Owning an investment property that you rent out to qualified tenants can be a viable way to earn extra income while also building equity in the home. However, not every rental applicant will be the right fit. With technology always advancing, it has become easier by the day to fall victim to scams on numerous different mediums. Believe it or not, there are renters with the intention to scam landlords, refusing to pay their rent and squatting on the property. Unfortunately, these scams can be a real headache, forcing you to spend your profits on lengthy eviction processes that require legal assistance. 

While rental scams aren’t typical, they do occur. You can protect yourself by implementing these strategies into your tenant screening practices. Here are a few tips to consider.

• Get To Know Your Applicant

It’s crucial to have a good idea of who your applicant(s) are. Take the extra step to have a conversation with them during the showing or other means of communication. Ask your applicant what they are looking for specifically. Are they looking for a place with an in-unit washer and dryer? Are they looking for a place with certain amenity features? Asking this question gives you an idea of their renting needs so you can compare their needs to your property and why they may be interested.

Ask them why they are moving. Are they relocating for work? Or maybe they are looking for a bigger place? They might even have had a bad experience with their past landlord or management company. Their answers could give you a good indication of your applicant’s intentions with applying to your property, and give you an understanding of who they are on a personal level. All of these questions can lead to great conversations that will teach you more about the applicant, while also giving them a chance to have open and honest communication with you regarding their needs or intentions for applying for your rental property.

• Complete Your Own Checks

Ensuring the integrity of your tenant selection process is paramount for a responsible landlord. Relying solely on external reports can leave you vulnerable to fraud or scams. It’s of utmost importance to complete your own personal checks when evaluating applications from potential renters. By doing so, you gain a firsthand understanding of your applicants’ financial stability, rental history, and overall suitability for your property. Verifying documents directly from the applicant adds a layer of security to your decision-making process, reducing the risk of falling victim to fraudulent applications. For example, run your own credit and background checks. Don’t rely on any checks given by the applicant or other third-party documentation. Call their prior landlord(s) to verify the information given by the applicant is correct. Contact their employer and ask to speak with their supervisor to verify the applicant’s employment. Lastly, cross-reference all addresses and documentation to ensure your applicant is who they say they are. Taking these precautions not only protects your investment property but also fosters a safe and trustworthy rental environment for all parties involved, promoting a positive landlord-tenant relationship.

• Ask for Prior Landlord References

Some applicants are long-term renters. For whatever reason, they’ve never purchased their own property. They may frequently move for their job or be working on saving a down payment for a home they can call their own. Whatever the case may be, ensure that your applicant has a stable rental history.

Their prior landlords might be apartment complexes or other rental home companies. It’s in your best interests to request the names and contact information of at least two previous landlords who can attest to their experience with an applicant.

Don’t ask for written references. Instead, it’s best to go straight to the source and speak with their previous property manager or landlord directly. Make sure you’re speaking with the right person and not just the applicant’s friend they may have listed as a landlord. Confirm their name and rental property address before asking any questions. To ensure you’re speaking to the correct landlord, you can check the title of the past rental property listed, and check past rental information online to confirm all of the information aligns. Once you’ve confirmed you’re speaking to the direct source, ask them whether they’ve encountered any problems collecting rent, if they had any pets in the property, or if there was significant damage to the property. If they give your tenant a gold star of approval, they’re likely a reliable applicant.

• Check Their Credit Report

A credit report will tell you a lot about a rental applicant. You’ll learn how much debt they have and whether they make timely payments to their creditors. Credit reports sometimes include any public records available on the person, like bankruptcy or tax liens. 

While excess debt isn’t necessarily a reason to deny an applicant, you should worry about a history of missing payments. If they don’t seem to care about paying other creditors on time, they’re more likely to take the same approach to your property. If you have a mortgage on your rental, you won’t want to take the chance that they’ll fail to make their monthly rent on time, leaving you in financial duress.

Similarly, active liens and judgments indicate that there are creditors out there who have the legal right to collect money from your tenant. Liens and judgments take priority in collections, so it’s best to avoid applicants who have active ones on their records Another red flag to watch out for is any utility accounts in collections. If your applicant has a history of not paying their utility providers, this puts your property at risk of having utilities shut off until bills are paid. If utilities are shut off for long periods of time, it could potentially cause severe damages to your property. If your applicant has a past of not paying their utility bills, they will likely have a similar approach with your rental’s utilities.

• Verify Income Sources

Too often, landlords and property management companies fail to devote proper attention to a rental tenant’s employer. Instead, they concern themselves with the person’s credit history. While credit is important, you also want to consider their income source.

If you don’t recognize the applicant’s employer, do some due diligence to ensure they exist. Can you find a company website for them? Were you able to speak to someone and verify your applicant’s employment? Sometimes, tenants will list false employers, especially if they earn money through illegal means or don’t have a steady source of earnings. If you can locate the company, call them and ask whether your applicant works there. You can also verify their current income and job title.

Finally, it’s vital to ensure that the applicant’s income is sufficient for the rent. Asking for the renter’s last two pay stubs and bank statements is a good practice that allows you to compare and verify income to deposits on bank statements. That way, you ensure that a lack of income will not be an excuse not to pay their rent. 

•  Run a Background Check

Proper rental property management includes verifying an applicant’s identity by obtaining a copy of their government-issued ID and running a background check. Through this check, you can verify that the applicant is who they say they are. You’ll also learn of their previous addresses, providing additional assurance if their landlord references align with their rental history. Most importantly, you’ll be able to see if the applicant could be a potential risk to neighbors or other residents. 

While some background checks will notify you of existing criminal records, what you should keep an eye out for are any financial red flags. Issues like judgments, tax liens, and bankruptcies are patterns that can indicate an applicant’s reliability. It’s essential to thoroughly research and understand local laws governing criminal background checks for renters. These laws can vary significantly by jurisdiction and may impose specific restrictions on how you can use an applicant’s criminal history in your decision-making process.

Background checks can also reveal the applicant’s employment history. You’ll see a list of their prior employers and the length of time they spent with each one. This can help ensure that you’re opening your doors to a resident who is more likely to hold onto their job and keep up with rent payments.

Partnering with a Rental Property Management Company Can Help You Prevent Scams and Bad Tenants

Your investment property holds financial and maybe even emotional value, and you don’t want to hand it over to just anyone. Instead, ensure you have a thorough screening process that helps you eliminate poorly qualified applicants and find good tenants who will take care of your property. In your tenant screening procedures, ask for references from prior landlords to get a better picture of your applicant. You’ll also want to conduct credit checks and ask for income verification to ensure they can pay the rent. Finally, always run a background check to spot any potential issues and red flags. Taking these extra steps will paint you a full picture of your applicant. It will allow you to compare their debt-to-income ratio and help to confirm that your applicant is financially reliable and exactly who they say they are.

Working with experienced rental property management companies can help you avoid common rental scams. The team at AllView Real Estate are experts in Los Angeles County, Orange County, and San Diego County property management and can ensure you find great qualified tenants for your rental home. 

From apartments and luxury homes to investment properties of all kinds, the professionals at AllView Real Estate are here to help you optimize your rental. Connect with us online or call us at (949) 400-4275.