Perhaps the best problem a landlord can have is too many good candidates for a rental unit. Every landlord must decide which factors are most important to them—and also be smart in rejecting the ones they don’t pick.
Why is Picking the Best Tenant the Most Important Thing?
Once you get a tenant into your property, it’s likely you’ve got them for at least a year. If they turn out to be a massive headache, that’s a long time to deal with them.
If you’ve got a really good tenant who’s a flight risk, you’ll have a vacancy on your hands. In other words, you want to find not only very good tenants, but ones who plan to stay.
Costs of Eviction
When a property manager doesn’t do their due diligence, they are more likely to lease to a tenant that needs to be evicted down the road.
For example, perhaps you didn’t pull a background check, so you never found out that your new tenant has a spotty history of paying financial obligations. Or, they have a prior eviction that wasn’t discovered.
Picking applicants that are low risk for eviction is paramount to the success of a rental property, especially with the evictions costing between $3,500 and $10,000.
Costs of Vacancy
Vacancies are perhaps your largest expenses that can happen regularly (hopefully evictions aren’t a normal occurrence). They are more likely to occur when property managers don’t vet their applicants properly.
Let’s say that you’re doing a good job of picking low-maintenance, highly qualified tenants, but they’re flight risks. Maybe they are prone to moving around a lot or they don’t have a steady career.
Let’s assume that these tenants are awesome, but they never renew their lease and only stay for a year. In your search for your next great tenant, perhaps you have a vacancy of a month. You could find someone faster to fill your property, but you understand the value of fantastic tenants, so you take your time.
However, that vacancy gets expensive. With average rents surpassing $2,000 per month in the U.S., that single month without a tenant wipes away a chunk of your profit from the year.
It’s worth it to find tenants who also have a high likelihood of staying year after year so you’re not frequently incurring vacancy costs as well as tenant screening costs.
Costs of Poor Maintenance
Tenants who don’t keep up with the maintenance that they’re supposed to do can cost you plenty of money over time.
For example, let’s say that the faucet develops a leak and the tenant doesn’t report it. Over time, perhaps the leak gets bigger and turns into a bigger fix. Or worse, it floods the house.
Also, if they refuse to mow the lawn or shovel snow, you may have to hire someone else to take care of it. It’s probably cheaper to do this rather than evict.
If that tenant is terrible at keeping the place even semi-clean, that mess they didn’t clean up could turn into a carpet replacement job.
If you have one applicant who appears to be more responsible and more readily accepts maintenance responsibilities, that’s a good reason to choose them over other candidates.
Costs of Increased Stress
Low quality tenants lead to unwanted burdens that property managers would rather not deal with. Having to deal with evictions, vacancies, and consistent maintenance issues takes a larger toll than time and money.
In the end, this often leads to wanting to get out of the business altogether and selling the property. This costs the most money from losing out on the great financial benefit of owning rental properties.
Choosing the applicant that will cause you the least stress will be an incredibly important factor to the long-term success of the property.
Should You Pick Applicants on a First Come, First Serve Basis?
While there is no law requiring you to choose applicants based on how quickly they submitted their application, it is a common practice among property managers. This is because it’s possible to become subject to a discrimination claim.
If you have multiple qualified applicants submitting an application, yet you don’t choose the first one, that applicant can legitimately wonder why that happened. After all, property managers want to avoid vacancies as well as spend less of their valuable time on the screening process. So, why wouldn’t you have chosen the first applicant?
This could give the appearance of discrimination, even if that is not your intent.
However, choosing on a first come, first serve basis means you run the risk of finding a lower qualified applicant by relying on speed rather than quality. If you’d like to choose on a first come, first serve basis, be sure that you still follow up on references, run background checks, and look up their credit and eviction history.
Another way to look at first come first serve is if you’ve had many applicants and you find a few that are equally qualified. They all look like they’d be fantastic long-term tenants. In that case, breaking the tie by who submitted their application first is generally considered best practice as to avoid any claims of discrimination.
15 Factors for Choosing Between Two Good Tenants
Here are the best ways to decide between applicants:
- Better Income
- Lower Debt
- Higher Credit Score
- Has a Criminal Background
- Has Prior Evictions
- More Responsible/Better Communicator
- Longer Rental History
- More Stable Job Situation
- Doesn’t Smoke
- Has Fewer (or no) Pets
- More Readily Agrees to Lease Agreement Rules
- Better References
- Fewer vehicles
- Has Lived in the Area Longer
- Applied First
1. Better Income
As being able to pay the monthly rent bill in full and on time is the priority, you clearly want applicants who likely won’t struggle financially.
Before you pick one applicant over another based on income, be sure that you’ve verified the number with their employer.
2. Lower Debt
Perhaps just as important as finding a tenant with sufficient income is to find one with low debt. You’d rather have someone earning $75k with no debt than someone earning $100k who has massive debt payments each month.
Also, someone who incurs a lot of debt regularly is more likely to keep going into debt to buy nice things. They are more likely in the long run to get into financial trouble and struggle to keep up with rent, even if their yearly income appears to be a healthy number.
Many landlords choose to calculate rent-to-income ratio when screening tenants. However, debt-to-income is the superior metric as it gives a fuller picture of how much actual income the applicant has to spend on rent.
3. Higher Credit Score
The applicant with the higher credit score has demonstrated that they likely handle their finances better. A longer history of paying off their debts (or incurring less debt) is a good indicator they’ll have less issues paying rent each month.
You should always run a credit check, and you can even ask the tenants to pay for it themselves in the form of an application fee.
4. Has a Criminal Background
You can and should be running a criminal background check on all your tenants. If something pops up in the report, it’s then up to you to decide if it’s worth using that as a basis for denying an application.
For example, if you have two awesome applicants, but one of them stole a candy bar 10 years ago, that’s likely not a great reason to pick the other one. However, if one has a violent felony, then your decision becomes a lot easier.
Make sure that you don’t ask about arrests, as that can be considered discrimination. Arrests do not imply guilt. If you come across any prior arrests, be sure to exclude that fact from your decision-making.
5. Has Prior Evictions
With evictions costing you upwards of $3,500, pick the applicant who hasn’t been evicted before. This should be a top reason to disqualify a potential tenant, especially since you can look up public eviction records in about five minutes.
6. More Responsible Communicator
This point often goes undervalued by property managers until they have a tenant who would rather ignore them or shirk responsibilities.
If one applicant responds to your texts/emails, shows up on time to meet with you, and accepts maintenance responsibilities whole-heartedly, that’s a much better tenant than someone who doesn’t do those things.
Less responsible tenants who are bad communicators can lead to:
- Vacancies with little notice
- Unchecked maintenance issues (like a leaky faucet that the tenant neglects to tell you about)
- Broken lease rules
- Frustrating text exchanges
- Pushback on anything you ask of them
When deciding between two applicants, find one who’s going to work with you rather than against you.
7. Longer Rental History
Sometimes, renting instead of owning isn’t a necessity but rather a lifestyle choice. Some like not having to worry about home ownership.
Let’s say you’re choosing between these two applicants:
- Applicant A – Has owned a house for the past 15 years, but had to downsize to a rental because of financial struggle.
- Applicant B – Lived in the same rental for 10 years, and is ready to upgrade to yours.
Applicant B has shown a proclivity to renting. Perhaps it was out of necessity, but also it could be they just like renting and not being attached to a property or dealing with maintenance issues themselves.
Rental history can also include points like missing payments, damaging properties, and evictions. Be sure to verify rental history as part of your screening process.
8. More Stable Job Situation
On your application, be sure to get a bit of a job history (going back at least 5 years).
Here’s what you DO NOT want to see:
- Unexplained gaps in employment – Were they fired and couldn’t find another job for four months?
- Frequent job hopping – Are they a flighty, restless person? Job changes could indicate someone who’ll get bored quickly of living in your rental and move on somewhere else. Or, it’s possible they were fired a few times as well.
- No progression – If they’ve been in the same field for several years, why are they not a manager?
- Switching careers – If they’ve gone from a chef to a salesperson to a construction worker, that can mean less job security and earning potential than if they have an established career.
If one of your applicants has held a good position at the same company for the past five years, that’s a better indication of a stable tenant.
9. Doesn’t Smoke
Disqualifying a potential tenant on the basis of drug addiction is considered an act of discrimination as addiction is considered a disability under the Fair Housing Act (FHA).
However, smoking is not considered a protected class as it’s not considered addicting and therefore not considered a disability. It’s strange, but cigarette companies will always use their considerable pull to keep their products being labeled as addictive.
So, if you have two qualified applicants and one of them smokes, the decision between the two of them gets a lot easier. Smoking-related costs average around $4,935 for multi-unit housing owners, so this should be a big factor in your decision.
10. Has Fewer (or no) Pets
You are allowed to ask your applicants if they have pets, as well as how many, the size, the breed, etc. Based on the types of pets, you can choose the applicant that either has no pets, or has pets that will likely cause less damage.
However, you need to be sure that you don’t discriminate against an applicant because they have an assistance animal.
These fall under two categories:
- Service animals
- Emotional support animals (ESA)
If an applicant comes to your property with a service animal, and it’s clear the function the service animal performs (such as helping to pull someone in a wheelchair), then you cannot ask any more questions.
However, if it’s not obvious the function of the service animal, you can ask these two questions:
- Is the animal required because of a disability?
- What work or tasks has the animal been trained to perform?
They do not have to explain anything else about their disability, and you are not allowed to deny them housing because of the animal. Service animals and ESAs are not considered pets.
If the animal is actually an ESA, it’s almost a certainty that will come up when you ask those two questions. At this point you’re allowed to ask for verification that the pet is an ESA. Be sure to check that their ESA verification letter comes from a licensed healthcare provider such as a primary physician or therapist.
This is important because there are many online sources to get an animal “verified” as an ESA, and almost all of them are fraudulent.
11. More Readily Agrees to Lease Agreement Rules
Every landlord puts together their own set of terms for the property. If you have rules that you want to put in place, and a potential tenant doesn’t want to do one or two of them, that’s a good reason to disqualify them.
However, if you have two great applicants that both agreed to the lease agreement rules, you can think about it like this:
Did one of them argue about the rules you’ve set up? Did they try to get you to relax one or two of them? Did they agree but seemed very hesitant to do so? This could be a red flag that they might disregard your rules later.
Some of these rules you set forth could be:
- Landscape maintenance
- No people living in property that aren’t on the lease
- No pets
- No candles
- No big holes in the wall
- No rewiring
- No painting
- Notification of renewal or nonrenewal by a certain date
The tenant who doesn’t want to follow all these rules could cause damage to your property or cause you to incur vacancy costs.
12. Better References
There are three main types of references:
- Current employer
- Prior (or current) landlord
- Personal
While they are all important, the most important would be to get in touch with their current employer. This is how you can verify their income, which is priority number one when finding a good tenant.
However, you can also get excellent information from their landlord. If they have a history of being belligerent, paying their rent late or in installments, or damaging property, that landlord will be your best source of information.
To decide between two potential applicants, consider this:
- Did one applicant refuse to give you their employer’s information?
- Has one applicant never rented before, therefore has no landlord you can talk to?
- Did you see more hesitation from personal references for one of the applicants?
These can all be pieces of the puzzle to help figure out which applicant is going to be the better long-term tenant.
When talking to references, be sure to avoid discriminating topics. Some questions that seem harmless (like asking about kids or a first language) may actually violate the FHA’s protected classes. If a rejected applicant finds out these topics were discussed, a lawsuit may be forthcoming.
13. Fewer vehicles
In some cases, one potential tenant having fewer vehicles can be an important distinction and can be a good reason to choose an applicant over another.
This is especially important if there is limited parking, such as for an apartment in the city or a townhome with no street parking. If one tenant has five cars, that can even be an issue at a single family home.
If your rental is located in a neighborhood with an HOA, the last thing you want is for your tenant to get cited for parking on the street. That will likely lead to unhappy tenants and reflect back to you at some point.
14. Has Lived in the Area Longer
You want tenants who are planning to stay for a long time. If one of your potential applicants has lived in the area all their life, they are less likely to move away.
If someone has just arrived in the area, they may decide they don’t like the area and move out as soon as their lease is up.
15. Applied First
If keeping vacancy to a minimum is your number one priority, then you can choose applicants by the first one who submits theirs.
However, you run the risk of finding a less-than-qualified applicant by relying on speed rather than quality. If you’d like to choose on a first come, first serve basis, be sure that you still follow up on references, run background checks, and look up their credit and eviction history.
Another way to look at first come first serve is if you’ve had many applicants and you find a few that are equally qualified. They all look like they’d be fantastic long-term tenants. In that case, breaking the tie by who submitted their application first can be a legitimate way to decide.
Be Careful to Avoid Discrimination
Rejecting an applicant, especially one that appears to be qualified, can potentially get you in trouble with a discrimination lawsuit. For that reason, it’s essential that all property managers know about the Fair Housing Act.
This federal regulation designates protected classes that you cannot discriminate against. In other words, if you decide to deny housing to a protected class, you can be sued for discrimination.
These protected classes are:
- Race
- Religion
- Color
- National origin
- Gender/gender identity
- Familial status
- Handicap
It’s worth noting that many, many things fall under those classes that you might not initially realize. Some of these are:
- Age (can’t pick/reject a tenant just because they’re older)
- Sexual orientation
- Participation in welfare or other government subsidy programs
- Arbitrary discrimination (e.g. someone with lots of tattoos)
This is far from a complete list. Be sure to familiarize yourself with the Fair Housing Act, and also talk to a landlord & tenant lawyer about your application and screening process.
Best Practices for Rejecting Applicants
The best way to avoid illegal rejection of applicants is to:
- Be sure to understand the protected classes in the Fair Housing Act
- Have a legitimate reason to deny an application
- Between equally qualified candidates, choose on a first come, first serve basis
In general, be sure to keep the same standards for all your applicants. If you don’t want to rent to someone who has seven kids (which is discrimination), you can’t arbitrarily say that they need to earn $300k per year. Whatever qualifications you use to turn away one applicant must be the same standards you use for all your applicants. Otherwise, you’ll likely be hit with a discrimination lawsuit.
Lastly, if you find something in a background check that causes you to deny an application, require a co-signer, raise rent, or raise the deposit for a specific applicant, you need to notify the applicant.
There are a few specific things that you must include when you notify the applicant of this adverse action, such as:
- The name, address, and phone number of the screening company used to put together the consumer report.
- That it wasn’t the screening company’s decision to take the unfavorable action and they can’t speak to the reasons why you made that decision.
- A notice of the applicant’s right to dispute the report and get a free report within 60 days.
If the reason you decide to reject an application wasn’t found in the background report, it’s still best practice to send a notice to them notifying them of the reason that you denied their application. This can help you avoid discrimination lawsuits in the future.
