REAL ESTATE INVESTMENT SECRETS, PART FOUR OF TWELVE

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TENANT BACKGROUND CHECKS: LITTLE KNOWN WAYS TO AVOID COSTLY MISTAKES

an interview with Jeff Cronrod, CEO, Fidelity Information Corporation

Jeff Cronrod isn’t just the CEO of one of the largest national tenant screening firms; he’s been a landlord for more than thirty years. “My company also owns a collection agency, so I see what happens when things go wrong, and I’ve seen it all,” Jeff remarks. “The sad thing is you see the same mistakes over and over.

“You should use the same care in checking your tenants’ background as you would if you were lending money,” Jeff continues. “That’s really what you are doing. You are loaning out one of your most valuable assets.”

Tenant background checksare now largely automated, a great development from thirty years ago when you would have to do research in the courthouses to get criminal history. The ease of obtaining this information makes it impractical to try to screen a tenant entirely yourself. Besides, credit information is only available from the credit bureaus.But Jeff warns of the pitfalls of relying on these databases alone:

“People often don’t know what the reports mean. The trend today is for computers to make the decision, based on the data, of whether a prospect is approved or declined. There are many benefits to that system, but make sure you read the explanations that accompany the documentation you order and determine if there are items you should follow up on:”

• There may be a little lag time in eviction reports if the applicant is currently facing eviction, but nothing is filed yet with the courts. Demand a current rental receipt.
• Verify employment, salary, and bank information, as these are subject to change.
• Talk to previous landlords, and check out the personal references.
• Make sure you do background checks on all of the adults who are going to be living in your rental, and check out co-signers, too.

You still need to get a fully-completed application, then cross-check the information on that with the reports that you receive. You may find inconsistencies that require more due diligence.

“Our collection agency sees tons of cases where people have used fake social security numbers – often their children’s,” Jeff warns. “This is particularly hard for the smaller landlords. It can cost thousands of dollars to evict, and the property is tied up in the meantime.”

Even once you have rented, your due diligence must continue. Jeff suggests that you:

• Copy each rental check to catch a tenant who changes banks.
• Update your application about once a year – verify employment, banking, even credit information

WHAT TOOLS ARE AVAILABLE FOR A TENANT BACKGROUND CHECK?

The national screening firms will offer access to:

• Credit Reports
• Eviction Reports by state
• Criminal Reports by county, state, national or federal levels. (There’s a difference between national and federal – Jeff recommends getting at least the state level report.
• Previous Address Tenant History. Shows where the tenant lived. Can cross-check against other reports.
• Sex Offender lists
• Terrorist lists

Some companies, including Fidelity, offer additional verification of employment, bank accounts and prior landlord references.

“Ultimately, you will have to decide how to interpret the information you receive. Don’t rely on credit alone. Make sure you develop a clear sense of the prospect’s character. Bringing in a sex offender or a domestic abuser, for instance, causes disruption among the other tenants, and can touch off an exodus of your good renters.”

When choosing a screening firm, be wary of services that offer you free or low cost, immediate access to reports. “The industry is highly regulated due to concerns for consumer privacy,” Jeff explains. A landlord first has to be underwritten by a reputable screening firm to have instant access to an applicant’s background information. Companies that don’t underwrite you may not be giving you accurate, up-to-date information. “You don’t have to scrimp on the fees. On average, it will cost about $20-$30 for a accurate screen. Most often you are allowed to charge the tenant for the screening fee. And don’t be afraid to ask the screening firm for references – just like you would from your tenants.

Fidelity Information corporation offers screening services to American Apartment Owners Association members. For information on how to apply and available discounts, go to www.joinaaoa.org.

This exclusive interview is included on the American Apartment Owners Association’s CD series, Real Estate Investment Secrets, twelve exclusive interviews with industry experts that will supercharge your ability to locate the best investment properties and manage or sell them for maximum profit.

To read Part One of Real Estate Investment Secrets, “How to Buy, Reposition and Resell Income Properties for Maximum Profit”, by Daron Campbell, Managing Partner, RE/MAX Commercial Real Estate, click here.

To read Part Two of Real Estate Investment Secrets, “Finding the Right Real Estate Broker”, by David Potarf, Director, National Multi Housing Group, Marcus and Millichap, click here.

To Read Part Three of Real Estate Investment Secrets, “Secrets of Evaluating and Selecting Undervalued Properties”, by Ron Brock, Sr., President and CEO, Pierce Eislen

Real Estate Investment Secrets is available exclusively through the American Apartment Owners Association. To purchase a copy, visit www.joinaaoa.org. Join as a PremiumPlus member, receive all the benefits of membership, and this CD series is our gift to you.

For tips on how your tenant background check can affect your chances for recovery of unpaid rent, check out our series on the blog “Seven Vital Tips to Help You Collect Your Tenant Debt”.

Check back for next week’s feature, “Everything You Need to Know Before Hiring a Property Management Company“, with Rodney Trepess, CEO, All Property Management.

American Apartment Owners Association offers discounts on products and services related to your commercial housing investment, including tenant debt collection, tenant background checks, insurance and financing. Find out more at www.joinaaoa.org