Legal Note: This article is not a substitute for legal counsel. If you need direct assistance for your Detroit investments, reach out to Own It Detroit Property Management for a rapid, professional response!
According to the American Apartment Owners Association (AAOA), up to 76% of investors do not understand rental law concerning such vital topics as security deposit use, background checks, and credit checks during the applicant screening process.
Unfortunately, that leads to an increased risk of having profitability issues for your investment portfolio—up to and including eviction.
Whether you are a single investor or managing multiple properties for a REIT, understanding the renter screening process in Detroit and Michigan at large is a must if you intend to maintain a successful portfolio in our lucrative market! In this brief guide, your experts at Own It Detroit will cover some important elements of Michigan screening laws you need to know.
Michigan's Laws for Rental Screenings
Every state has separate rental applicant screening and housing laws, and Michigan is no exception. Investors must understand how these laws affect their Detroit investments—and themselves—before beginning the screening process. They are briefly outlined as follows:
- There is no statute limiting the amount investors and trusts can charge applicants for an application fee.
- Michigan's Landlord and Tenant Relationships Act 348 (Section 554.602) indicates that investors may not have security deposits exceeding 1.5 months' rent—they must also disclose this information during the application process.
- Property holders must keep rental application fees separate from security deposits because, under Section 554.605, the security deposit remains lawfully the renter's property until investors need to use those funds.
- The Fair Housing Act prohibits investors from using information they gather during the screening process to discriminate against applicants in any way.
- Before running a background check, your potential renters must sign a form allowing investors to do so.
You can find more information about rental relationships with your residents on Michigan's state legislation page under the Landlord and Tenant Relationships Act.
The Importance of the Screening Process
Individual investors know that background checks to screen renters are used to identify any potential red flags. This process serves roughly the same purpose across the board, regardless of the size of your portfolio or whether it is part of a trust. After a potential renter submits a signed rental application, you should conduct the same screening process without fail, every time—no matter how many properties exist in your portfolio.
If you have yet to include them, add these elements to your screening process:
- Investigate relevant criminal activity starting at the county level
- Verify if other evictions occurred, as well as where and when
- Verification of the potential renter's identity
- Check sex offender registries.
Screening potential rental applicants is one of the best ways to safeguard your investment properties and maximize their ROI potential, either for your own gain or that of your trust.
These background checks also encourage any applicants to be transparent about what you might learn. For example, if there is a gap in their rental history or other marks on their background check that they know about, they might discuss those details during the application process.
Developing the Right Criteria
Investors of every portfolio size must spend some time developing criteria for their screening process, and this might vary a bit across market types (Detroit and DC are going to have some notable differences based on region). These standards outline what is expected of your renters should they decide to pursue one of your properties. For investors of scale, this allows you to not only streamline your process but clear up any misconceptions with your renters from the start of the rental experience. This creates efficiencies that ripple outwards to positively benefit your returns.
Examples of such criteria include:
- Identifying which properties are non-smoking, inside and out
- Outlining whether pets are or aren't allowed on the property
- Stipulating a minimum income requirement (This can get dicey)
- Refusal to rent for relevant criminal history (This is tricky too)
- Delineating HVAC policy and property car requirements.
Of course, the above are just examples of various standards you can apply to your Detroit investments. It's best to nail these concepts down with a property management partner than specializes in large portfolio care.
It's also crucial to ensure you maintain consistency when screening all potential renters. For example, it is not appropriate to make exceptions for certain applicants or change the required criteria on a case-by-case basis. Doing so puts you or your trust at risk of discrimination according to the Fair Housing Act.
Working With a Third Party to Screen Applicants
It isn't uncommon for singular investors to feel overwhelmed when many applications come in at once and require screening, especially across a sizeable portfolio. Choosing a third-party partner to navigate the legalities for you helps alleviate stress, and it frees up time to work on other high-priority tasks you have as an investor.
When you choose to work with a third-party screening service such as a portfolio manager, it is their responsibility to look at the potential renter's current and previous employers. They also determine the applicant's current income level, as well as if it is enough to cover the monthly rent.
Then, they move on to looking at the applicant's previous rental history. That information includes the names and addresses of their previous landlords, the amount of the rent, how long they were a renter, and if there are gaps in their rental history. Communicating with past properties where an applicant has lived is a crucial step that beginning investors often skip, and it's an easy way for a scammer to get their foot in the door when you neglect this step.
Turn to Own It Detroit for Your Screening Needs!
If you want to invest in Detroit with service provided by transparent, seasoned, professional investors, then the team at Own it Detroit has the background and experience your business needs to succeed. As investors with sizeable investment experience ourselves, we're committed to finding you the best renters for the best properties who consistently pay their rent on time.
You deserve a better investing experience, and that's exactly what you'll receive from OID. Get in touch with us to start investing with a superior perspective!