Navigating the world of real estate, particularly when the focus is on property leasing, often involves dealing with a complex web of misconceptions. A prevalent one centers around landlords and the paramountcy of identifying the ideal tenant to ensure a steady flow of profits. Savvy property investors understand the close correlation between these two elements.
The formula to realizing considerable profit margin in property leasing lies in securing a dependable tenant. A tenant who makes timely payments ensures a healthy financial cycle. The perfect tool for locating such a tenant is, undoubtedly, rigorous tenant screening. However, some landlords harbor apprehensions about this process, perceiving it as a minefield of potential problems and drawbacks. This article aims to demystify these unfounded notions, highlighting the effective strategies for tenant screening without unnecessary anxiety.
1. The High Cost of Tenant Screening
Tenant screening services are undoubtedly accessible, but landlords often balk at the seemingly steep charges involved. The expense for single-tenant vetting can oscillate between $15 and $70. For landlords with multiple prospective tenants, these costs can quickly accumulate, presenting a seemingly substantial financial hurdle.
However, certain legislative frameworks allow landlords to offset this expense by incorporating a fee within the tenant application. This charge effectively covers the cost of screening and requisite background checks. Furthermore, various platforms enable landlords to request that tenants bear the screening cost. Consequently, landlords can bypass the need to request an application fee, and tenants are only charged if they genuinely aspire to lease the property.
2. The Fallacy of the Highest Credit Score
Given a stack of tenant applications, landlords often gravitate towards the individual boasting the highest credit score. A solid credit score is generally indicative of good financial management and is presumed to correspond to timely rent payments. Nevertheless, experts advise caution against hasty decisions based on this single criterion.
A tenant with a robust credit score may indeed meet their financial obligations punctually, but other potential issues could be lurking beneath the surface. Such tenants could prove difficult to manage, despite their financial stability, perhaps hosting disruptive late-night parties, causing property damage, or being unresponsive. Younger applicants may lack a credit history altogether, but this does not necessarily equate to them being inadequate tenants. Therefore, a credit score or history should not be the sole determinant of a tenant's suitability. It's crucial to conduct comprehensive interviews with all applicants, weighing various factors before making an informed decision.
3. The Necessity of Tenant Screening
Tenant screening is undeniably crucial, although some landlords, representing approximately 10% of the total, erroneously deem it redundant. Tenants are the lifeblood of a leasing business, and no landlord desires a faltering operation. By opting out of screening, landlords fail to verify crucial tenant background information and the accuracy of interview responses, thereby potentially setting themselves up for future complications. These may include the financial burden of eviction processes, months of unpaid rent, and other related issues.
While tenant screening doesn't offer a 100% guarantee of securing an ideal tenant, it significantly enhances the likelihood. It's a tool designed to aid landlords in selecting the best among available options.
4. The Impact of Tenant Screening on Credit Scores
Concerns about tenant screening negatively influencing credit scores deter some landlords from undertaking the process. This apprehension can hold some validity, depending on the type of credit check implemented. Credit checks fall into two categories: hard pulls and soft pulls.
Credit card and mortgage loan providers commonly perform hard pulls. Conversely, soft pulls are usually done by potential employers or landlords. Therefore, landlords can mitigate concerns regarding credit score impacts by opting for a soft pull credit check. This approach safeguards the tenant's credit score while still providing the landlord with essential information.
5. The Misconception of Occupancy Over Quality
A vacant property is a landlord's nightmare, often perceived as a financial drain. The longer it takes to find a tenant, the greater the perceived loss. In a sluggish rental market, landlords may be tempted to bypass the screening process entirely, forgoing even the most cursory interview with prospective tenants. The paramount goal becomes filling the property to secure an income stream.
Some landlords, overwhelmed by the screening process, may prematurely settle for the first applicant, foregoing further scrutiny. However, this approach can lead to costlier outcomes in the long run. Evicting a tenant can cost approximately two months' rent, and that's excluding potential losses from unpaid rent, property damage, or neighborly disturbances. Therefore, tenant screening is an indispensable step in selecting a tenant. A thorough double-check can pay dividends in the long term.
In conclusion, the path to becoming a successful landlord lies in debunking these myths and adopting a meticulous tenant screening process. This process, while seemingly complicated, can be managed efficiently and effectively, ensuring landlords secure the right tenant, thus safeguarding their investment. The quintessence of the process is striking a balance between data-driven decisions and intuitive judgment. Weigh all the factors and evaluate the overall picture before settling on a tenant; your property—and profits—depend on it.
If you’d like to talk more about property management, or you need help with Everest Property Management, please contact us at Everest Realty.