The Cost of an Eviction vs. Tenant Screening

I wrote up this article to help illustrate the importance of practicing a thorough screening of your prospective tenants before you sign their lease.  Let’s compare and contrast the costs of an eviction vs. simply running a screening on your tenants beforehand.  First comes the long section…

What is the Cost of an Eviction?

In most cases an eviction will happen because the tenant didn’t pay their rent.  After ample warnings you give them a 3 day notice to pay rent or quit.  Great, but the tenant hasn’t left yet.  If your tenant is struggling financially, they won’t be able to turn on a dime.  A good rule of thumb, is that the true cost to evict a non-performing tenant is equivalent to about five months’ worth of rent.  

True Cost Of Evicting A Tenant

1. Lost rent (typically two-three months of rent during the eviction proceedings, sometimes longer)
2. Make Ready Costs (to get the apartment ready to rent) between $500-$2,000
3. Lost time to lease (one month of revenue)
4. Concessions given to a new tenant and/or advertising (1/2 month)
5.  Legal Fees to Attorneys ($200-$750)
6.  Court Costs ($100-$300)

Perhaps you’re planning on charging the tenant for all of your eviction fees.  You might be pushing your luck.  There may not be any money to collect.  Then it’s still on you to pay those costs.  You may think to yourself that’s ok, you’ll get it from them later when they are able to pay up.  Maybe you’ll hire a debt collector to follow up with them.  The problem here is that the debt collector is going to pocket 60% of what is collected.  So you’re still left with a loss of potentially thousands of dollars.  If you do end up needing debt collection services, there is one with a 20% discount here.  Just mention The RRD to get the discount.

And now we’ll discuss the short section of this article.

What is the Cost of Tenant Screening?

A thorough tenant Tenant screening, including bankruptcy, rental history, ID Verification and credit reports is as low as $16 per run.

Also, the likelihood that a tenant will default is directly related to the FICO scoring in a tenant screening report.    

FICO Score Percentage of Population and Delinquency Rate
300-499                                87%
500-549                                71%
550-599                                51%
600-649                                31%
650-699                                15%
700-749                                 5%
749-799                                 2%
800 and higher                      1%

Conclusion

As an investor who’s looking to get the greatest ROI on your property, screening every tenant to avoid eviction fees, lost rent, and debt collection fees is simply a no brainer.  You would screen your tenants for many of the same reasons you would get property insurance.  This time, instead of insurance, it’s like having an assurance that rent will be paid each month and the property will be in good condition.  It’s not a guarantee, but it’s the best investment you can make.

Already evicted a bad Tenant?  You can warn other property owners and landlords with an incident report.

** Always be sure to follow all proper procedures when handling a tenant.  Please be sure that any metric you use in review of an application must be applied to all applications to rent.  A comprehensive view of F.C.R.A. law and procedures can be found here.  Also be sure to follow all fair housing laws and not to discriminate based on race, gender, minority group, etc.  Please also observe local ordinances, which may supersede some federal laws. **