Owning and renting out a property can be a good way to make a living, but like any investment, there are risks and potential drawbacks that you have to consider. There are steps to take to minimize the risk, but even the most careful landlord can run into troubles down the road. It is important to know what the likely pitfalls are and to be prepared to deal with anything and everything.
Minimizing Your Risks From the Start
It is always best to take the least amount of risk whenever possible, especially when money is involved. Unless you are limiting your potential renting pool to friends and family, you will be dealing with total strangers. That means that you are trusting people you know very little about with your investment.
- Never rent to anyone (even family members) without looking at background information, perusing financial and employment history, and getting references. This is called “tenant screening” and experienced landlords will tell you to do it well.
- Check the references, including checking to see if these people are who they claim to be. A tenant can give a name to his new landlord claiming that the person was a former landlord. The person in question could be a friend of the tenant, not his former landlord, with no real former landlords vouching for the tenant.
- Constant job changes and frequent moves can be a red flag that someone is a problem tenant and may disappear without warning.
- Spell out everything in the rental agreement, making sure that everything is as clear as possible. In the initial interview, bring up anything that you feel could be a problem.
- Do not rent to anyone who seems to be rude or dismissive of you or who otherwise makes you feel uncomfortable.
- Make sure that the tenants know what to do if there is a problem, including a flood or fire. Ensure that there are smoke detectors and fire extinguishers in the unit and that the tenants know how to use them. Give them as many contact numbers for you as you can, and instruct them to call you in the event of a problem. Make sure that they know to call 911 in the event of an emergency.
Ignoring Your “No Pets” Policy
Despite your best efforts and a clearly written “no pets” policy in the rental contract, you suspect that your current tenants might be hiding something. Hopefully you’ve taken steps to minimize your risks during this situation and can proceed with your clearly laid out plan.
- Ask them directly in the interview if they have pets. If they do not say no right away or are acting evasive, it can be a red flag that they plan to sneak one in eventually.
- Be careful about “bending” your own rules. Some people will take advantage of this.
- Make sure your “no pets” policy is clearly noted in your lease agreement and that any violation of the policy will be considered a breach of contract. Clearly lay out how proceedings would go if a pet were found on the property whether that is issuing a warning, collecting a fine, or beginning eviction proceedings.
- Before they sign the lease, let the tenant know that you plan on performing quarterly maintenance checks on the property to make sure things like smoke alarms are working properly and HVAC filters are replaced. If they know you will be in their space this frequently, they will be less likely to attempt to hide a pet.
- If an unauthorized pet is brought to your attention, be direct and handle the situation professionally. Refer to your lease agreement and proceed with the consequences that you laid out.
Tenants Who Destroy Property
An agitated tenant who is angry about being evicted can turn that frustration toward your property. They can get destructive by doing things like tearing up carpet, punching holes in walls, or damaging appliances.
- If you suspect a tenant is destroying property, the first thing to do is to remain calm. You do not want to jump to conclusions and address the tenant when you are worked up if there is actually nothing to be upset about.
- Give the tenant 24-hour notice that you will be inspecting the property.
- Carefully document any damage that you see.
- If there is damage noted, then reference your lease agreement for how to proceed or if the tenant is particularly problematic, then consult a lawyer.
Tenants With Financial Problems
While you will see financial and employment records for the tenant, it might not rule out potential problems down the road. A tenant going through a tough time might be forgoing other obligations to keep paying his rent on time such as avoiding utility payments. While that sounds beneficial to you, that can lead to additional problems, including frozen pipes and flooded basements.
- If utilities are not included in the rent, make sure that the tenants are paying their bills on time.
- It is easier to offer a break in the winter months so that tenants can pay their heating bills than to deal with a flooded basement after the pipes have frozen and burst. If you come to the property and find tenants walking around with coats and gloves on inside, it is time to get an idea of what is going on.
- Be aware that not paying utility bills can also mean increased use of space heaters, candles, and other possible fire hazards.
- Make sure to clearly spell out the consequences for not paying utilities that keep the property functioning properly in the lease. That way you have precedent to reference if the tenant cannot keep up with their payments and you need to begin the eviction process.
Tenants With Legal Problems
Background checks might not reveal everything. Your new tenant with the sterling background may just hook up with the local drug dealer and begin engaging in some illegal activity on your property.
- Simple legal problems like illegal parking and noise ordinance violations can usually be dealt with by phone.
- Suspected illegal activity like running drugs can be more problematic. Some drugs carry additional risks, including environmental hazards and an increased risk of explosion and fire.
- If this tenant is hostile when asked to leave, you may need to involve lawyers and legal eviction proceedings. Collect all evidence that you can to support your case against the tenant.
- Be sure to state the consequences of such activities in the lease agreement that gets signed prior to the tenant moving in.
The lease agreement is such an important part of protecting yourself and your property as a landlord. In this document that the tenant signs, clearly note what activities you will not tolerate from your tenants and how penalties for those violations will be administered. This will be your best friend should any tenant situation turn sour.