or Federal Trade Commission (FTC) Report. found that fraud, identity theft, and other fraud increased by 67% in the U.S. between 2019 and 2021. A significant portion of these descriptions occurred in the rental housing industryaccording to Snappt, who estimates that 11 million fraudulent rental applications were submitted in the US in 2021. Additionally, its 2022 State of Apartment Tenant Review Survey found that 85% of apartment property managers think consumers are becoming more comfortable committing application fraud.

As a real estate investor, there is many types of scams and rental scams that can have serious financial and legal implications in your business, which can also negatively affect your personal life. Potential tenants may provide misleading information to gain access to your property. This includes using fake identification or someone else's identity to pass background and credit checks. Some may falsify employment information or income by using fake pay stubs or employer references to appear financially stable and meet rental criteria.

There are also sublease scams, where tenants without the landlord's permission, causing damages or legal problems; overpayment scams, where a tenant or prospective tenant overpays with a check and then receives a refund of the excess amount before the original check is returned; and repair scams, where tenants intentionally cause damage to the property and offer to repair it, only to request a reduction or refund of rent.

In this digital age, when it's easier than ever for bad actors to steal identities and commit fraudulent practices in the rental industry, real estate investors should adopt these smart and smart practices to protect themselves from rent scam.

Connected: What is rent fraud and how can landlords prevent it? Here are 3 expert tips.

Use a formal rental application process

It is imperative to have a standardized and formal application process to gather the information needed to properly evaluate applicants and set a professional tone from the beginning of the relationship. It is an opportunity to communicate the owner's expectations and rental policiesbut it also shows professionalism, setting a tone that is more likely to appeal high quality tenants.

A formal application should be drafted to gather all the necessary information required to make the most informed decision, including employment history, credit information, past rental history and references. Red flags to look for during this information-gathering process include inconsistencies in an applicant's history or gaps in information, which may warrant further investigation or serve as grounds to get rid of that candidate.

There are many other benefits to having a formal application process that serves to mitigate risk. For example, it can help identify applicants who may be defaulting on rent, causing property damage, or engaging in illegal activity at the facility. It can also help ensure compliance with local and federal housing laws and promote good organization and record keeping.

If setting up a formal application process that is thorough, compliant and mitigates risk seems overwhelming, you may want to consider seeking help from a professional property manager who has the experience and resources to get it right. If this option is too costly, property management software (especially one with customizable options) can automate the process for you, saving you time and money while ensuring the safety of your investment.

Perform thorough background checks

Perhaps the most critical part of preventing rental fraud is conducting comprehensive background checks on prospective tenants. This includes running credit checks, verifying employment, checking criminal and eviction reports, and checking references from previous owners. Background checks help to detect fraudulent actors, as well as assess the reliability and trustworthiness of candidates and assess how likely they are to pay rent on time and treat the property with respect.

Credit checks are the most common part of background shows. They provide insight into the applicant's financial background, including their on-time payment history and outstanding debts. The finding of tenants who demonstrate financial stability suggests that they present a lower risk of rent default. However, background checks don't have to end there.

A thorough background check should screen applicants for a criminal history. Knowing if a candidate has one criminal background is essential to the safety and security of the property and other tenants or neighbours. However, you must comply with fair housing laws and regulations regarding the use of criminal history in rental decisions.

Gathering references from previous landlords can also help identify applicants who have a history of causing property damage or other lease violations. Choosing reliable tenants not only lowers the risk of rental fraud, but also reduces evictions, rent breaks, and tenant turnover, which means fewer vacancies and more rental income stability.

Verify identity, income and assets

An essential and often overlooked part of the application and background screening processes is the verification of identity, income and assets. Identity verification confirms that the applicant is really the person they claim to be. This is essential in avoiding identity theft scenarios, where a fraudster can use stolen personal information, such as fake or stolen IDs and financial statements, to pass a background check.

Verifying government-issued IDs, such as a driver's license or passport, is a common method of identity verification, but given that Cases of identity theft have nearly tripled in the past decade, it is important that these documents match the face of the applicant. It is best to meet tenants in person whenever possible to verify their identity and assess their honesty and trustworthiness. If that's not possible, set up a Zoom or video call and ask them to turn on the camera for the meeting. This reduces identity fraud by forcing applicants to produce government-issued IDs that match their faces.

Verification of income and assets is another important component of this process. It is helpful to create a good financial picture of a potential tenant. Viewing an applicant's payslips, bank statements or investment accounts ensures that they have the financial resources to pay rent on an ongoing basis. However, these documents can be forged and applicants may not want to share such personal information (which is understandable as it can lead to fraud on them as well). This is another example where advanced technology can help. Look for software platforms that can seamlessly verify the income and assets of potential tenants without requiring the exchange of sensitive documents.

Provide personal and financial information

Property investors must also take steps to secure their personal and financial information, as well as that of their tenants. First and foremost, limit information sharing to only what is necessary and use secure and encrypted communication methods for sharing sensitive information. If it is necessary to store personal information, keep the physical documents in a safe place, such as a locked filing cabinet or safe and use encrypted digital storage solutions for digital documents.

Other precautions include regularly updating your software to ensure you are running the most current versions that include patches for security vulnerabilities; using strong, complex and unique passwords for all online accounts; implementing two-factor authentication to access online accounts to add an extra layer of security; using secure networks such as a virtual private network (VPN) when accessing your information on public networks; and regularly monitors bank accounts, credit reports and other financial accounts for any unauthorized or suspicious activity.

Educate yourself and stay informed

Finally, one of the best ways to protect yourself from being scammed is to stay vigilant by constantly educating yourself and staying informed and up-to-date with the latest rental scam tactics. For example, understanding local rental laws can help you spot inconsistencies or illegal requests in applications or chats. Reading about the different types of fraud, as well as new trends and how old trends are evolving, are the first steps toward prevention.

If you are inexperienced in property management or feel overwhelmed by the effort required to protect against fraud, consider hiring a professional service. There are technologies available that can automate and simplify most of the practices and processes described above. However you choose to do it, taking proactive steps to secure your investments will limit, if not eliminate, your exposure to rental fraud.