Does it make sense for real estate investors to leverage skip-trace companies? Why might you need one? More importantly, are there any better alternatives for getting the desired job done?
Investors have been discussing the use of skip-trace services and trying to figure out which ones are best among the myriad of online real estate platforms. However, do these services make logical and financial sense to take advantage of? Have they been rendered irrelevant by new technologies? Investors still debate as to whether or not a skip-trace service offers the best alternative.
What is Skip Tracing?
Skip-tracing services basically track down people that have ‘skipped town.’ Somewhat like a private investigator, they provide services for finding the hard to find.
This solution relies on technology for finding out where individuals are, where they are living and how to contact them. It has long been used for car repos, debt collections, finding heirs to a will, locating missing persons, and similarly by law enforcement.
Why Would Real Estate Investors Use Skip-Trace Services?
What purpose do these people finding services serve for real estate investment companies and solo investors?
There are several reasons for a real estate investment company or individual property investor to use this type of service. The first, but perhaps least common, would be to enhance due diligence and screening practices. They could be used to dig deeper and verify a variety of factors when filtering tenant applications or rent-to-own or lease option home buyers. The same can apply when checking out new potential vendors, business partners and even new hires.
Newer applications see this system being used to track absentee homeowners. For example; you may have found a home that appears to be abandoned and a ripe acquisition choice, but the owners are long gone and not listed in the phone book. A skip-trace service could be a viable tool for finding out where they are and getting in contact with them to make an offer. It can also help verify who the owner of a property really is. Skip-trace services are commonly used to track down others which may have a title interest in a property and are needed to sign the closing documents in order to secure title insurance and mortgage financing.
Thirdly, along the lines of the original concept, skip-tracing companies may be used to track down debtors that have skipped out on their leases.
Working the Math
Despite the advantages provided by such a service, there should be some concern over the cost of using a skip-trace. So does it add up?
If it is a truly must have piece of property or you have hundreds of thousands of dollars stuck in escrow relying on finding someone, it may be a complete no-brainier.
On the other hand, it can be a completely different story when it comes to some marketing campaigns and chasing down runaway renters. In these situations, it is important to accurately evaluate the true cost of your objective.
For example, blind marketing this way to thousands of homes when there is no guarantee you’ll even reach the right owner could mean a lot of lost working capital.
When it comes to tenants that owe back-rent, this would just be the beginning of a long line of expenses.
Weigh the alternatives. If leveraging something as simple as Google and social networks can solve your problem, look into them.