payments. How tenants pay other debtors is indicative of how they will pay you. Using information about previous residences, I first look for any gaps in residence history. Just like with employment history, I am looking for security. Ideally, I want a tenant who is going to stick around for a few years. I also always call and talk to the previous landlord. My standard questions are length of tenancy, whether the rent was paid on time, whether there ever were any complaints about the tenants from the HOA, city, or neighbors and whether the tenant ever had damaged the property. Some landlords are reluctant to share information, wary of a lawsuit that might stem from them being overly honest.

That's why I keep it to yes or no questions while giving them the opportunity to fill in the details if they want. However, it can be very helpful to prod for additional information. Once, I spoke with a previous landlord who gave the prior tenants a glowing recommendation. I commented that one of the prospective tenants had told me that the previous landlord had failed to make some necessary repairs. Angry, the previous landlord opened the floodgates and told me all about the damage the tenants had done to the house and that they were the ones who didn't make necessary repairs. Needless to say, this was valuable information that I would have missed if I didn't push a little harder.

"Getting Started" is an entrepreneurship column by the faculty of the W. P. Carey School of Business at Arizona State University. Kathryn K. Eaton is a clinical assistant professor of marketing at the W. P. Carey School of Business. Her areas of expertise include consumer behavior, product and service design and health care innovation. First published in The Arizona Republic, November 24, 2015.