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Real Estate Investment 101: The Importance Of Running Background Checks Prior To Investing And Renting

Written by Posted On Friday, 19 May 2017 18:12

You’ve got the financial backing ready and a solid business plan in place. There should be nothing stopping you from launching your new real estate investment business. But have you considered your potential tenants and if they will pay their rent on time or trash out your property? What about the unit or home you wish to buy. Is it a diamond in the rough? Or does it have a lot of underlying structural issues? These are all things to consider before locking in your investment. Conducting a thorough background check on all aspects of acquiring new property is very important. Here are just a few things to keep in mind before you sign the dotted line:

Importance Of Running Credit Checks On Future Tenants

Once you’ve purchased your home or apartment complex and your remodel is near to completion, it’s time to start bringing in some cash flow. This means choosing clients who are trustworthy and have a solid credit history. Running tenant credit checks on potential tenants tells you:

-Their existing credit or FICO score

-Past rental payment history

-Amount of credit lines and balances owed

-Any late payments with mortgages, rent, utilities and credit cards

-Length of time credit cards and accounts have been opened

Knowing all of these factors will help you make a reasonable decision in if a tenant has creditworthiness or not.

Property Background Checks

In addition to knowing everything you can about your tenants, you should also learn more about the property you’re buying. While the seller of the property legally needs to disclose all pertinent information regarding the current status of the property, he may leave out some details. If there was a past history of bug or rodent infestations, the seller doesn’t always have to disclose, especially if the issue has been remedied. This can be troublesome especially if feces are left behind or the problem continues to reoccur. A prior electrical fire, property flood or frequent vandalizing may also not be disclosed at closing. This information can be found by conducting a complete property background check.

Investigating And Studying Market Trends

Another important background check includes studying the market trends for rental units in your neighborhood. This type of investigation includes pulling demographic information that includes:

-Average income of adults in the area

-Median rental and mortgage calculations

-Amount of people who rent vs. own

-Age group of people who rent homes vs. apartments in the area

Knowing and understanding more about what types of rentals are prominent in your area is also important. Do more people rent homes or duplexes? How many people sign more than a one year lease at the apartments they rent from? All of these statistics and informative percentages can help you decide how much to charge for rent and what demographic to pursue once you start marketing and advertising your rental unit.

Verifying Application Information

A credit check verifies someone’s creditworthiness and what their history is regarding paying their bills and making payments on time. The rest of the information about them is found on the application form that they fill out and submit to you. In order to make sure you can make the best financial decision, you’ll need to verify everything that they report to you on the rental application. This includes:

-Their existing employer’s information

-How much income they have—including unreported income not found on their credit report

-Verifying their personal references

-Matching their social security card number with their I.D.

-A criminal background check

It’s important to gather all of the information so that you can run a complete and thorough report for each potential household member.

Background checks are important for all facets of acquiring rental property. Protect yourself and your investment by confirming all information given to you during the interview and application process.

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Ryan Kh

Ryan Kh is a big data and analytic expert, marketing digital products on Amazon’s Envato. He is not just passionate about latest buzz and tech stuff but in fact he’s totally into it. Follow Ryan’s daily posts on Forumsmix. Email him at, and follow him on Twitter, LinkedIn and Tumblr.

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