Skipping a Background Check on Your Tenant? You Can’t Afford It!
How many times have you filled in application forms without a thought to all the probing questions you're answering? You hand over all your credit information at the bank, your doctor gets all your health data, and don't get us started on the details you divulge when you adopt a rescue pet.
So, why is that some landlords cringe at the thought of asking rental candidates for information that will help determine whether they might be good tenants?
Screening a tenant applicant has never been easier, and it may cost less than you expect! The cost to run a background check is about 3 percent of one average monthly rent payment, whereas the price tag for skipping that check can be in the thousands of dollars. In addition to various expenses and lost income, having the wrong tenant in your property can also cost you time and patience.
Still, some landlords neglect the important task of probing a rental candidate's background, as though asking someone to confirm their identity and income is an insult. Maybe it goes back to early lessons about politeness – to hearing, as a child, that personal questions are rude.
Maybe, though, it has more to do with a landlord feeling that he or she doesn't have the right to ask too many questions, or doesn't want to be labeled a busybody. If that's what is holding you back, you may not be treating your rental like the business that it is.
Are you renting out your property for fun, to meet new people, and because you have time on your hands and need something to keep you busy? We're pretty sure the answer to that is a resounding, “No.” You're likely doing it to increase your monthly income and build your wealth over the long term. You're hoping to be able to retire at a reasonable age – maybe your rental is your retirement plan.
If that's the case, then signing a lease with someone whose background you haven't checked is like betting your 401K on the horses.
What are the risks?
Landlords who have been in the property management business for a while typically have a story or two about bad experiences with tenants. Websites are filled with examples of rentals gone wrong; one Philadelphia investor even devoted a web page to collecting tenant horror stories and letting readers vote on which is worst.
Landlords who perform no background checks are inviting all kinds of trouble. For instance, an apartment community near Myrtle Beach, S.C., where tenants were not screened, made a Top-10 list of crime calls, with residents living in fear of break-ins and assaults. Management saw crimes drop after instituting background checks.
Previously, according to apartment Manager Amanda Pett, “…the complex had not run official background checks on residents apart from searching local court records. Now, all new residents are checked through the State Law Enforcement Division’s background check system.”
Some landlords, like Ellen Cannon, religiously screen before leasing. Cannon and her husband became landlords in their late 20s, starting by renting out a property that had been their first home.
“Sometimes searching for a new tenant can bring a lot of shenanigans. For instance, we have had people lie on their application about their employment or credit rating. Others have been completely dishonest about having a job at all. After checking one person’s application, we found that they had multiple evictions on their record. Obviously, we didn’t rent to that person!” Cannon writes.
Screening isn't foolproof. Cannon describes the time she leased to people who passed her background screening but who ended up removing doors, windows and appliances from the rental home and ruining its carpets and walls.
“While most people were celebrating the holidays, we spent the entire month of December repairing that home. Did I mention that I was pregnant at the time? Still, I had to spend my days stressed out at work and my evenings crying and painting at the rental house. I had no choice. For close to a month, the situation consumed our whole lives. We were so glad when the home was finally fixed up and ready to be rented out again,” Cannon writes.
Imagine how things might be if Cannon didn't screen applicants. She likely would be confronting repeated damages at her property and could eventually decide to get out of the landlord business.
It's interesting that Cannon doesn't automatically dismiss applicants with a record of bad credit. She even states that tenants with bad credit have been some of her best renters. Yet, she is armed with that background information BEFORE signing a lease with them, so her choices are informed. Cannon has become an expert in screening applicants because she set her rental criteria and makes sure that applicants meet her standards.
What exactly does a background check cover?<
The Credit/Criminal background check will supply you with real data so you can see if an applicant meets your standards for ability to pay rent. You'll get a FICO score, information on credit accounts and whether an applicant carries a balance and pays accounts on time. Also, you'll see any credit inquiries that have been made into your applicant's accounts. Bankruptcies and civil judgments also will be included.
Criminal background information includes crimes committed by anyone with your applicant's name, as well as whether someone with that name is listed in a national database for sex offenders. Most importantly, the screening will confirm identity, so you'll know if your applicants are who they say they are.
In addition to screening for credit and criminal history, you can do your own sleuthing and request a rental history that will provide applicants' former addresses and landlord contact information. Follow up and contact those landlords, asking whether the applicant paid rent on time and treated the rental with care. In addition, many landlords verify applicants' employment and income.
Finally, follow your gut feelings and follow up on suspicions, because screening your applicants isn't a guarantee you'll be protected from troublesome tenants.
And, when you do land a great tenant you, don't take him or her for granted. Reward good tenants for their on-time rent checks, for letting you know when repairs are needed, and for being a good neighbor to other tenants. Good tenants save you time and money and you want to keep them around.