Which type of background check to get? Many people new to investment real estate often don't know which type of background check to get and wind up either not doing one at all or doing the wrong type. In any case, many people new to rental property investing leave themselves exposed to either deadbeat risk or risk of civil action (lawsuits). Either proposition is to be avoided at all costs, and with the right strategy, shouldn't be cost prohibitive.
Step 1: Advertising – Accumulate A Large Number of (Good) Applications
If you're new to the business of rental apartment income, your first thought needs to be on advertising, even if your units are all presently occupied. I continuously advertise rental units so I always have a good selection of applications on hand at any given time. You never know when a unit will become vacant – so anticipate that units will become open.
First Comes Consent, Then Comes The Application
When applicants do come knocking at your door, hand them a consent form first. Your consent form needs to indicate to the rental prospect that they must authorize a complete credit and criminal background check prior to even receiving an application . You have no idea how many bad apples that will eliminate.
Step 2: Pre-screening – Weeding Out Obvious Losers
Step 2 is all about efficiency. What kind of background check to get that will allow me to scan as many applicants as possible for as little cost as possible. Do your own scan first. Any applications that aren't signed or are not complete, chuck or set aside. Don't bother with them unless you completely run out of good applications.
Once you have weeded out the folks that don't sign the application, don't put down references, don't include their social security number, etc. it's time to use a pre-screening service. The pre-screening service allows you to validate that the information that was submitted was accurate. Is the social security number legitimate?
Pre-screening services are cheap because they access public records databases. They're also fast, with instantly available search results. This makes this kind of search to be the ideal background check to get when vetting a large group of candidates.
Step 3: Verifying That Tenants WIll Be Good … and Good Payers
After you have your stack of applications that have been validated in the pre-screening process you really need to start making tough decisions. Pick the two best candidates and bring them in for an interview. If there were any issues on the pre-screening (sometimes people make mistakes), ask about them and get information clarified. Remind the applicant (s) that they still will be subject to credit and criminal background checks after the 1st interview. After the 1st set of interviews, if you like one or both candidates, do your Fair Credit Reporting Act (FCRA) compliant information search. These are not cheap, but it is the correct kind of background check to get when you need to get the legal credit reporting and criminal background information.
Step 4: Make the Offer
If the rental candidate made it through step three, it's time to offer them a unit and get them signed to a contract based on your desired lease terms. At this point you still should have other good applications to call in if this first offer doesn't pan out, and you know which background check to get and when to get it to save yourself time and money but stay legal.