Knowing how to qualify a tenant properly is vital for property owners. Property investors want to ensure they have quality tenants in their properties to avoid the risks of putting "just anyone" in them.
You probably already know that filling a vacancy is a top priority but shouldn’t take precedence over finding high-value tenants. When you have great tenants, the chances of eviction decrease, allowing you to sit back and maximize ROI.
So, how does Own It Detroit select renters? Our Detroit property management team has tips about best practices for qualifying tenants.
How To Qualify a Tenant
When you hire a property management team, they must implement robust tenant screening services that are intended to weed out lower-quality tenants. An effective property management company will have a system in place that determines which tenants are a good fit for the property you have.
Here are four main things our seasoned experts look at when conducting the tenant screening process, with the first one being of the most importance!
At the top of the list when checking out which tenants will qualify for a property is the debt-to-income (DTI) ratio. Unless a tenant has adequate income to pay for the rent, they will be a significant risk to a property owner's ROI.
Everyone also has bills to pay. So, knowing an applicant's debt-to-income ratio helps our property managers assess whether a potential renter has enough money after paying other bills to comfortably pay rent.
In general, we look for renters who make three times more than the monthly rent amount before placing residents into a rental unit. Property owners can calculate the debt-to-income ratio as follows:
Calculate the tenant’s monthly debt and payments. This includes things like rent, car payments, loans, credit cards, and so on. It does not include money spent on fuel, groceries, or entertainment.
Divide this total by their gross monthly income. The gross is the amount they make before taxes are taken out.
The result is the tenant’s DTI, which is in the form of a percentage. To have three times the monthly rent, the DTI needs to be 30% or lower.
Prioritizing this factor in our screening process helps us place better tenants who can consistently pay the rent every month.
A tenant’s job stability is an essential part of qualifying a new tenant for a property. If you have an applicant that just started a job a few weeks ago, make sure to dig deeper into their complete financial picture. A prospective tenant with a new job isn't necessarily a red flag. It could also be that the person just moved to the area and got the job.
However, short job stints could indicate income instability on the tenant’s part.
During thorough tenant screening services, our property managers check the work history to indicate stable income or if their employment background is sporadic. We prioritize tenants with longevity and reliability in the area of their job.
Property owners must tread lightly when evaluating criminal history. However, it's an important component of the tenant qualification process.
A Detroit property management team will run a background check on a potential tenant to see if they have a clean record or a history of frequent or violent crimes. However, keep in mind that under the Federal Fair Housing Act, you can’t simply deny every applicant who has something pop up on their background check.
For example, someone may have a minor offense that happened 15 years ago and probably isn't a criminal liability if other aspects of their tenant screening check out well. There are certain offenses, though, that would warrant alarm bells and could be a bad fit for your rental properties.
A property management expert can provide you with expert guidance to legally conduct, review, and apply criminal history to your tenant selection process.
Running a credit check with one of the three main reporting agencies can put your mind at ease about how well a potential renter handles their money. If they are struggling, it might be reflected by a poor score.
However, as with other aspects of the tenant screening process, credit history is just one piece of information. It’s best to put all parts together before making a final decision.
Qualify Tenants Based on Pre-Determined Criteria
When evaluating renters, it’s crucial to put together a strategic plan and pre-set criteria that helps you qualify tenants legally. If you simply take a guess about whether or not a person will be a good fit for your property, you might end up with the wrong tenant (or legal violations).
Qualifying tenants with a sound screening process gives you peace of mind and makes it more likely that you will have a high-quality person living in your properties that pays the rent on time!
The Best Detroit Property Management Team Qualifies Tenants for You
Going through the steps to qualify tenants can be time-consuming and tedious without the right experience. It's also easier than you might think to violate Fair Housing laws with an improper qualification process. Own It Detroit has an experienced property management team familiar with the process of qualifying tenants to maximize ROIs for property owners. Reach out soon to learn more about our property management services (including tenant screening)!