How Professional Tenant Screening Reduces Risk for Landlords

One of the keys to owning profitable rental properties is proper tenant selection. Dealing with bad renters can jeopardize your real estate investments more than lengthy vacancy times. Good ones can keep their end of the bargain — pay full rent on time, respect the property and be positive community members. 

Any landlord can narrow down the list to a few candidates. However, letting a professional tenant screening program do the heavy lifting is more efficient and yields more impartial outcomes.

Collecting Accurate Data

Tech-forward property managers work with software providers to develop automated programs optimized for scouring all available information about prospective tenants, compiling truthful applicant data and quickly generating reports. Boom is an excellent example. Mark Brower Properties has teamed up with this rental financial services provider to develop a resident screening software platform.

This solution has configurable application templates, allowing us to pick and choose which data sources to incorporate into tenant underwriting and quantify the risks associated with every applicant. Such capability enables us to glean insights from accurate data, giving us a more complete picture of applicants and reducing our blindspots when making decisions.

In turn, it augments our fraud risk reduction efforts in the rental properties we manage. Leveraging this advanced technology gives us the confidence to assess which applicants pose the risk of default on lease agreements.

Aside from relying on aggregators of renter data vendors, property management companies run credit and criminal background checks, evaluate rental history, verify income and request personal references. Property managers may also use comprehensive application forms to obtain more personal details.

Automating Application Approval

Professional tenant screening minimizes direct human involvement in the rental application approval process by design. It expedites the vetting process and helps prevent prejudice. Although algorithmic bias exists, developers exclude variables that may result in discriminatory decisions from the equation.

This tech-based approach evaluates candidates based on a hierarchy of factors. Each has a relative weight, allowing the considerations property managers deem more relevant to them to influence the algorithm’s decision more than those of less relevant ones. For instance, credible property management companies like Mark Brower Properties put more weight on missed rental payments and eviction records than credit utilization rates and medical debt collections. This concept resembles the mindsets of mortgage lenders and insurance carriers when using credit scoring models.

Various parties could look at the same credit reports about a consumer and score the person differently, but algorithms follow the same criteria every time. This way, property managers and landlords can expect the tenant screening process to paint a unified story for every rental applicant in a predictable manner. Applicants from all walks of life can seek housing on an equal footing, laying the foundation for merit-based decision-making.

As impartial as algorithms can be, developers can’t code critical thinking. Sometimes, human intervention is necessary to judge some components of tenant screening reports accordingly.

Property management professionals have domain expertise to assess rental, eviction, employment and criminal histories contextually on a case-by-case basis to avoid erroneously rejecting reliable tenants who have been victims of circumstance. For example, a lifelong, upstanding renter with a decent income who was jobless during the pandemic may be a better candidate than a deep-pocketed individual with unverifiable income streams and no prior rental history.

Ensuring Legal Compliance

Self-managing landlords often make the cardinal tenant screening mistake of manually analyzing data. You can play favorites and select tenants that align with your long-term business goals. However, you may inadvertently commit discriminatory practices when denying applicants without deeply understanding the Fair Housing Act and relevant landlord-tenant laws.

A property management company uses professional tenant screening to identify applicants with a prior property crime conviction, protecting your investments from potential repeat offenders while observing regulatory compliance. Its legal team ensures it can reject less-than-desirable tenants without violating anyone’s fair housing rights.

Violating a person’s fair housing rights comes with five- or six-digit civil penalties, severely impacting your cash flow. Moreover, it can earn you a bad reputation that can follow you for a long time. 

Impartial algorithms help ensure legal compliance in tenant screening. Landlords and property managers can enjoy plausible deniability in civil lawsuits. You can mount a better defense in court when automated programs engineered not to see race, religion, sex, disability, familial status and national origin primarily vet applicants instead of humans who are prone to cognitive biases.

Regardless of the number of doors you own, using a property manager is worth it to protect yourself from the legal and financial headaches stemming from poor tenant selection, such as racial discrimination claims, unpaid rent, intentional property damage and eviction costs. Such an expert turns to algorithms to screen tenants with legal compliance in mind, upholding fairness and minimizing biases.

Keeping Turnover Manageable

Reputable property managers prioritize long-term tenancy. Although vacancy is inevitable, professional tenant screening helps ensure it seldom happens and moves qualified replacements into your rentals in no time. Unfortunately, many property managers have one-sided fee structures to benefit from landlord losses. 

Use a company with a fee structure that aligns its incentives with those of real estate investors — like Mark Brower Properties. The fact that we don’t pocket 100% of late fees means we never get a massive bonus by approving marginal residents who routinely pay late.

Considering we set reasonable management fees and modest maintenance markups, our fee structure promotes long-term tenancy and disincentivizes turnover. Furthermore, we use a three-tier approach to tenant selection to keep occupancy rates high and minimize turnover.

Our top-tier applicants can rent the specific unit they want without a guarantor. Those in the middle tier can pass with a strong guarantor, and the candidates in the bottom tier get denied even if they involve a strong guarantee in the agreement.

Our three-tier approach is a bold departure from the typical, shortsighted industry practice of giving a thumbs up to anybody with a reliable guarantor. It also speaks volumes about our commitment to accountability — clear proof of our dedication to owning the outcome of the decisions we make on behalf of our clients.

We utilize this tier system to reject potential tenants who pose a higher risk of damaging the property. After all, a guarantor can only guarantee to cover unpaid rent in case of default but can’t prevent vandalism.

Professionally Screen Tenants to Reduce Rental Property Investment Risk

Proper tenant selection can help real estate investors avoid their worst nightmares. Schedule your free consultation today to learn more about how Mark Brower Properties screens tenants thoroughly to grow your profits over the long term.