The key to operating a profitable rental business is to have quality tenants. Reputable renters pay rent on time, protect your property, follow tenancy laws and agreements, minimize vacancies, and help your rental business grow continuously. However, finding responsible occupants is not an easy task unless you conduct thorough tenant screening system. Having a comprehensive screening strategy helps you adequately check rental applicants’ background and find trustworthy tenants who will mitigate a lot of rental business risks, such as financial losses, property damage, legal issues, evictions, and so on.
Proper tenant background check minimizes liability and gives you, as a landlord, deep insights into potential tenant’s financial history, criminal record, rental history, employment records, public records, and so on. Furthermore, it allows you to choose the best tenants for your property and enjoy a prosperous and stress-free rental ownership experience.
Table of Contents
1. What is tenant background check?
2. The 10 most important benefits of conducting a tenant screening
3. What does background check include?
4. How tenant screening is done
5. How long does tenant check take?
6. What is adverse action notice?
7. Legal boundaries of tenant screening process
Learn How To Do Tenant Background Check. Find Reliable Tenants & Generate A Steady Income Flow
In this article, we will reveal what a background check is, what the benefits are, what to check for, how to properly conduct tenant screening, and how to ensure regulatory compliance. Continue reading to discover effective strategies on how to do tenant background check in San Diego and find loyal tenants who will take good care of your most important investment.
Protect Your San Diego Rental Business With Confidence: Let Swell Property Run Tenant Background Checks
If you are a landlord in San Diego North County who is looking for help with finding reliable tenants, do not hesitate to turn to professionals – Swell Property team. We are a property management agency specializing in tenant placement and rental management services for both long-term and short-term rental properties. Our comprehensive tenant placement package includes advertising, tenant background check, agent showings, lease agreement management, and more. Our managers are highly skilled in attracting, identifying, screening, and placing a trustworthy renter who will commit to staying long-term. For over 20 years, we have served hundreds of landlords in San Diego area who recognized the importance and value of our service. Our portfolio includes management of various properties, including single-family homes, apartments, multi-family complexes, condominiums, villas, casitas, etc. If you own a rental and need professional assistance with running your rental business, give us a call at (760) 452-2345 or complete a quick contact form.
What Is a Tenant Background Check?
A tenant background check is a process of evaluating potential rental applicants before they sign the lease, in order to determine their level of responsibility, loyalty, commitment, and legal and regulatory compliance.
If you want to rent your property to a trustworthy lessee, you have to evaluate every potential applicant before they sign the lease agreement. Tenant screening will help you gain better understanding of who the applicants are and how reliable they are. It gives you a glance into potential tenant’s past behavior and provides clues into how they will care about your property and whether they will pay the rent on time. Properly conducted background check helps you make informed decisions that will encourage your continuous rental business growth.
The 10 Most Important Benefits Of Conducting Tenant Screening
Tenant screening is critical aspect of the rental business and you should never rent out a property without a thorough check. It enables you to verify whether a candidate is in fact who they say they are, and it will also help you find a good occupant with perfect rent-paying records. The reason why this process is so important is because it will identify red flags and protect both your property and your business from financial losses and other potential risks.
Here are the major benefits of conducting background checks:
1. Preserved property value – Responsible renters are more likely to proactively communicate or even handle themselves minor maintenance issues. They genuinely care about the property and keep it in a healthy condition.
2. Increased profits – Preserving rental unit in good condition increases its attractiveness and appeals to high-quality renters attracting quality who can potentially encourage higher rental rates.
3. Less repair expenses – Reliable tenants will report maintenance issues promptly which will enable you to address them in a timely manner, thus minimizing the chances of major problems arising.
4. Stable rental income – Consistent rent payments enable you to easily pay for various expenses, including mortgage, insurance, taxes, repairs, and other professional services.
5. Reduced financial losses & vacancies – By conducting background checks you can identify ideal renters who will make payments consistently. This will also reduce the risk of vacancies and lost rent.
6. Reduced turnover rates – Not only do background checks streamline the selection process, but they also help reduce costly errors and turnovers.
7. Low risk of legal issues – Rental applicant screening decreases the chances of having problematic tenants who could damage your property or violate lease agreements.
8. Maintaining safe environment – Responsible behavior enhances neighborhood safety and community well-being, which has a direct influence on your property’s value and ROI.
9. Low eviction risks – By having quality tenants, the risk of eviction is significantly reduced.
10. Establishing landlord reputation – Thorough screenings demonstrate your dedication and professionalism, while your rock solid reputation makes your property more appealing to prospective occupants.
What Does Background Check Include?
A thorough background check is the most effective strategy for evaluating the suitability of candidates. With that in mind, the following are major elements of a thorough background check:
Criminal background check
Many landlords agree that criminal check is sometimes more important than a credit check. This is because safety is the number one priority, even before paying the rent on time. Screening criminal history allows you to ensure safety, avoid vandalism and property damage. It is important to run a complete criminal check at the county, state, and federal level, for maximum protection. Although clean record is ideal, you must also consider the nature of offenses.
For instance, if a crime is non-violent or if it was committed a long time ago, you may not necessarily want to deny an applicant. Before proceeding with criminal background check, you must have the applicant sign a release form, separate from rental application, that gives you permission to do so. You have to clearly state that you will be running county, state, and federal check.
You can obtain criminal records through consumer reporting agencies (CRAs), law enforcement, or online screening platforms.
Typical criminal background checks include:
- Physical appearance description
- Aliases
- Current pending charges
- Jail/prison time served
- Misdemeanor convictions
- Felony convictions
- Sex offender criminal records
Credit report
Credit report check helps you find tenants who are financially stable and trustworthy. After obtaining consent from the applicant, you can move on to screening. Credit report checks should be done through major credit reporting agencies, such as Equifax, Experian, or Transunion. Every agency will also present you with a credit score for the candidate. In general, credit score for renting a property is about 620.
Whichever company you select, make sure the report includes the following:
- Name and address verification
- Active accounts and credit lines
- Debts (credit cards, mortgage, student loans, car payments, etc.)
- Payment history
- Foreclosures & bankruptcies
- FCRA-compliance
- Employment history as proof of income (if available)
Rental history (eviction) check
This is another critical report, as it helps you identify applicants who have been evicted in the past. Eviction can cost you thousands of dollars, in addition to the time lost and all the stress that you have to suffer. Because of this, eviction is considered one of the worst situations for landlords.
Apart from eviction history check, you can also ask for references from previous landlords to verify tenant’s rental history. All of the information gathered will help you anticipate candidate’s behavior and how they will handle your property.
Proof of income
Income verification is a way for you to check whether tenants can afford to pay rent. It is an indicator of their ability to fulfil their financial duties each month. By verifying their income you can protect yourself from accepting renters who can’t handle payments on time. The amount to look for will depend on local fair market rent for your location. In general, the standard is to look for the income amount that is approximately 3 times more than the monthly rent, although this practice may vary based on specific circumstances or location.
Landlords in California are allowed to ask for income verification from prospect occupants, but they must comply with certain regulations to make sure there is no discrimination. By law, in order to check income, you are allowed to request one of the following:
- Pay stubs
- Bank statements
- Contract of employment
- Government benefits documentation
- Tax returns
Employment history
In addition to screening income, it is also wise to check employment history. A tenant’s employment status is an important factor in determining their ability to pay on time. Typically, the rent should be about 30% of the monthly income, although this standard cannot be applied to all situations. The main purpose of employment check is to verify that your future renter earns enough money to pay for the property they plan to rent.
On your application, have your tenant list their previous employers’ contact information so you can confirm employment details directly. Look for employment gaps and inconsistencies in their job history. If needed, you may ask for additional information or proof that the individuals will be able to support themselves and pay the rent on time regardless of their employment status.
How Tenant Screening It’s Done
When you implement background check as part of your tenant application process, there are several important steps you should follow in order for everything to run seamlessly and in compliance with the law. Let’s look at the steps involved:
1. Get written consent from the applicant – Before screening, you must obtain signed authorization from the tenant, since it is against the law to conduct a background check without renter’s approval. You can either include a section in your application form, or have a completely separate consent form. The form should include an explicit statement that they are aware of the screening process to be conducted.
2. Obtain relevant information – Gather as much personal information as you can in order to run the check swiftly and smoothly. You will need to collect information such asfull name and aliases,most recent address, date of birth, Social Security Number, and similar info.
3. Select professional background check service – You can either conduct the check by yourself by utilizing online tools, or choose a professional screening company to run the report for you. Make sure the company is approved by the Federal Trade Commission.
4. Familiarize yourself with the laws and regulations – To ensure you are compliant with local, state, and federal laws and the Fair Housing Act, you must fully understand what you can and cannot do when performing the screening.
5. Run the reports & contact references (previous landlords, employer) – This is your chance to verify reliability, income, employment, and rental history.
6. Analyze the results – When you get the reports, analyze them thoroughly and take into consideration all the details. Use information gathered wisely in order to have better understanding of who the prospect tenant is.
How Long Does Tenant Check Take?
How long it will take to complete a tenant background check depends on the type of service used and how responsive the candidates are.
To conduct screening, it is essential to comply with rules and regulations. You can opt for services of reputable screening agencies, as they usually have the expertise to obtain screening reports swiftly. As an alternative, you can run the check yourself by using available online services. The most important thing is to have candidate’s written consent before you initiate the process.
What Is Adverse Action Notice?
If you deny or conditionally accept a rental applicant based on the information revealed by background checks, even if was just a minor deciding factor, under the Fair Credit Reporting Act you are obligated to inform the candidate in writing. Adverse action notice is a document that informs candidates about the denial (or conditional acceptance) to residence and their rights to dispute any inaccurate information in reports. The Act indicates which information you should include in written notices and it also specifies additional rules and obligations you should follow when using consumer reports. Providing adverse action notices will also contribute to establishing strong and reliable reputation of a landlord who is in compliance with the law.
Legal Boundaries Of Tenant Screening Process
As a landlord, you must follow various local, state, and federal laws, as well as regulations about tenants’ rights. When screening prospect renters, you must remain compliant with:
- Fair Credit Reporting Act – federal law that regulates how credit report information can be used
- Fair Housing Act – federal regulation that prohibits landlords from discriminating renters
- State housing laws – state laws that encompass a wide range of regulations and responsibilities for both owners and occupants of rental properties.
What Happens After The Screening Process
After you have evaluated the tenant’s history, you should proceed with the following steps:
- Notify the candidate about acceptance – Inform the tenant that their application was approved and send them acceptance letter.
- Draft a rental lease contract – Seek legal help to review your lease agreement and ensure it lists rights and responsibilities of both the landlord and the tenant.
- Signing the lease – Once both parties (landlord and renter) have signed and dated the lease, it is legally binding.
Commonly Asked Questions About Tenant Background Checks
1. How do I screen vacation rental guests?
The best strategy is taking initiative and conducting your own renter screening before you agree to let anyone rent your property. Start with telephone screening. Aks them about the purpose of the trip, whether they are traveling with pets, and whether they can provide references from previous landlords. However, be careful not to ask questions you are not legally allowed to ask. As a landlord, you are not permitted to ask questions that discriminate potential renters based on color, race, age, ancestry, sex, national origin, marital status, gender identity, etc. For more information on what you may or may not ask potential renters by law, read page 13 of ‘California Tenants’ – A guide to residential tenants’ and landlords’ rights and responsibilities. You can also try to find out more about potential guests by visiting their rental platform’s reviews or social media accounts.
Most importantly, make sure the guests sign a rental agreement and provide a security deposit. Don’t forget to inform the guests about these requirements before they book your rental.
2. How much to charge tenant screening fee in California?
The law in California sets the maximum fee for background checks based on certain criteria and inflation. At the moment, Civil Code of California caps the amount for screening to $30. The law says that you cannot charge the candidate mor than what you pay out of your pocket, including, but not limited to, fees for tenant screening services or consumer credit reporting services. You can, however, adjust this amount annually with an increase in the Consumer price index (CPI).
3. What is the maximum security deposit a landlord can require?
Effective July 1, 2024, new Law (Assembly Bill No. 12) limits security deposit to be equal to the amount of one month’s rent. Currently, it is customary for the landlords to charge two rents for unfurnished units and three rents for furnished properties.
4. How much should I charge an application fee?
In order to determine how much to charge the candidates for their application, you must first ensure you comply with the law and regulations in your state. In San Diego, for instance, landlords usually charge the tenants between $30 and $50 dollars, and the law has set the maximum at $59.67 per application, based on current CPI and inflation.
Disclosure
The content and materials of this article, except otherwise stated on this website, have been prepared by and are the property of Swell Property. This material is intended for informational purposes only and should not be used for any other purposes. It is meant solely to inform, and not to give advice or instructions on how to move forward. The information presented here does not constitute legal advice, it does not represent professional advice and is not guaranteed to be accurate, complete, current, or error-free. The content is subject to change without notice. Laws, rules, and regulations may vary by location, city, or state. If you have legal questions regarding your rental property, consult your legal advisor directly.
For Your Further Read:
1. 10 Game-Changing Benefits of Using a Property Management Company
2. A Step-By-Step Guide on How to Advertise Rental Property Effectively
3. What Is a Property Management Company & Why Its Crucial in Rental Business Success
4. Rental Property Deduction List for San Diego Landlords
About the Author
David Miller is Real Estate Advisor at Swell Property. Whether you’re eyeing a new home, an investment property, securing the best mortgage, or aiming to enhance your property’s value, my focus is on providing personalized guidance and strategy for your success. I listen to your needs attentively, ensuring that my expertise aligns perfectly with your real estate goals. My clients’ satisfaction and referrals are the true measure of my success in San Diego’s dynamic real estate market. If you’re searching for a real estate professional who’s deeply committed to your success, I’m eager to demonstrate my expertise and win your trust. Let’s connect and start this journey together.
