Establishing tenant selection criteria can be one of the most confusing areas of operating rental property for many people. On one hand, you want to make sure you choose the most responsible tenant possible; a tenant who will pay his or her rent on time and one who can be relied upon not to destroy your property. Yet, at the same time you must make sure that you abide by fair housing laws.
Before you actually begin renting out your property it is a good idea to sit down and determine the criteria you will use to choose that best tenant. Without guidelines you will have no choice but to rely on your instinct to choose the best tenant and this could result in trouble if you are only relying on your feelings to make a tenant selection.
One of the worst risks you can take is to let your own personal opinions and biases guide you in your decision because this could open the door for a discrimination lawsuit.
First, you should always make sure that you notify prospective tenants that you utilize a fair system to make your decision. Ideally, it is best to include this type of statement on all rental applications. For example, you might state “Our policy is to rent our units in compliance with federal, state and local fair housing laws.”
If you are fairly new to operating investment rental property, you may not be cognizant of fair housing laws. Be sure to consult your state’s fair housing office to determine those guidelines which you must follow.
Beyond fair housing laws, it is important to make sure you establish criteria that is concrete by which to judge all potential applicants.
For example, it is common to require that the applicant provide identification that is verifiable. You may require the applicant to present a photo ID with their application so that you can make a copy of it. This type of requirement is valid because you may need it in the future in the event you need to describe adult occupants of the unit. If someone co-signs the application, it is also a good idea to obtain identification for them as well.
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