Are thinking of buying a property to rent out? Managing tenants can be difficult, and this is one of the key challenges which may deter investors from an otherwise beneficial investment. In property investment, there are many elements to consider: property prices history, best options for mortgages, avoiding nasty surprises on a new property, and more.
In becoming a landlord, there are many responsibilities involved, but the most critical responsibility is to yourself and your property. This means protecting yourself against unpaid rent. To do this, you must learn how to avoid bad tenants from having access to your property before they sign a lease. Removing a tenant from your residence once a problem arises can turn out to be time-consuming, tedious and costly.
There are some protective measures you can take to protect yourself from becoming a victim of unpaid rent and/or property damage by your tenants.
1. Create an Incorporated Company that Will Serve as your Agent
It is best to work with a professional agent: this gives you distance between you and your tenant. This protects your privacy and prevents any sort of undue familiarity. The tenant deals with the agent when issues arise and also makes any form of payment through them. This middleman relationship creates a professional image and helps to prevent the tenant from taking you for a ride. Companies are very strict in their dealings, take the hassle off your shoulders, and all this for just a small percentage of your rental income.
2. Request for addition Information from your Potential Clients and also a Proof of Identification
Your renters should be able to provide adequate information on their application form, including:
a. Full name including aliases or previous names (maiden name also)
b. Date of birth
c. Social security number and if it is a joint lease, they should both list their social security number
d. Former and current addresses (should include the landlord’s name, contact information and the amount of rent paid)
e. Reasons for leaving the old address
f. Places of employment and salary (preferably the most recent two)
Other information you may wish to ask:
a. All information on the vehicle the renter is using
b. Any additional expenses to be paid
c. A copy of the renter’s driver’s license or other form of identification
d. Reference and emergency contacts of two or three referees
3. Be Very Observant
As a landlord, you must be observant and be very conscious of the little things. For instance, take note of how your potential tenants behave and present themselves: if they are late or come across as unreliable or dishonest. People who are late for appointments tend to also be late in paying the rent. Also, listen clearly to what they say and learn to read between the lines. Take note of any red flags and pay attention to your instincts.
4. Do a Credit and Criminal Background Checks On the Potential Tenants
During the application process, you need to inform the potential tenants about the credit and criminal investigation you will be performing on them. You do not want to invade their privacy, and you might even get sued for it, so it is better to inform them up front. This could also deter bad tenants from applying to lease your property. If a potential tenant has no credit record or any other red flags come up, you would be advised look for another tenant.
5. Check Up On the Reference Contact Given To You
Be sure to get references from the candidate, and importantly, to check the references. Don’t just get the contacts and leave it at that: it is important to follow up with all the contacts listed and ask critical questions. It is better if the references are either past or present employers, or previous landlords. A reference from a family member or personal friend is not a reliable reference. A current landlord can also be problematic as there might be some disagreement which means the landlord wants to get rid of them.
6. Make sure you Protect your Property With a Lease
Before accepting a potential client as your new tenant, be sure an official lease is signed. This lease serves to protect and safeguard the interest of both parties involved and also clearly lays out expectations. Depending on where your property is located, an official lease could be a local requirement. Failing to have a proper lease in place could allow your tenant to not pay rent, with no legal recourse available to you. Also, make sure to give a copy of the contract to the tenant and that it includes all their responsibilities in regards to the property.
7. Brush Up On Relevant Legislation and Bylaws
Every state and county has its own legislation and bylaws which governing renting a property in that area. It is important to familiarize yourself with these rules. If you don’t know the rules and regulations applicable to renting out a property, you will create an opportunity for your tenants not to pay the rent or fail to pay for damages. Knowing the rules and having everything in order will protect you and your tenants.
Disclaimer: This is a guest post from Bayut, one of the largest real estate investment portals in the Middle East.