If you are a real estate investor - or just thinking about becoming one, chances are that you have at least thought about tenants and tenant horror stories that you have heard. Whether you do a straight rental or a lease option deal with an "owner minded" tenant, you can still find yourself with many sleepless nights and heartache when you finally see the condition of your beautiful unit when the tenant moves out.
This fear of tenants keeps many would be real estate investors from jumping into the business. No one wants to invest a ton of cash into a property only to have a tenant not pay and have you go through the time, expense and income loss of a protracted eviction process. No one wants to walk into their property after the tenant left and find it destroyed.
Fortunately, these horror stories only make up a small portion of the tenants out there. Most are decent people who will treat your unit nicely. You will get standard tenant style wear and tear on your rentals but most of the time, a deep cleaning and some paint brings the property back up to snuff. This is the normal and expected condition of the average to good tenant. And some even leave the apartment in better shape than when they come. These are the tenants you want to have as they make the landlord - tenant relationship pleasant.
The process begins with a complete application - name, address, place(s) of work, prior landlords, personal references, SSN for credit checks and a permission statement to allow you to perform a background check. Additionally, a fee should be charged for processing the application. If a potential tenant takes the time to completely fill in your application AND pays a fee, they have passed the first hurdle. Most bad tenants, once they understand that you really will do a background check, move on to easier pickings.
You may be wondering what fee to charge for your applications? Just call some of the big apartment complexes in your area and see what they charge to help you set your fee rate.
You may also be thinking that if you charge a fee, you are going to have less people looking at your apartment. And you are probably right. Once a potential tenant knows you are serious about background checks, etc., they will generally not bother going any further with the process. But really - do you want a lot of potential tenants of unknown quality or just a few tenants who have the potential to pass muster?
The next step is to actually perform the background check.
There are generally two parts to a background check - the part you can do yourself and the part where you hire a tenant screening service. You can do things like verify employment and prior landlord references yourself but things like pulling a credit report or doing criminal background checks are more time effectively hired out to a professional tenant screening process.
There are many tenant screening companies out there offering a menu of services at various price points. To find a tenant screening company, just go to your favorite search engine and type "tenant screening" in the search box. You will find a variety of companies that you can work with. Find one that offers the background activities you want analyzed at a fee that is covered by your application cost and start the process. You generally get results back very quickly - sometimes even the same day.
Here are just some of the items you can get checked for a very reasonable fee:
- SSN Validation
- OFAC/Patriot Act Search
- Evictions + Suits
- Liens + Judgments
- Bankruptcies
- Criminal Records Search
- Sex Offender Search
- Applicant’s Credit report
- FICO Score
- Bankruptcies
- Judgments
- Collections
- Previous Addresses
- NSF Check History
- DL State of Issuance
By gathering the information from your personal reference check activities and the data returned by a good tenant screening company, you will paint a pretty detailed picture of your tenant. Combine that with the personal tenant interview and you should be able to choose quality tenants 99% of the time. And be able to sleep much better at night.
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