Looks Can Be Deceiving – The Importance of Applicant Background Screening
If you own a rental property, chances are you fall into one of two groups – experienced investor or “unexpected landlord”. Right now, let’s focus on the latter – the “unexpected landlord.” What exactly does that mean? Unexpected landlords are those who aren’t in the business of buying, renting, and selling investment properties. Perhaps you’re managing a property for an aging parent or need to relocate quickly for a job. Regardless, it’s not something you do daily.
Ok, the scenario (courtesy of The National Association of Independent Landlords): Well-dressed tenant John drives up in a beautiful new sports car. He tells you that his wife recently passed away and he no longer wants to live in the home they shared – too many memories and all. He tugs at your heartstrings and by all appearances he is the ideal tenant. You shake hands, sign a lease and away you go feeling pretty good – easy peasy, right? Wrong!
After the first month, tenant John stops paying rent. Two months go by and still no rent. Turns out tenant John filed for bankruptcy after signing the lease and legally does not need to pay rent while his case is heard in bankruptcy court! In case you don’t know, there is nothing quick about bankruptcy court. Tenant John gets to live in your property rent free for seven months, during which you’re making insurance, mortgage, and tax payments. You’re bleeding money! Later, you decide to do a bit of snooping and find out this isn’t tenant John’s first rodeo.
Now we admit this is an extreme example of “tenants gone wrong,” but it was completely avoidable. How? Enter the background check.
A rental background check is a screening tool that allows landlords to review an applicant’s past behavior. This includes criminal, credit, employment, and rental history verification. There are numerous outside companies that will conduct criminal and credit background checks for a small fee. Ask your applicant to supply previous rental and employer information as references. If they refuse, run away!
Don’t ignore red flags. If it smells like bad fish, it probably is bad fish. Go with your gut. If you’re like most people, you want to get your property rented fast. No tenant is better than a bad one, right? Property managers around the world are shaking their heads.
So, what are a few red flags to look out for?
Requests a quick move – while it’s not always the case and many have good reason, this can be a sign of something bad – like a recent eviction, pending bankruptcy, criminal activity, or employment termination. It’s not a reason to rip up the application, it’s just something that warrants additional scrutiny.
Needs to take the application home or doesn’t supply all the information – again it’s not always the case, but a well-organized, serious renter should arrive on site with all the information needed to apply. They should also be ready to answer any of your questions right away.
On the job hunt – an unemployed tenant is always a scary thing. Where will the rental money come from? It’s important to find out why they are unemployed, how long they’ve been searching for a new job and if there are alternative financial resources to pay the rent and security deposit.
Lack of references – this is a hard one sometimes. If someone has never rented before, there won’t be any rental references. However, past rentals aren’t the only source of information. Employer references and historical mortgage payments (if any) are two ways to fill in the needed information. Knowing why the applicant needs to rent is essential.
Bad financial history – this is background screening 101. If someone has minimal income, debt or a history of bankruptcy, chances are they’re not the tenant for you.
Multiple change of addresses – it’s not uncommon for people to move these days and just because someone has moved frequently doesn’t mean they’re a bad tenant. Again, this is where knowing why they need to rent is key. However, it can also be an indication of past evictions or criminal activity. It’s certainly something that warrants a bit more digging.
Fair Housing – Always be aware of Fair Housing laws, both local and national. Be certain you are not in violation. If you don’t know the law, find out. Having a rental criteria written out and sticking to it every time will go along way towards maintaining compliance.
All of this probably seems a bit overwhelming and time consuming. There’s no sugar coating it – it is. But we have a solution. As professional property managers, comprehensive applicant background screening is a service we provide to all our clients. We’ll make sure your tenant is truly what they appear to be.