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The High Cost of Not Screening Tenants

The High Cost of Not Screening Tenants

Tenant screening services can be a cost factor, depending on what information you are seeking, but the cost is minimal compared to the cost of not screening your tenants. Renting to anyone who walks in off the street can often lead down a dangerous and costly road if you aren’t prepared to screen out those candidates who might have a history of unpaid or late rent, major property repairs, or who have been evicted before.

So, what happens if you don’t screen your potential tenants? Running a background check is a small cost upfront but a lot of savings in the end. Consider it a form of insurance. You are insuring that your company continues to run at an optimal level, with rent being paid regularly and on time, so that you can manage your property efficiently without having to deal with a bad tenant. Problematic tenants can cost you money; the average cost of tenant turnover starts at $1,000 and can easily reach up to $5,000 if there is a lot of damage left behind. If you look at it from this perspective, paying $25-75 for a tenant screening will only be money well spent.

You can avoid such issues when you screen your tenants appropriately – part of your role as landlord or owner is to prescreen the applicants before you get to an official screening process. Now is when you can outline certain credit score requirements, any income requirements, your property’s pet policies and deposits, and your smoking policies. Just remember that all of your policies need to be in writing and apply to all applicants so that there is no discrimination in your decision making or application process.

So how do you separate the wheat from the chaff when it comes to finding good tenants? Consider the following aspects carefully before you decide on a final candidate:

What is Your Potential Candidate’s Rental History?

This will be the first thing that you need to know in order to make a good decision. Does the potential tenant have a good rental history? Or do they have a record of evictions, late payments, bad behavior, or property damage in their past? If you don’t do a proper screening, then you may not know this information, which will cost you big bucks if you have to pay for a legal eviction process or costly property repairs.

Do They Meet the Basic Tenant Requirements?

Although you cannot discriminate based on age, sex, race, or the like due to the Fair Housing Act, you can make sure that the applicant is agreeable to your specific pet policies, smoking policies, or any other reasonable rules that you have regarding your property. Everything must be spelled out in writing, including the rent and any fees that you may have to charge and why (think security deposit, pet deposit, etc.). If they can agree to these basic terms, then they can definitely proceed to the next round of considerations.

What Is Their Income and Employment History?

It is understood that potential candidates need to provide proof of income, and that that income needs to be sufficient to meet their financial obligations when it comes to renting a home. (The formula most often used in real estate is the monthly rent should be no more than one third of their gross monthly income.) Their income is important, but also critical is their employment history. Do they have a history of changing jobs every six months? Do they have multiple employers on their application, more than most people typically have? You want someone with a stable source of income…being at a job for six months or longer (and not job-hopping every year or two) is always a good sign that your potential candidate is financially stable and responsible enough to pay his or her rent on time.

Online tenant screening services typically include a credit check, criminal/eviction report, and income verification at the very least. If you opt for a more robust report, you can have the following information as well: criminal record check, bankruptcy report, foreclosures check, medical collections, employment record, past address history, and any eviction records.

Avoid the high cost of not performing a proper tenant screening by utilizing the services available to you and taking this important first step in finding the best possible candidate for your rental property.

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by Lottie Pritchard // Lottie Pritchard is a contributor to Businessing Magazine.

Opinions expressed by contributors are their own.