One of the toughest challenges landlords face is finding quality tenants - someone who will pay their rent on time, care for your property, and ideally stay for a long period of time. While you should always conduct a thorough background check before placing a prospective tenant in your property, credit score is an important consideration to weigh in.
TransUnion recently released a report showing the relationship between credit scores and the quality of tenancy. The report factored in data for over 15 million people they have tracked to build a chart reflecting credit scores and rent to income ratios to show a trend of average evictions rates for each category. For credit scores 500-599, regardless of the income, these people exhibit a 5% chance of being evicted. At Grace Property Management, that number is too high. Moving to the next category, evaluation scores of 600-699, that eviction rate drops to a 2% chance. For those with a 700 or above, the chance of being evicted sinks below 1%. Staying in the range of 600+ significantly lowers your chance of eviction, which is often a costly and time-consuming process. Eviction and turnovers costs cut into your bottom line as an investment property owner so doing your diligence beforehand can help you to avoid them.
The takeaway from knowing this information is to do a deep screening on your prospective tenants. Always do a background check. If there is an eviction on their record, we recommend you not give them a second chance. Look at their criminal history and be sure to abide by the guidelines set by the Department of Housing and Urban Development (HUD) to ensure you are not discriminating. Do a separate search to check if they are a registered sex offender. And last but not least, be sure to examine their length of prior tenancy. With turnover being the highest cost for landlords, you want to do everything you can to place a quality, long term tenant in your property.
An investor client of ours who owns rental real estate in Loveland and Windsor recently hired us simply because they were frustrated after placing two residents in their property who only paid rent for two months before stopping. We found that our screening process would have denied these individuals from being approved in the first place.
If you are a Colorado property investor or have rental properties in the Denver area and have questions about how to process tenants or conducting effective screening, give us a call. The expert team at Grace Property Management is here to help investors with all of their property management needs. 303-255-1990.