In today’s world, the insight that can be provided by criminal and credit background checks is essential for investors, neighbors, and even the residents themselves.
Why? Because background checks evince a variety of reactions, often with mixed emotions by the same individuals. Credit background checks are commonplace in almost all financial transactions. Criminal background checks are common in many work environments, especially if the individual will have access to significant company assets. Hence, it is not surprising that property owners and managers have, for years, required both criminal and credit background checks on applicants. Interestingly, the very resident who claims to desire a less restrictive background check often changes their mind if the applicant will be their neighbor.
Protecting local safety
Balancing background checks with the reasonableness of a diverse yet appropriate set of determining factors is at the core of the current struggle. Turning over the keys and access to a building that may represent someone’s nest egg and lifetime investment takes more than a bit of trust. In an effort to minimize risk, property owners want to better understand to whom they’re actually renting. Credit bureaus provide access to a history of responsibility, while criminal background checks are often a requirement of local police departments to help minimize calls for nuisance activity.
Several years ago, HUD initiated a rule that restricted the look-back time on a variety of criminal actions. Additionally, arrests were banned from consideration. Increasing the difficulty of managing the look-back times was a requirement for data justifying the length of time a property owner or manager would look back. Over the past four years, property owners and managers have started to settle into patterns of acceptability; that is, at least until HUD challenges those standards in court.
Putting investments at risk
In the meantime, managing the risk of turning over a building that represents your life savings to a stranger continues to become more and more difficult. Some communities have begun banning criminal background checks with the idealism that past actions do not indicate future behavior. However, aside from crimes of passion, past behavior is often indicative of future behavior. Property destroyed and neighbors harassed do not help improve a community. As most property owners and managers live within a few miles of their rental property (sometimes a few blocks), not only is their investment at risk, but their very own community is as well. This fact is not taken lightly by the real estate investment community.
Frequently, those coming out of a difficult situation can often find their first opportunity to stand on their own from the owner of the single-family home or duplex. These “mom and pop” managers represent almost 50 percent of the rental market in the United States and are often willing to take a little more risk than their corporate colleagues. But even in these situations, the property owner needs to be able to verify that the person in front of them is who they claim to be. With fraud running rampant, background checks are a necessary process to confirm who is actually sitting across the table, asking for the keys. The insight provided by criminal and credit background checks is essential for investors, neighbors, and the residents themselves. Hiding identities only helps those with ill intentions.