Business is risky. Being a property owner or investor is even riskier, especially when it comes to renting out your investment property to strangers for any amount of time. Sure, you could ask a friend or a family member to move into your rental property, but you still need to screen each applicant so you don’t make a huge, costly mistake.
So, what are the risks of NOT running background checks on the applicants?
Risk #1: Losing money on eviction proceedings
With the average cost of eviction proceedings being between $3,500 and $5,000, you want to protect your investment any way you can, and this means investing in some tools upfront.
The first screening tool you should use is a tenant screening service for all prospective applicants. After your applicant has filled out the application form, your next step is to use a professional tenant screening service to check out the person’s background and past rental history.
Hiring a professional company to do this will save you money in the long run because they can check all the following for you:
- Credit history
- Multi-state eviction history
- Background check
- Employment history
- National criminal report
- Court records
- Verification of employment
- Verification of rental history
- Verification of income
The other advantage of using a tenant screening service is that they will use best practices that comply with the Fair Housing Act set out by the U.S. Department of Justice, Civil Rights Division. The Fair Housing Act was enacted in 1968 to protect people from discrimination when they are renting or buying a home, getting a mortgage, seeking housing assistance, or engaging in other housing-related activities. This means that they will screen applicants without discrimination based on race, color, national origin, religion, sex, familial status, or disability. This one step will go a long way in protecting you the owner from any discrimination lawsuits as you undergo the tenant-screening process.
Risk #2: Ruined rental property
A second risk you run if you don’t properly screen applicants is that bad tenants can ruin or destroy your rental property, leaving you with nothing more than an uninhabitable unit that will sit empty (and profitless) until it is repaired and rented out again. While tenants are not responsible for normal wear and tear of a property, they are responsible for any damages that are due to negligence or accident. It’s always a good idea to include verbiage in the lease agreement to this effect so that they can be informed of the consequences.
Another good way to head off this issue is to require a property inventory and/or a move-in inspection with your new tenant. This gives you a chance to walk the full property together, pointing out the existing areas of wear and tear and documenting it so that both parties are protected when it comes to property damage beyond normal wear and tear.
Risk #3: Questionable applicants’ reputation
Another risk of not checking backgrounds is when you get impatient and just want somebody to move into your property instead of having it sit empty while you sift through the applications and screening process. Although this may suit your financial need in the short term, you may regret it in the long term because skipping a background check will completely open you up to all kinds of problems.
the applicant is the one being impatient and wants to move in quickly, it could be a red flag that there is something in their background that they don’t want you to see. At the very least you should be running a credit report, criminal history check, and an eviction/rental history check before offering anyone a lease agreement. (You should also be cautious if someone offers to give you their credit report directly to fast-track the process—there is no way to verify the information if it comes from the applicant him or herself.) Again, this is why there are professional tenant screening services available.
One thing to note is that a background check differs substantially from a credit check. Depending on what the service offers, you need to understand the difference. A credit check simply reports a person’s creditworthiness, their history of paying bills and paying on time, whether they have ever filed for bankruptcy, and the like. Credit checks only verify a person’s credit; a background check is what delves into their criminal records (if any) such as criminal history, eviction records, court records, and inclusion in any nationwide criminal databases. This is as vital to know as their salary so it’s worth it to legally obtain as much information as you can about your applicants.
Risk #4: Getting sued for negligence
Finally, it’s important to know that if you choose to skip the background check, you as the landlord could potentially be held liable if something goes wrong on your property. For instance, if a crime is committed in your building and your tenant is responsible for it, you could be sued for negligence. In our increasingly litigious society, this is a viable concern so proceed with caution if you decide against a formal background check.