Renting out a spare room, income property, or a seasonal vacation home can be a lucrative opportunity for those looking to earn some extra cash. When executed expertly, a rental property can even help you pay off your mortgage or fund a downpayment on another real estate investment.
However, like any type of investment, there’s always a level of risk involved with renting out your property. We’ve created this guide to help you mitigate risk and identify some warning signs to watch out for when renting out real estate.
Warning sign #1: Frequent moves
For most people, moving is a stressful, time-consuming activity that should be avoided as much as possible. And while there are plenty of significant reasons to move—job changes, military relocations, etc.—frequent moves can suggest a rocky rental history.
Regular moves could indicate several alarming issues, like, trouble paying rent, disregard for lease terms, or complications between the renters and their respective landlord(s). Regardless of the specific issue, approving a renter who tends to move frequently could be a waste of time and money on your end. After all, tenant turnover can be really expensive, thanks to repair and cleaning costs, advertising expenses, and lost rental income.
Warning sign #2: Reluctance to complete background check
Many landlords use some sort of application and screening procedure to assess prospective renters before they’re approved to move in. This is a very standard practice in most areas. So, if a rental applicant is reluctant to complete the process but insists they’re a good fit, it may be in your best interest to find other options.
However, you should keep in mind that prospective tenants have a right to request a copy of their background check, contact the screening agency, and offer an explanation for specific items found on their report. Background checks are under a lot of legal precedent, so make sure to check with your state or local area’s guidelines to ensure you’re following the proper protocol.
Warning sign #3: Trying to rush the moving process
Usually when an individual moves out from one place to another, they have about a month to do so. For many, this timeline can feel a little rushed, but landlords may want to be weary about candidates trying to condense the move-in process into a few days. This expedited timeline could be completely innocuous, but it may also indicate that the individual is bad with deadlines or is generally irresponsible.
If you do come across an individual that seems like a good fit but they want to rush the process, it may be worth having an open conversation with them. Getting a better understanding of their situation may help you find a solution that works for both parties.
Warning sign #4: History of eviction
Eviction can be one of the most substantial red flags you can find on a potential tenant’s record. Depending on the state’s rules on the subject, a landlord can evict tenants for a variety of reasons, including:
- Failure to pay rent
- Violation of lease agreement
- Damage to property
- Expiration of lease
- Illegal activity being conducted on property
All of these possibilities can be troubling to landlords and may result in a complex and costly situation later on down the road.
Warning sign #5: Unreliable payment history
If you decide to run a credit check as part of your approval process, as many property managers do, you’ll be able to glean insight into an applicant’s bill payment history. This information can give you a better idea of the prospective tenant’s relationship with debt management and budgeting. If they have a positive payment history, they may be in a better position to pay their rent on time each month. And having a renter that’s responsible with their rent payments is a major plus.
How to minimize renter risk
As you can see, there’s a lot of potential red flags you may encounter when looking for your next renter. However, there are several things you can do to minimize your risk as a landlord, and as a result, find more qualified tenants. Below, we’ll take a look at some strategies to help.
Advertise on reputable platforms
Finding great tenants starts with your advertisement. When publishing a listing, make sure to publish your advertisement on reputable sites, such as, Realtor.com, HotPads, Apartments.com, and Rent Jungle. These sites are usually more likely to generate more serious renters than generic marketplace platforms.
When you write your listing, make sure to be clear about the property’s features, your approval process, and the lease terms before scheduling viewings. This will help weed out unqualified tenants right from the start.
Have every prospective applicant apply and conduct background checks
Rental applications are a standard process, and for good reason. Getting insight on your prospective tenant’s credit, criminal background, and rental history is important to maintaining your own safety, as well as that of your property, other tenants, and neighbors.
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To save time and headaches, make sure that any interested parties are aware of your application and background check process before they visit the property.
Write a comprehensive lease agreement
Your lease agreement is an important legal document that protects the interest of yourself and your property after your tenant moves in. To mitigate risk, make sure that you write a comprehensive agreement with the help of a lawyer. Make sure to have tenants read through each page and sign accordingly. Keep a copy for yourself and provide one to your tenant as well in case either of you need to refer back to the lease terms later on.
Wrapping up
Renting out property can be a great way to earn extra income, but a bad tenant can jeopardize your big plans. As you meet with potential candidates, consider things like eviction and poor payment history, and frequent moves before you approve them to move in. Use this guide to help you watch out for warning signs and minimize your risk as a rental property manager.
Matt Casadona
Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. He is currently a contributing editor for 365 Business Tips. Matt is passionate about marketing and business strategy and enjoys the San Diego life, traveling and music.