Why do I need to screen a tenant?
Tenant screening is a process used primarily by residential landlords and property managers to evaluate prospective tenants. The purpose is to assess the likelihood the tenant will fulfill the terms of the lease or rental agreement and will also take great care of the rental property in question. The process culminates in a decision as to whether to approve the applicant, approve the applicant conditionally (such as requiring an increased deposit or cosigner) or deny tenancy. Source: Wikipedia
Successful tenant screening is among the most important items that a property manager or landlord can do to ensure the success of investment in rental property. Cash flow (Rent) fuels every investment in rental property. It covers mortgages, property maintenance, taxes, insurance and modernization of the property. Effectively placing quality tenants in rental property insures that these expenses continue to get paid. Vacancy on a single family rental property is costly, but an occupied property with a non-paying tenant is disastrous. In addition to continuing to accumulate expenses, the landlord now has to go through the legal process of removing an adverse, non-paying party from the property. This process usually takes at least 30 days and in some cases can take over a year. Often an eviction ends with malicious damage to the property during the eviction process. Many investment properties become foreclosures when a tenant stops paying rent.
There are two critical factors that a tenant must do to increase return on investment for a rental property: fulfill the terms of the lease (Pay rent ON TIME), and care for the property (Cause limited financial damage to the property). A landlord must do as much diligence as possible to increase the odds that these two items will take place.
Luckily for landlords and property managers, the same tools employed by most lending institutions are available in some form to property managers and landlords. These tools can help answer whether or not a tenant is likely to pay their rent on time. A lease is basically an extension of credit to a tenant. A more difficult task for landlords is to determine whether or not a tenant will cause an acceptable amount of damage to the property (All tenants cause some damage).