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Rental Strategies by Rob Massey

RISMEDIA, Dec. 12, 2008-Most property managers today obtain credit reports and other background checks before approving an application for rent. Information of this nature is critical for making a decision as to whether or not to rent to an applicant and for increasing the likelihood of the success of owning a residential real estate investment. The tricky part is how the data is utilized for reaching a decision once the information is obtained.

The best method for fairly and accurately processing the applicant’s background information is to create a written Resident Selection Plan, which contains a scoring model that quantifies the strength of an applicant, keeps objectivity at the forefront and removes the subjectivity of reaching a decision. The plan and model will also go a long way toward defending an unfounded Fair Housing violation claim.

Consider the following factors when formulating a scoring model for a Resident Selection Plan:

1) Rental or Housing History – This factor should be weighted higher than any other. Because humans are creatures of habit, carefully reviewing the history of one’s housing past is the most important area
of scrutiny. There are online services that will check it for you but actually calling or faxing the current and previous owners or property managers is still a very valid and effective practice.

2) The Stability of Income – Obviously a minimum amount of income compared to the rent amount should be required before even considering an applicant. Three times the monthly rent is a good rule of thumb for a minimum gross monthly income, but once that requirement is met, then rating the outlook for continued income is important. Longevity of employment at one company, or at least working in the same industry, should be one of the most important considerations in this category.

3) Credit History – Credit history has long been a valid predictor for responsible future financial behavior and its application to the rental business is no exception. Use the FICO score off of the credit report to indicate a corresponding in-house rating for this category. Also, match up the current and previous addresses revealed on the credit report with those listed on the application. Make sure that the application requires applicants to list their addresses for the past five years. Investigate any addresses that show up on the credit report but don’t appear on the application.

4) Bringing it all together – Draft a summary sheet to assimilate the ratings from each category and the sum total should indicate the resulting decision to approve, approve with conditions or reject an applicant.

Having a tool that objectively quantifies the relevant factors for determining the decision to approve or reject an applicant for rental housing is critical for making fair, informed and defensible decisions. A Resident Selection Plan, using a scoring model with these criteria, makes the most sense.

To receive a free example of a Resident Selection Plan, e-mail rob.massey@rentals.com. Rob Massey, Jr., CPM, is founder of RentalHouses.com and a consultant for Rentals.com.

For more information, please visit www.rentals.com.

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