Landlords quickly learn that tenants are not always what meets the eye. Sometimes, risky and irresponsible tenants are hard to predict!
With lost rent and lawyer fees alone, evictions can prove to be a lengthy and costly process – not to mention a headache. By avoiding high-risk tenants at all costs, you can save yourself a lot of time and effort in the long run and aim for a renter who will be responsible tenants in the long run.
But how can you avoid bad tenants and ensure you are marketing your business toward respectful renters? Keep reading to find out the top 5 ways of how to avoid the trouble of high-risk tenants.
Table Of Contents For Avoiding High-Risk Tenants
- Who Are They? Identifying High-Risk Tenants
- Top 5 Ways To Avoid Renting To High-Risk Tenants
When you begin the search to fill a rental property, it’s important to protect yourself from high-risk tenants – or renters who may cause problems for you during their lease. But what makes a tenant considered as high-risk, and why would you want to avoid renting to these people?
High-risk tenants are renters who are likely to cost you in time or money. These tenants are more likely than others to not pay rent, damage your property, or run illegal businesses from your property. They are more likely to jeopardize the smooth running of your business and rental income (as well as your peace of mind!)
Although we can never judge a book by its cover, high-risk tenants often have bad or no credit, no proof of income, frequent moves (or bad references from previous rentals), and generally unverifiable information.
Applying for an apartment is like applying for a job – the applicant should want to put their best foot forward and make a solid, responsible impression! Sketchy or incomplete information is almost always a red flag.
Having a high-risk tenants can sometimes result in:
- Damage to your property – or even worse, injury to yourself or your tenant (or other renters). High-risk tenants can put innocent bystanders at risk by conducting illegal or dangerous activity, especially in apartment buildings.
- Lost rental income/inability to pay mortgage. Partial payments or inability to pay rent in full could cause you to default on your mortgage. If you rely on your rental properties for income, it’s never worth putting your business in jeopardy.
- Police activity on your property – and possible legal action taken against you! Always remember that, as the landlord, you are responsible for the property and the people in it.
- Bad reputation with your neighbors. See above! Your rental is your property, and ultimately, when the tenants have come and gone, it’s you who will need to deal with the other owners in the building or neighborhood. Ensure that you are leasing to tenants who represent you well!
- Costly evictions. Between lawyers, missed payments, damaged property, and court costs, evictions can be a lengthy and very expensive process. It’s best to avoid this unfortunate situation whenever possible.
It’s important to protect yourself and your property, but don’t jump to conclusions based solely on an application. Do your research and complete your due diligence!
Be sure to get an accurate overall picture of the potential tenant (for example, call references and meet them in person) before you deem them high-risk. Unfortunately, some risky tenants know how to hide themselves well and come in all shapes and sizes.
There are many ways you can vet tenants before you agree to lease to them, but it’s important to keep your business simple, clear-cut, and streamlined. Check out our top 5 tips for avoiding high-risk tenants.
1. Create And Run Smart Advertisements – And Make Your Home Look Good!
Recruit tenants through trusted sources where you know professionals are looking for rental properties.
Be clear in your advertisements that you require a background check and references. It may be smart to outline basic lease stipulations in the ad itself, like no pets or no smoking. Have a strong, error-proof, advertisements with clear stipulations, photographs, and contact information. This will send the message that your property is available for professional tenants only.
Outward appearance (curb appeal) of your home can also be an important factor in drawing in desirable applicants. Ensure that you represent your home in a tidy, attractive way. It may be worth hiring a professional to help with this part of the rental process as staging can make all the difference in finding reliable, long-term renters.
2. Maintain A Competitive Rental Rate And Consider A Management Company
Do your research! Use sites like Zillow.com to check comparable homes in the area and see what the rental rates are. If you set your rental rate too high or too low, you will deter good candidates from considering your property.
Rates that are too low could signal to bad tenants that you lack confidence or knowledge of the market, while high rent could cause you to miss out on strong tenants looking for a deal.
High-risk renters will often avoid properties that are represented by well-known management companies with well-established rules. If they know they can’t get away with anything, they may avoid applying to your property all together!
If you own a number of properties, consider hiring a management company to help ensure that your tenants are top-notch (they can also help with advertising and screening!)
3. In Addition To Pre-Qualifying Tenants, Call References, Check Credit Scores, And Meet Them In Person
Pre-qualifying tenants can save you a lot of headache, time, and money. Hiring a professional to screen tenants could prove to be a low financial output with long-term valuable gains.
Take the time to call the applicant’s references and check credit scores (above 600 is safe and R-8 or R-9 indicates missed payments!) for alarming debts or outstanding payments. Are they generally receiving the credit lines they apply for?
Call the tenant and have a lengthy and productive conversation where you both outline what you expect and need from the agreement. Another trick of high-risk tenants is to have one person “represent” the party on the lease while another person is actually living in the rental. Ensure that the person who is applying for the lease is actually, in fact, the party who intends to live there.
But one of the top, yet simplest, landlord tips to avoid dodgy tenants is to simply meet the applicant! Body language can tell you a lot about a person. Do they present themselves well? Are they nervous? Are they asking the right questions of you?
Trust your instincts when interviewing and prepare questions (and answers) ahead of time!
4. Create A Solid And No-Nonsense Rental Agreement
Do not accept partial payment, and you might want to consider an online payment portal to avoid cash-paying tenants. If a tenant is looking to deceive you, they will be likely to run if they know you’re confidently protecting yourself.
In addition to knowing what kind of rental agreement you want, try to envision what type of tenant you might want in your space. Is there an income minimum that you feel comfortable with? Do you want a tenant who is invested in the neighborhood? Remember these key factors when interviewing your applicants!
5. Verify Employment, Including Tax Documents For Self-Employed Applicants, To Ensure That They Can Afford The Rent
One of the most common problems with high-risk tenants is missed and partial rent payments. Ensure that you set the bar immediately so that you will not accept cash or partial rent payments. Also ensure that you collect a security deposit and that the tenant can afford to pay the deposit and one month’s rent.
Use the resources you have (employer references, tax documents, interview questions) to ensure that the potential tenant can afford to pay the rent each month. Law-abiding, self-employed applicants should have a T-4 document with proof of earnings and income.
As you can see, you most definitely want only good tenants renting from you and avoiding high-risk tenants is something of a must.
Here are the top three tips for finding those great tenants:
- Vet tenants through a service like RentPrep or a real estate agency that also handles rentals. These professionals are trained in knowing how to spot high-risk tenants from a mile away. Some companies can also help with advertising, online rent collection, and staging!
- Reference, references, references! Call them. More than one! Have them fill out a standardized form about their experiences with the potential candidate. Ask the right questions to get great tenants and avoid duds.
- Trust your instincts. If the applicant doesn’t have a bank account, that may be a red flag for you. Decide what risks you are willing to take and which are non-negotiable.
As a landlord, you always have options. It’s far less costly to spend the time looking for the right tenant than to get stuck with the wrong one!
One of the harsh realities of being a landlord is that you can’t always predict high-risk tenants. It is smart, however, to protect yourself using the tools at your disposal and – most importantly – your professional gut instinct!