How Much Does a Bad Tenant Cost?

by Chris on August 5, 2013

You’ve probably heard the phrase, “a bad tenant costs more than a vacancy.” But just how much does a bad tenant cost?

Let’s look at an actual example.

A tenant signed a one year lease and paid a security deposit. Shortly after moving in, the deposit check bounced. The landlord accepted another check. That bounced, too. The tenant offered up cash for the deposit and the landlord accepted the payment.

tenant screeningA few months later, the tenant informed the landlord that she needed to break the lease. The two failed to commit any understanding regarding early termination to writing, and disputed both the proposed and actual move-out dates.

The landlord did set out to find new tenants, which she says took five weeks, and only then if she lowered the rent by $250 a month.

The parties disputed nearly every point of what happened next. The landlord didn’t re-enter the property, but allegedly told the tenant she needed her to move her car so the new tenants could move in. Soon, the boyfriend became the point of contact, and later the landlord saw an unknown guest living in the property.

Not surprisingly, the case wound up in court, with the tenant insisting the landlord terminated the lease by finding new tenants, and the landlord fighting a battle to recover unpaid rent and other expenses.

The hearing was a close call for the landlord. She had failed to provide a receipt for the security deposit. She neglected to complete a move in/move out report. She didn’t step in to recover the property at the proposed move-out, and it took her a long time to find new tenants, despite the duty to mitigate damages. Additionally, the evidence which she submitted late was rejected, and she and the tenant fought over whether the landlord had properly accounted for security deposit deductions. If the landlord had lost that fight, she could have been forced to pay the tenant double the deposit.

Fortunately, the landlord received a monetary judgment, and was allowed to apply the deposit to money owed. In one sense, she won the case. But in reality, she lost. She already had a legal right to the rent — her signed lease agreement. Now, she will have to collect the judgment from a tenant who has moved away.

In this case, the tenant cost the landlord around $4,000, and she won a judgment for most of it. This landlord was lucky that the tenant moved willingly. A typical eviction could tack on another $2,500 or more or legal fees. Add in property damage, bad check charges, and the costs of collecting a judgment, and it is easy to see how one bad tenant could cost more than a vacancy.

What can landlords do to minimize that income loss?

First and foremost, carefully screen every tenant. Make no exceptions — that pleasant, seemingly overqualified applicant that made such a good impression could just as easily be a bad tenant. Professional tenants know how to play the game. Credit reports, eviction records, criminal background checks, landlord references, and verification of the rental application are all important ways to protect your interests.

Collect the maximum security deposit allowed. That may be all the money you will see from a bad tenant.

Make doing the right thing feel good, and doing the wrong thing uncomfortable. By signing up every tenant to Report Tenant Pay Habits, good tenants are rewarded with a stellar rental history and continued good credit, while bad tenants may think twice before coming up with excuses to break a lease or damaging the property.

This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).

Click Here to Receive Landlord Credit Reports.

Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.

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