The US residential rental market is steadily growing, and being a property owner can be very lucrative. But it can be stressful too. How can you know that your residents are trustworthy? What if they cause damage to the property or default on the payments?
While there’s always a degree of uncertainty, a thorough background check can give you some peace of mind. The best background check for landlords leaves no stone unturned in search of the perfect resident. And it’s not as complicated as you think.
Find out how to execute the best background check for property owners/managers in 2024 with this handy guide. We cover every step along the way, so you can rent out your property with confidence.
What Is a Background Check?
A background check is an investigation into a candidate’s history through a third party. This may include the individual’s financial status and behavior, creditworthiness, employment history, law-abiding nature, and more.
A background check and screening report may be done in many types of situations, such as when applying for credit, a loan, a job, or even a rental agreement.
Why Is It Important for a Property Manager To Run a Background Check on a Prospective Resident?
Unfortunately, it’s not wise to decide on who you rent your property to based on first impressions from resident background checks, alone. Many property managers have been deceived and taken advantage of in this way. That’s why it’s now the norm to run a background check. And it’s your responsibility as a property manager to initiate it.
Of course, a clear background check does not guarantee that you’ll never experience problems with the resident. If you can’t find any fault in their background, you’ll have to rely on your instincts to decide whether or not to approve their application.
However, individuals with a history of bad credit or fraudulent activity are less likely to pay their rent and pay it on time. The same goes for lying about employment status or rental history.
How To Run a Background Check on a Resident
Follow these steps for a smooth and hassle-free background check experience.
1. Before You Screen Prospective Tenants, Obtain Consent
First, you must obtain the resident’s written consent. Most of the time, they will have no problem with this. If they refuse or seem particularly hesitant about giving their consent, this is a red flag. They may have something to hide.
Be firm. No background check, no rental agreement. Obtain written consent and you’ll avoid legal complications later. But be aware that you may be required to explain your criteria for approving residents. If you expect applicants to be transparent, you need to show them the same courtesy.
2. Collect Prospective Tenant’s Information
The next step is to collect your potential resident’s information. This will include personal information like their legal name, physical address, date of birth, Social Security number, phone number, and other contact details.
You will also need employment verification and income verification, as well as the details of whom they currently rent from or have rented from in the past.
Don’t ask questions, either in person or in the application form, that are too personal. This may put you at risk of accusations of discrimination or even harassment. Stick to what is relevant for the tenant background check.
3. Choose a Background Check/Tenant Screening Service
When choosing the best background check site for property managers, look at what they offer, as there are many different types of background and credit checks. Always use an approved consumer reporting agency for your tenant screening services. Landlord-resident screening services include:
Rental History Report
This includes the applicant’s past rental property addresses, past property managers’ details, rental amounts, and any missed payments. It also lists eviction history plus the reasons for such evictions.
This will give you a good idea as to how reliable a resident they are, and how likely they are to abide by your agreement. Damages to the property will also be mentioned, but not those that fall under general wear-and-tear. There will always be a fair amount of maintenance in your duties as a property manager.
Credit Check
A credit report, or credit check, covers open lines of credit, mortgages, and personal, auto, or student loans. It includes previous credit inquiries, payment history, late and missed payments, and accounts handed over to collections agencies.
It will give you a clue as to the applicant’s ability to afford your rent, and their attitude towards financial responsibilities.
Criminal Record Check
A criminal record lists the individual’s criminal history and sex offender status including offenses based on police and court records. Take note that it includes only those offenses they have been found guilty of, or pled guilty to.
The arrests, criminal convictions, and incarceration details of such offenses will be included in the criminal background check.
A clear criminal record will put your mind at rest that the candidate is less likely to engage in fraudulent behavior or cause damage to your property. However, this is not necessarily a guarantee. It just means that they have never been arrested and convicted of such behaviors.
4. Know the Laws
Know the laws surrounding resident screening for property managers and background checking. Several laws and regulations apply to property managers and residents, at both the state and federal levels. The best background checks for property managers are those that comply with all these laws.
Federal Laws
In the United States, federal laws prohibit discrimination and require transparency during the resident screening process.
- The Fair Credit Reporting Act (FCRA) covers credit checks, rental history reports, and background checks. Property managers are required to inform residents if their rental applications are rejected because of what’s in such reports.
- The Fair Housing Act prohibits discrimination by property managers and real estate companies, as well as banks, lending institutions, and insurers. It states that they may not reject an applicant based on race or color, religion, national origin, disability, familial status, or sex.
The Fair Credit Reporting Act entitles the resident to a free copy of their rental history report.
State Laws
In addition to the criteria set out in federal laws, some states have further prohibitions regarding background and credit checks, and the tenant screening process.
Property managers may not discriminate against prospective residents based on sexual orientation, gender, gender perception, or marital status in California. Likewise, in Colorado, property managers may not discriminate based on sexual orientation, gender identity, or marital status.
Some states, for example, California and New York, regulate things like property managers’ application fees. Others may have different regulations for property managers. Always check with your local and state authorities if you are unsure of the regulations in your area.
5. Run Background Checks, Review Results, and Make a Decision
Once you decide on the type of background check you need, it’s time to run the check. The best resident screening services for property managers differ in their procedures and pricing. Be aware of them before you proceed.
When you receive the report, review the results and decide whether or not you want to approve the rental application. Meet with the applicant/s, discuss your findings with them, and assess their demeanor to make an informed decision in total confidence.
Take this opportunity to cover other basics, such as what you expect from residents regarding keeping the property clean and avoiding damages. If you’re comfortable with your choice, it’s time to finalize the paperwork, obtain the security deposit, do a move-in inspection, and hand over the keys.
Streamline the Tenant Move-In Process With RentCheck
Landlord-resident screening services ensure faster resident approval and a smoother move-in process. By checking rental history, credit history, and criminal records, you can narrow down the search for the ideal candidate. However, even with a suitable resident, damages to your property can sometimes occur.
That’s why move-in and move-out inspections are crucial. But they don’t have to mean another burden on your shoulders. Just leave it to RentCheck.
Instead of filling up your camera roll with thousands of unit pictures that are impossible to track down later, you can use RentCheck to store all your property data in one place. You can also leverage your residents to document everything themselves with our easy-to-use, self-guided inspections.
When your tenants can do it at their own convenience, there’s less back-and-forth scheduling (and often, rescheduling) and you get thorough documentation of your unit. Everyone’s happy!
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