The Quick and Easy Guide to Tenant & Borrower Screening

tenant & borrower screening

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If you're in the business of renting out real estate or selling your properties with seller financing, you probably know – there are a lot of dishonest, delinquent and deadbeat people out there.

When you list a property on the market and start getting calls and email inquiries from people who want to buy or rent it from you, some of these people will be honest, reputable and trustworthy, and some of them will be the exact opposite.

If you want to separate the great tenants and borrowers from those who are more likely to give you headaches, it's on YOU to investigate their background and understand who you're dealing with.

Whenever you're considering a new business relationship with someone who “promises” to send you regular payments, it's never a bad idea to do some fact-checking and gather some historical data about the person on the other side of the deal.

Better to be armed with some information than no information – right?

The good news is, it's surprisingly easy to get these answers and it doesn't have to cost you a dime.

In the next few minutes, I'll show you how you can run credit checks AND background checks on the potential tenants or borrowers you're working with (and if you stick with me, I'll show you how to read these reports too).

Introducing: Cozy

The platform we're going to use is called Cozy.

In case you're not familiar with Cozy – this is a online, cloud-based software, designed to assist “mom and pop” landlords in handling the essential, ongoing tasks of managing their rental properties.

I'm talking about things like…

Now, I've only used Cozy to pull credit reports and background checks, but I've talked with a lot of other landlords who use Cozy to fully manage their rental properties and I'm not exaggerating when I say this – EVERYONE has told me they love this software (which isn't something I can say about most online software and services out there).

How to Run a Credit Check for FREE

So let's dive into it.

If you need to pull a credit report or background check on a potential tenant or borrower, here's how you can do it:

  1. Go to this page, scroll down and click on Request Screening Reports (don't be afraid to sign up for an account – it's worth it).
  2. Select which report(s) you want to generate.
  3. Type out the first name, last name and email address of the applicant.
  4. Enter your free account information (it takes less than 10 seconds).
  5. Click on Send Requests.

…and Cozy will handle the rest.

I'll show you exactly how it works in this video:

Overall, there are a lot of reasons why I like Cozy:

  • The website is beautifully designed and very easy to follow (for both parties). If you know how to use a computer and check your email, it's basically impossible to get lost or confused during the process.
  • For the person requesting the credit report (i.e. – YOU), it doesn't cost anything.
  • The reports are clean, concise and easy to read. You don't have to be a banker or finance professional to understand what you're looking at.
  • If you want to use the service to handle other aspects of your rental property business (e.g. – property listings, finding tenants or payment collection), it can do a lot of other stuff too.

And when it comes to credit reports, there's another important thing to keep in mind.

When most conventional lenders and creditors “pull credit” on their applicant, it’s usually a one-sided transaction that has no involvement from the tenant or borrower. As a result, it lowers the applicant's credit score with every inquiry (this is why they call it a “hard inquiry”).

However, Cozy DOES involve the applicant in this process (as shown in the video above) and as such, the credit bureaus treat it as a “soft inquiry”, which doesn’t ding their credit with every inquiry. It’s treated the same as if the applicant pulled their own credit – which they don’t get penalized for.

Why Screening Matters

Back when I was a real estate novice, the idea of pulling a credit report seemed pretty confusing (and even intimidating) to me.

You see, I had no idea how to get my hands on someone's credit report, and even if I did – I wouldn't have known how to make any sense of it (I never would've admitted this openly at the time – because I didn't want to look or feel stupid).

For a lot of years, I used to sell properties with seller financing, and I didn't run ANY credit checks on the borrowers I was working with.

I know, it might sound crazy (and maybe it was a little), but I was able to justify this for a couple of reasons:

  • I was buying properties for around 10% – 30% of market value, and selling them for 50% – 70% of market value… sometimes more. This gave me a BIG, built-in profit margin, and I was usually able to recoup my total investment into each property before my borrowers had a chance to default on their payments to me, so I was pretty well covered, no matter what happened.
  • If a borrower ever stopped paying, I was able to repossess the property without much trouble (because I only work in states that made the process easy). As a result, this allowed me to sell the property to someone else, and start making money all over again (which could potentially make the deal even more lucrative in the long run).

In my situation, there were actually some valid arguments for foregoing the credit report – but even then, when you consider how easy this process is, how valuable the information is AND the fact that it doesn't even cost anything… why would you not do this??

I'll be the first to tell you – even if you're not losing money on the deal, it's still a big hassle when a borrower or tenant stops paying. Even with mechanisms in place to get the property “unstuck”, it still chews up a lot of time and energy to make it happen.

For a lot of reasons, it's smart to get educated about the people you're looking to work with – especially when a website like Cozy makes the process so painless. 

Now I want to hear from you! Have you ever used Cozy before? How was your experience?

If you decide to give it a try with your next loan or rental applicant, let me know how it goes in the comments below!

Free Webinar With Seth and Jaren

You are invited to an exclusive webinar with Seth Williams and Jaren Barnes on Wednesday, October 24 at 8:00pm EDT (5:00 PDT).

Jaren will be hosting a live presentation addressing some of the most critical elements involved with finding deals and motivated sellers in the land business.

In this live webinar, you’ll get the scoop on how to choose the right market, how motivated sellers think, where to find them and what to say ( including some of the best tips, tricks, stories and lessons you’ll need to know as you start pursuing cheap land deals on your own). You won’t want to miss it!

Space is limited, so register now to hold your spot!

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About the author

Seth Williams is a land investor and residential income property owner, with hundreds of closed transactions and nearly a decade of experience in the commercial real estate banking industry. He is also the Founder of REtipster.com - a real estate investing blog that offers real world guidance for part-time real estate investors.

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  • Kathy Cox says:

    Seth: I am a fan, but wondering if this is a paid advertisement?

    Thanks
    Kat

    • Seth Williams says:

      Hi Kat, there are affiliate links in the blog post above (if you use these links to run a credit check, it will generate a very small commission for the REtipster Blog), but other than that, this isn’t a paid or sponsored advertisement (i.e. – they didn’t proactively compensate me for making this blog post and video).

      The goal with this piece isn’t to be a “money maker”. The goal is to let readers know about the best screening tool I’ve been able to find to date, that’s all. I hope that helps!

  • Zac Caudell says:

    I’ve been using Cozy for the past 6 months or so. It’s great for credit reports and background checks. I now require all applicants to pay for their own background check and credit report ($40 total) when they submit an application. This basically serves as my nonrefundable application fee and helps weed out bad tenants from the get go.
    I also use it to collect rent and receive tenant applications. No application paperwork and no waiting on checks to arrive that the tenant swears he mailed “two weeks ago”. Tenants can connect their bank account and set up automatic withdrawal, and they can also pay with a credit card. And, there’s no extra charge for credit card transactions because the fees are charged to the tenant instead of the landlord. I can also charge late fees if I need to.
    Also, I have one tenant who is doing a lease purchase with me and cozy gives her the option of reporting her payment history to a credit bureau so she can build her credit and be in a better position to buy when our lease purchase agreement ends.
    I probably sound like a salesperson, but I just really like their service. The best part is it’s all free for the landlord. The only catch is that payments generally take 5 days to arrive in your bank account, but you can choose to receive money earlier for a fee.

    • Seth Williams says:

      That’s awesome to hear Zac! Thanks for sharing your experience with us. It’s great to hear feedback from someone like yourself who has been using them so regularly. I’ve only used them for the credit/background checks, but not for the payment collection yet – so it’s helpful to hear that this has been a useful service for you.

  • Colby says:

    Seth,
    Thanks for introducing me to cozy. I just got a rental property with long term tenants in place. I haven’t done any screening on them at all. I think they move out soon so I have been looking for solutions when it becomes time to place new tenants in the house. Thanks for the tips.

    • Seth Williams says:

      I’m glad to hear the tutorial was helpful Colby! Yeah, I think Cozy is a great way to get some easy answers for any future tenants you’ll be dealing with.

      I wish you all the best on finding your next set of renters!

  • Nida says:

    Nice article seth. Definitely screening of tenants and borrower is necessary these days. Thanks for introducing cozy and giving easy guide and steps with videos in detail.

  • Monica says:

    I just happen to be renting my first investment property, and I will use Cozy to do the checks. Using your link, thanks for the tutorial! And amazing timing!

  • Alex says:

    Hi Seth, great article. Have you by chance checked out Cozy competitor called Tenant Cloud? They seem to have a lot of the same features and also offer their services to Landlords for free. Both firms seem to monetize their services by charging either the tenants or the handymen. They both look to use different background checking services, so which one is better? Would be interested to know which one offers more capabilities to it’s Landlords.

    Thanks

    • Seth Williams says:

      Hi Alex, thanks for sharing! I haven’t heard much about Tenant Cloud to date (so unfortunately, I can’t give you much helpful info for comparison’s sake). I’ll have to check them out.

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