A rental property is a great investment that can provide you with a lucrative source of income over the years. However, as an investor, you may also be well aware that your investment could result in financial loss. One of the most significant sources of financial loss relates to tenant activities.
Everything from property damage caused by tenants (or a tenant's pet) to having to evict tenants for non-payment of rent can result in serious financial loss. The good news is that there are plenty of steps to take that can decrease the risk of this happening to you. When you do the following leg work, you protect yourself from unsavory tenants and loss of rental income.
Determine Your Screening Requirements Up-Front
Running your property should be an unemotional process. However, when your property has been vacant for a few weeks, you may make the emotionally-charged decision to rent to the first prospective tenant that comes your away even if they have a blemished history or financial record. A smarter idea is to create a list of screening requirements that the tenants must pass before you approve their application, and this takes the emotion out of the process.
For example, they should have a reliable source of income at a level to support their rent and debts. They also should a clean rental history that is verified by you or someone else as well as a decent credit score. For each of these factors, establish a minimum threshold that you are willing to consider.
Use a Tenant Screening Service for Background Checks
Screening tenants can take time and energy, and you can easily outsource this step to a third party. The third party can confirm the applicant’s income and rental information and can provide you with a credit report showing debts and credit scores. This company will not tell you whether you should or should not sign the lease. However, the tenant screening will provide you with all of the relevant information you need to make an informed decision about a specific applicant.
Create a List of Tenant Rules
When tenants move into your party, you should provide them with a list of rules that they are expected to follow. These rules should be made into an attachment on the lease, and they should be signed and initialed as necessary by the tenants. Some examples of rules relate to excessive noise at certain hours of the day, dogs barking excessively, your ability to inspect the property every few months as needed, their responsibility to tell you about water leaks and other serious property issues in a timely manner and more.
Collect a Healthy Security Deposit
When you take these steps, you may find that your risk of property damage decreases substantially. You will have only mature, responsible and financially secure individuals living in your rental property. However, the unfortunate reality is that even when responsible tenants are in the property, accidents can and do happen. For example, a dog may destroy a door when left alone one day or a tenant may accidentally break a window while moving furniture around. It is important that you collect a healthy security deposit that can cover the cost of all repairs that need to be made to the property. It is easier to collect funds from a tenant upfront rather than after they have moved out and you are trying to repair the damage left behind.
When renting a property to any tenant, you assume a certain amount of risk as an investor. However, the level of risk that you assume can be dramatically reduced when you work with a property management team. Contact us to learn more about First Team Property Management and what we can do to help simplify your life and reduce risk as a real estate investor.