The Value and Cost of Tenant Screening

By
Services for Real Estate Pros with Rentec Direct Property Management Software

We all know tenant screening is plays a vital role in placing a tenant, but why is that?  Without properly screening a new tenant a landlord can end up losing far more time and money than they gain.  A lot of landlords might assume this would never happen to them, or they are a good judge of character and may not need to verify the facts; however, fact is, poor tenants are on the increase and they are becoming better at lying about their past.   When interviewing the most successful landlords, they all say they absolutely positively would not give a new tenant keys prior to running a background check.

Tenant screening costs less than $30 and can be as little as $15.  This cost can save you thousands, maybe tens of thousands down the road.  Landlords who did not screen their tenants have ended up in some pretty bad situations, here’s a few I’ve heard about:

  • Tenant was a “professional renter” who knew the system and worked the system in such a way as to get over 1 year of free rent, plus $15,000 in costs from the landlord when the landlord did nothing wrong other than forgetting to screen this tenant.  This tenant had been evicted numerous times in the past for doing the same thing which would have showed up on their background report.
  • Tenant was a sex offender and the landlord did not check.  Because this was a multi-unit property with kids, the landlord was held liable when a problem occurred with a neighboring child.  This sex offender would have shown up in a background report.
  • Tenant setup a drug operation inside their rental and contaminated the property.  The landlord had to pay $35,000 to rehab the property before they could re-rent it.  The landlord was out the $35k, plus over 6 months rent while the eviction and rehab took place.  This tenant had prior drug issues which would have shown up in their background report.

These issues and many more could have been avoided if the landlords took 3 minutes and ran a background report on the tenants prior to giving them keys.  Watch here how simple it is to run a background credit and criminal report on a tenant.

Tenant screening costs you nothing.  Most successful landlords include the costs to screen the tenant within their application fee.   A typical application fee would be between $30 and $50 (depending on area).  This fee pays in full your entire cost to screen a tenant.  Just remember to keep your application fee close to your actual costs.  Afraid having an application fee might deter renters?  Landlords say it only deters renters who cannot afford $30.  Do you want to rent to somebody who doesn’t have $30?  How are they planning to afford rent or the security deposit if they can not afford the application cost?   Landlords say by clearly stating the application fee and that credit and criminal records are reviewed on their listings they save a lot of time showing the property unqualified renters.

Here are some vital reports that successful landlords agree must be reviewed prior to placing a tenant.

  • Nationwide criminal:  This will show me if the tenant has had criminal issues in my state, or any other state.
  • Nationwide eviction:  This will show me if any other landlords have had to take this tenant to court to get them out of their house.
  • Tenant Credit report:  A credit report is vital in confirming if the tenant can afford to rent from you.  A credit report will not only show any delinquencies the tenant may have but it will show their current obligations.  A simple formula is to take their income, minus obligations reported on their credit report and that is how much they have left to afford food, rent, utilities, and gas.
  • SSN Verification: This inexpensive report shows you a complete address history of the tenant and assists in confirming if the SSN really does belong to them.  You need to know that their SSN is valid since all other reports, and any future collection or judgement activity relies upon it being accurate.
 
Some landlords feel it's too complicated to screen tenants.  I've debunked that myth for our clients by showing just how easy it is in the following video.  



Comments (4)

Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi Nathan - Great post. You've laid it all out very well, and it's an important point - any landlord is putting a huge amount of money at risk everytime they accept a tenant. We learned this lesson a long time ago, for relatively little cost, but it made a big impression on us. We also learned to conduct quarterly walk-thrus, just to keep up with what's going on.

Oct 18, 2012 03:16 AM
Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA
LandlordWhisperer

hiring a professional property manager is worth the TENANT SCREENING RESOURCES that we have available to us that DIY landlords do have access to - most real estate agents are not set up for tenant screening until it is too late to know they are not qualified

Oct 18, 2012 06:13 AM
Charles Stallions Property Manager
Charles Stallions Real Estate Services - Pace, FL
Pensacola, Pace & Gulf Breeze Property Management

It is laughable that potential tenants will try to get out of paying the app fee.

Oct 22, 2012 02:13 PM
M. Lynn Delatte
Developers Realty - Broadview Heights, OH

It would raise huge red flags if a tenant would not pay an application fee.  Also, by even getting the permissions to do a full background check, many of those renters would withdraw.  One more reason to work with a realtor/property manager who specializes in rentals and knows how to do a screening.  

Oct 23, 2012 06:05 AM