When I bought my first rental properties I managed them myself, with some help from my wife. If you ask my wife, she would probably say she managed them with a little bit of help from me. Whichever is true, we did a decent job of managing the houses, but we could have done much better. We tried our best to screen tenants as thoroughly as possible, but we did not always do a great job. In the beginning, I thought I could judge people by talking to them and meeting with them, but I learned quickly to not judge a book by its cover. We did not do credit checks, did not do background checks and did not charge an application fee. When I had 8 rental properties, we decided we needed to have someone else manage them. Justin, who is on my real estate agent team, managed my properties and quickly implemented credit checks, background checks and started charging an application fee. The quality of tenants went up, the seriousness of potential tenants increased and we had fewer problems with tenants. Justin does not do the credit checks and background checks himself, he uses a company that makes it very easy for him: TransUnion SmartMove tenant screening.
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Why do you need to run a credit or background check on tenants?
I decided I did not need to check credit when I first managed my rentals for a few reasons:
- I thought good people sometimes have bad credit. They could have gotten stuck in the housing crisis or had a medical problem that was not their fault.
- I assumed even if someone has bad credit, they would make rent payments because they need a place to live.
- I thought I was a good enough judge of character to decide if someone would be a good tenant or not.
- I was a little lazy and didn’t want to go through the hassle of getting a credit check.
When looking back at some of my problem tenants, most of them had credit problems. I began to realize that most people have bad credit, because they don’t pay their bills. Yes, some people have extenuating circumstances that cause them to pay bills late or not at all, but most of the time they have a history of not paying their bills. When someone has a history of not paying bills, there is a much better chance they will continue to pay bills late or not at all.
One of the tenants who caused me the most problems, proved to me that needing a place to live was not always the most important thing. He bought a brand new Toyota Sequoia, while he was behind on rent to me! He was constantly behind and catching up, but figured it was a good idea to add an $800 car payment to his budget.
A couple of times I used my personal judgement on a tenant, even though other indicators said I should not rent to them. One of the tenants was a lady who had lost her home to foreclosure. I was the REO listing agent for that house, paid her cash for keys to move out and she needed a place to live. She and her husband showed decent income, but because of the bad housing market they lost their house. She did not end up being a good tenant and was constantly behind on rent the entire time she rented from me. It was not the bad housing market that had caused her foreclosure, but her inability to make housing payments. That should have been a good indicator to me that she would not be a good renter either.
I admit it, I do take short cuts sometimes, and in the beginning I thought it was too much of a hassle to run a credit check. I was also concerned about taking someone’s social security number, and the liability that came with that. I justified to myself that I did not need to run credit, but in the end running a credit check would have saved me some money and hassles. One of the really cool features with SmartMove is you don’t have to order the credit check, the tenants do it all on their own.
How has running credit checks and background checks saved us money and headaches with tenants?
Since Justin took over and started implementing better practices, we have had much better tenants. Yes, we still have an occasional problem with a tenant destroying carpet or paying rent late, but overall we have some great tenants. We also have some tenants who have rented from us for over four years. When you have 16 rentals, you are going to have some problems with tenants, no matter how good of a property manager you are. If you buy the right properties, the money you make, will more than make up for those occasional issues.
How does TransUnion SmartMove work when screening tenants?
The really nice thing about SmartMove is it takes very little work from us. Here is how we use it.
- Set up a free account with SmartMove
- Enter properties that you will need screening for
- When you have a potential tenant, you enter them in the system with their email address
- You can pay the fee ($35) for the reports or have the tenant pay the fee. We pay the fee and deduct it from the application fee we charge.
- The tenant logs in to SmartMove to verify their identity, and their social security number, which we never see.
- When the tenant is done, we get access to their credit history, criminal background check and eviction history.
The reports we receive are extremely detailed. If a tenant has bad credit, we can see exactly why it is bad, what they paid late, what their credit limits are, and much more information. If someone has bad credit and they have a story of why it is bad, you can confirm their story with SmartMove. You can see all of their criminal history in every state, including traffic tickets! If they have ever had any eviction action taken through the courts, you can see that as well.
SmartMove saves all of this data for you, which makes it easy to go back and see if there were any red flags with problem tenants.
If I would have used SmartMove when I was managing my properties, I would have avoided a few problem tenants and saved some money. I can’t use the excuse of not wanting someone’s social security number anymore. I would not rely on just a credit check, background check and eviction history, but it sure helps. I would still check references, verify employment and make sure the tenant can afford the rent.