It’s every landlord’s worst nightmare: Everything is going well for a while, rent is coming in like clockwork, and then, one month, it just doesn’t appear when it should. Best case scenario, your tenant is a few days late, you get the money later on, and it’s an isolated incident. Worst case, you go to your property to investigate and find it empty, with your tenants vanished into thin air. Neither of these scenarios are completely avoidable, but there are steps you can take to minimize your risk, including conducting pre-signing bankruptcy searches.
Step 1: Tenant Screening
Choosing a tenant should be as careful a process as hiring an employee, because in both cases, you’re trusting someone with a major investment, and you need to be sure they’re trustworthy. Make sure all your applicants have contactable references, and you take the time to call them. Call current employers too, to verify they do work there.
Step 2: Identity Verification
The primary stage in the process of choosing a tenant should be identity verification, which is necessary to ensure those glowing references you got aren’t someone else’s. This can be a sensitive situation, and you may find that you need to ask for photographic identification and other documents from your tenant.
Step 3: Bankruptcy Searches
The next step in the tenant screening process should be a bankruptcy search. While your tenant’s overall financial history may not really be a factor, you want to make sure they are not carrying huge debts that will deter them from paying your rent on time. Bankruptcy searches are how you can do this.
Step 4: A Cast Iron Rental Agreement
Once your prospective tenants have gotten through the first three checks here, you’re probably pretty sure they’re the right people to rent your property. Make sure the lease you offer them is legally compliant and water tight, and remember that in some cases, leases not legally compliant could be contested in court. When in doubt, get a professional to write or review your lease document before you have your tenant sign it, so you can be sure you’re covered.
Step 5: Enforce It
One thing many people don’t realize is that when they don’t enforce the stipulations of contracts (including lease agreements) they may be setting a precedent for tacit agreement with changes to the document. For instance, if you allow your tenant to be late with payments once or twice, without documenting that late payment is not acceptable, they may later argue that you had set a precedent that late payment was acceptable. If it’s stated in your contract, make sure you and your tenants follow through, or you’re setting yourself up for future problems.
The good news is, if you screen tenants carefully, check references and make sure they’re financially able to make rent payments, and if you enter into a watertight and legal lease, you are eliminating a large chunk of the problems landlords face. And that can only be a good thing.