Should landlords run background checks on renters or not?
Background checks are one of the big hurdles for many newer real estate investors — and even some experienced ones. It can be a sticking point, causing paralysis. So can you perform background checks on tenant applicants? Should you? Or is it a waste of time that is killing your occupancy rates and real estate returns?
Background checks are among the list of items that can slow landlords down as they try to fill rental properties. There are decisions to be made on credit, income, and money paid up front, too. Ironically, background checks are the one item that you don’t need to get a mortgage loan. You can take out a $5M mortgage without a background check, even if you’ve had a couple foreclosures in the past. Still, many landlords demand upfront money to pay for a background check on $1,000-a-month rentals.
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Regulations Surrounding Tenant Screening
The housing industry in general appears to be heading in two different directions on this. You can get a real estate, mortgage, or securities trading license in many places even with a criminal background. According to the application forms from some states, you may even qualify for a license if you are still on probation. In Seattle, regulations are increasingly determining who landlords can accept or deny as tenants and on what grounds. In many places, you may not legally be able to do background checks on employees or take them into account in your hiring decision.
On the other hand, some motels and extended stay hotels have been running background checks on guests. Value Place and Motel 6 are two of them — although it is worth noting that one Rhode Island police department decided to turn down the nightly guest lists being supplied for screening by a motel chain.
Are Background Checks Truly Valuable for Landlords?
What’s the value in running background checks for landlords? The most common reason is to look for past evictions, which is absolutely fair. Others might argue it is to identify people who are likely to cause property damage. Additional concerns may be sexual predators, drugs, and terrorism.
Related: 4 Old School Tenant Screening Tips That Still Hold True For Modern Landlords
I agree with background checks for all these reasons, but the big question is where do you draw the line? At a misdemeanor? A felony? A certain type of offense? If it was yesterday or 10 years ago? A one-time thing or a lifelong rap sheet? It’s also worth considering what happens if your local landlord-tenant laws change to block you from this. What if individuals have paid their dues and done their time? What if it was a bogus case?
Four important things to consider here are:
- How does running background checks improve your responsibility as a landlord?
- What greater issues might be caused by refusing housing to anyone with past interactions with the law?
- How can you avoid discriminating?
- What will the impact on your investment property performance be?
Certainly credit and income may be greater predictors of likely tenant performance. In many cases, the truth is that reformed criminals may be better tenants than those who haven’t been caught yet. Landlords may have certain responsibilities to neighbors and other unit residents. You might also consider if a boom in homelessness spur more crime, hurt the community and property values, and rocket local property taxes?
It is your choice to run a background check or not and at least for now, who to accept. Be ahead of the game and make sure your processes don’t break the law. You can’t unfairly discriminate, and you have to know your local landlord-tenant laws. For now, most can come up with a flat and fair policy and run with it. Watch your performance and the laws, and adjust it in writing over time and with market trends.
What about you? Have you had issues with tenants you rented to? What applications standards do you have? Have you ever had issues with tenants who had clean background histories?
Let me know what you think with a comment!