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Business Guide to Tenant Screening

Profiting from a rental property partly depends on the quality, history, and financial status of your tenant. If the person damages the property or fails to maintain it, you may have to pay to restore it to its original condition. If the person is unemployed, underemployed, or poor at managing finances, you may not be able to collect current or overdue rent. For these reasons, you should consider using tenant screening and background checks prior to signing a lease with someone. These background checks cannot guarantee outcomes, however. Understanding their pros and cons will help you use them to your advantage.

Benefits

Tenant screening can keep you safe from deadbeat or dangerous tenants, but few landlords use these services as often as they should. A survey by Leasing Protection Service found that 24 percent of landlords allow someone to rent a property with only a single face-to-face meeting before signing the lease.

Verifies tenant identity

When you sign a contract with a tenant, you want to be sure that the person is not using a false identity. Tenant screening verifies prospective tenants and ensures that the contract you sign is valid.

Safe renting

Doing background checks on prospective tenants helps save you from dealing with potentially dangerous people living in your rental property. You can choose to not rent your property to someone with a criminal record, for example. This is especially important for weeding out potential tenants who have a violent history, as they are more likely to cause legal problems or damage your property.

Ensures adequate payments

Checking the credit background of a potential tenant can provide you with peace of mind. If your prospective tenant has bad credit or is without a reliable source of income, you might find yourself struggling to get the rent each month. You can also identify potential renters with excellent credit histories, which is likely a sign that you can expect them to pay rent on time and in full each month. If you do choose to rent to someone with a poor credit history, this information can help you decide whether to raise the security deposit.

Make informed decisions

If you have multiple tenants interested in your rental property, a background check can help you choose the best renter. While you cannot use discriminatory practices to choose a renter, you can use information found in the background check to objectively determine the most reliable person.

Pitfalls

Cost

Tenant screening is an expensive process, and it isn't always feasible to pass the cost to prospective tenants. You could vet dozens of prospective tenants for one apartment, and the cost to process that many reports can be prohibitive. If you try to pass the costs on to the applicants, you could end up discouraging worthy applicants who simply do not want to pay the fee on principle. If this happens, the process defeats the purpose.

Time

Tenant screening takes time. Using formal screening methods can add days to every application process. If renting an apartment quickly is important to your bottom line, tenant screening procedures may run counter to your needs. Formal screening extends the application process and can result in the apartment remaining vacant for another month.

Improper use of information

Tenant screening involves the use of credit reports, background checks, and other types of confidential information. Once you pull this information, you are subject to the federal and state laws that govern its use. For example, you cannot use the information to discriminate. It can also be illegal to use certain types of information you may find in these reports to make your rental decision. Some of these reports may contain outdated information that was supposed to be expunged from the record. If you see this information and use it, you may be liable for misuse of information, despite the fact that the information was in the report.

Not necessarily predictive

Ultimately, tenant screening is not necessarily predictive of a person's ability or willingness to pay rent. Some people have had legitimate financial difficulties in the past. Others may have stellar records but find themselves with financial difficulties in the future. Housing is the type of basic necessity that can transcend reports and history. You may spend time and money screening every potential tenant and still end up renting to the wrong person or declining someone who would have paid every month without fail.

Pricing

Any type of tenant screening can be expensive. However, placing the wrong type of person in your rental property can also cost you a significant amount of money. If you only need to screen a couple of people, you can complete the checks yourself. Verifying employment and income using the information provided on the person’s application is straightforward. You can also call the person’s past rentals or contact other references. For the cost of a couple of phone calls or letters, you can gather enough information to decide whether the person is reliable.

A professional tenant screening service is significantly more expensive than doing the background checks yourself. This cost may be justified if you have many people you need to check out. A professional service can complete more in-depth checks and will be more informed of the rights of the tenant. While the service is expensive, you can consider charging potential tenants an application fee to cover some of your costs. It is worth noting that you will need to make sure this is allowed in the state where you reside. Property management firm T-Rex Global notes that in California in 2009, it was against the law for a landlord to charge more than $42.06 for a tenant’s application fee.

Conclusion

Tenant screening can provide you with more information than you bargained for. Because some of this information is sensitive and subject to regulation by government entities, it is important that you understand and follow the laws regarding its use. While you risk spending a considerable amount of money on the screening process, finding a wonderful tenant can save you a lot of money in the long term. Passing the fees on or splitting them with applicants can also reduce the initial costs. You should not rely solely on background checks, because interviews and references can provide you with helpful insight, but you should certainly consider using them in your rental application process.