Real Estate Articles

Are You a Real Investor or Just Another Landlord? | By: David Pickron/Rent Perfect

While most of us like to think of ourselves as "investors" instead of "landlords," the difference between the two is more than just a preferred term. Investors generally spend their money on rental properties and use them to generate income; landlords spend their time managing tenants and day-to-day problems.

More to the point, a lot of us want to be investors, even though we act like landlords.

One easy way to illustrate this problem is to look at the way property owners tend to screen potential tenants. For most investors, fast and cheap "instant" background checks – which can be had for as little as $10 – are the default answer. Unfortunately, these reports usually fail to give you the information you really need to make a good rental decision on their own.

Does making a big business decision with incomplete information to save a few dollars sound like something a seasoned investor would do, or the kind of step a landlord would take?

Why Instant Background Criminal And Credit Checks Come Up Short

Although instant checks are certainly cheap and convenient, you often get even less than you think you're paying for. You might take it for granted that when you enter someone's name, Social Security number, and other information into one of these systems, you're going to at least learn the basics about their rental history, past convictions, and other personal details or risk factors.

Unfortunately, that's rarely the case. Some of the reason has to do with the age and inefficiency of the database system itself – it can't match different identities, flag information that has been wrongly entered, or spot missing details. In fact, you'd be better off turning to Google for background help than turning to a database search, because the algorithm that search engines use would be smart enough to show you results that were somewhat similar to what you're looking for. More importantly, database searches are completely automated, meaning there isn't any follow-up, or anyone to look at the results with a critical eye.

Trained investigators, on the other hand,can evaluate those same reports, looking for trends and missing pieces, and then even follow up with potential renters to have them explain any gaps

How much of a difference could this added detail make? Research shows that tenants who have been properly screened are 60% less likely to be evicted from your property.

The Bottom Line On Background Checks

Of course, working with live investigators isn't as "cheap, easy, and convenient," but should that really be the most important criteria when deciding whom you can let live in one of your rental properties? A landlord might think so, but an investor definitely wouldn't.

When you bring in the wrong kind of tenant, you risk missed rent, damaged property, and even legal fees. Plus, dangerous men and women tend to scare away the other tenants who are more trustworthy and reliable, not to mention cause problems for you and your staff. In other words, bad tenants force you to spend your days acting like a landlord, not enjoying your monthly profits like an investor.

Eventually, you will end up paying for a thorough background screening process – either upfront when you review an application, or later when you're trying to get rid of the wrong tenants. So, would you rather spend a little extra time and money now, or a lot more of it later when you're trying to overcome a bad decision? To a true investor, that's an easy question to answer.

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