One of the most traditional ways to earn passive income is to invest in a rental property. Investment property provides consistent, recurring cash flow and over time usually increases in value. Those qualities make a rental property an attractive investment.
If rental property is such a great investment, why doesn’t everyone own rental properties? It’s probably because most people don’t want to spend the time needed to manage a rental property or have heard horror stories: Tenants who don’t pay on time, call you at midnight, or move out and leave a big mess.
Lloyd Kipp the owner of a San Jose Property Management company says one of the most important aspects of owning a profitable investment property is tenant selection and steering clear of tenants who are bad. Here are five straightforward ways to avoid problem tenants.
Have an ironclad lease
Landlord and tenant responsibilities, as well as the consequences for not fulfilling them, should be laid out in the lease that both parties sign. It’s a legal document, and you can include in it what you want.
A landlord could, for example, layout clearly that the tenant is responsible for certain types of maintenance items. You can write into the lease the hours that are acceptable to contact you unless it’s a dire emergency and define what constitutes a dire emergency. With a good lease, you can lay down the ground rules before a tenant moves in.
Get all the documents
One of the ways to avoid renting to tenants who don’t pay on time is to rent to those you have proven they have the means and willingness to pay. As a landlord, part of the process of screening tenants needs to include getting recent pay stubs, looking at bank statement and reviewing credit reports. You need to verify income that demonstrates an ability to pay rent and confirm that a prospective tenant has a history of paying their bills on time.
In an area like San Jose where there are more high-income earners, the distinction is important. Just because someone has the money to pay their bills doesn’t mean they do. A San Jose property management company, for example, is likely to place importance on a credit report, which tells them if high earners actually pay what they owe.
Spring for a background check
You can request all the financial documents you want and may still end up with a problem tenant. One way around that situation is a complete background check that includes criminal history as well as contacting Landlords from places they previously rented (i.e. during the last 5 years).
If you have a tenant with a history of domestic violence, disturbing the peace, or destruction of property at a previous rental, you’re more likely to experience the same things at your property. A criminal record isn’t necessarily a disqualifying factor for accepting a tenant, but it’s a clue of what you might expect once a tenant is occupying your property.
It might seem simple, but meeting someone face to face will help you decide whether a prospective tenant is going to turn out to be a problem tenant. It’s easy to automate the application process, but if you have a property that you’re entrusting someone else to live in and take care of, doesn’t it make sense to sit down in person for a few minutes?
Tenants aren’t just numbers on documents and forms. So while it’s important to collect all the printed information you can, it’s also helpful to meet with them. If you’re a good judge of character, you might catch some clues that all the paperwork could miss.
Hire an experienced property manager
If you’re a local landlord, you might view using the services of a property management company as a high expense. However, property management services, which are typically paid out of a small percentage of gross rental income, provide valuable services that will help you avoid problem tenants.
For example, a good professional property management team provides thorough tenant screening services and well-written leases. They will request and review all the required documents and do background checks. In addition, they will meet face-to-face with prospective tenants and do all the screening for you. The difference between a good tenant and a bad one can literally cost thousands of dollars. A good property management company, therefore, can save you time and quite a bit of money.
Valley Management Group has been providing trustworthy and affordable Santa Clara County property management services for over 35 years. If you own a rental property in San Jose, Santa Clara, Campbell or anywhere else in Santa Clara County contact them today for a free property management quote and one free month of services.
Reviewed and Approved by Lloyd Kipp
Property Manager and Owner of Valley Management Group