This week's topic, in our series, What to Look for in a Property Manager, focuses on the importance of Tenant selection skills. Renting out a property presents many challenges, and the challenges becomes greater when you lease the property out to bad tenants. Bad Tenants…they aren't just people who don’t pay the rent on time, but those who don’t treat your home as if it were their own! They can be destructive, and drain value from your property. To avoid bad tenants, you must incorporate an effective background screening process. Based on our experience, here are the top things to include in your in the due diligence process:
- Credit - Tenant quality tends to correlate with credit scores. Make sure to run a full credit report on tenant prospects that includes Social Security number (SSN) verification, driver’s license, and a list of their payment history on open lines of credit. Remember that you need more than just a score.
- Criminal Records - This seems like a no-brainer, but a surprising number of property owners don't run criminal reports. A national criminal report can be easily obtained to ensure that a prospective renter doesn't have a history of violence, sex offense, destruction, or worse. Focus on Felonies and any misdemeanors that are less than (3) years old.
- Eviction Records - Prospects can be screened for previous evictions. You should verify that a prospective tenant hasn't been evicted before. If they have, it's more likely that you'll have to go through the costly eviction process. Sometimes evictions judgments aren’t recorded. However, be sure to scour the credit report looking for collections to apartment complexes, utility agencies, or collection companies that represent landlords.
- References - Previous landlords can bring clarity into the kind of tenant someone was. Make sure to do your diligence and call on references. Tenants unwilling to provide them should raise an alarm. Be wary of unverified Landlords, such as those that don’t request a copy of the application your Tenant submitted and don’t release a written synopsis of the applicant. Someone just “returning your call” may be a friend or relative of the Tenant and NOT the previous Landlord.
A bad tenant can ruin your property, and make life miserable. One famous example from the GWM San Diego office:
GWM took over for a Landlord who found her own Tenants. Even though the Landlord had FINALLY obtained an eviction judgment, the Tenant had not paid rent for (4) months, and petitioned the court (and was granted) an extra 45 days in the property. On top of that the Landlord had $5000 in damage to her property, Attorney fees, and the Tenant, of course, didn’t pay their utility bills, so that meant before the NEW Tenant could have the utilities turned on, the Landlord had to pay the evicted Tenant’s outstanding invoices.
DON'T let this happen to you! Fortunately, many bad tenants can be screened out when the landlord or property manager properly focuses on the reports that we mentioned above. Screening costs time and money, but is worth the investment. Make sure to invest your time and money in tenant screening. This is, probably, the most important thing you can do to secure your investment in your property.