Renting your property to a stranger comes with the innate risk that they will cause some type of damage, whether purposeful or due to negligence. And, of course, the more properties you manage, the greater the chances of something going wrong. Here’s how you can prepare ahead and hopefully mitigate some of that risk to protect your investment.
Screen Tenants Carefully
The best offense is a good defense. If you can lower the likelihood of damage occurring, you’ll be ahead of the game. This requires careful screening before approving them to rent. Conduct a thorough background check and credit check, and ask for the prior 3 landlords for reference. The latter can be the most telling, so make sure you follow through and call each one of them.
Collect a Security Deposit
This may seem like a no-brainer, but you’d be surprised how many landlords and property managers get suckered by sob stories and end up forgoing security. It’s also important to charge enough – at least a full month’s rent. While this money will only be accessible once the tenant moves out, charging a maximum deposit can help you weed out individuals who might be less responsible and therefore pose a greater risk.
Be Strategic About Pets
Some pet owners are extremely responsible, but unfortunately, not all. And let’s face it, at the end of the day, an animal is just that – an animal, which means there’s always a chance that they could cause damage to your property. You have a few choices here. You can either ban pets altogether, or you can cover yourself by charging a separate, non-refundable pet deposit in addition to security.
Require a Co-Signer
If a prospective tenant has questionable credit, a lack of credit history or income that barely meets your minimum requirement, you may want to consider requiring a co-signer on the lease. For instance, many recent college graduates may have landed decent jobs, but they haven’t had enough time to build up sufficient credit. The same goes for individuals who recently immigrated. Adding qualified co-signer provides an extra layer of protection.
Your regular home owner’s insurance policy may not cover damage caused by tenants, but there may be additional riders and add-on policies that do. For instance, some insurance companies offer coverage that’s specific to landlords. There are even some types of policies that cover rental default. Speak with your insurance agent to see what your options are to further protect yourself and your investment.
Provided you take proactive measures to properly vet the tenants you rent to, chances are, you won’t have too many instances of property damage. That being said, there’s always a chance – especially as your portfolio continues to grow. The tips above should help keep damages, and their costs, to a minimum.