Investing in real estate can be a profitable way to increase your wealth in two ways. The first is simply the gain on the property when you sell it. The second is that if the property is leased it can generate an ongoing stream of revenue. In some cases that revenue stream can be enough to pay the mortgage on the property every month.
Most commercial properties depend on rental revenue as a primary factor in their income projections. The value of the property includes the discounted value of the rental revenue in the calculation, as well as the value of the building itself and land.
Residential property, especially single family homes, usually sell on a square footage basis and don't consider any leasing income in the determination of value.
Tenant Screening is a critical aspect of successfully managing a portfolio of residential rental properties. The wrong tenant can not only result in lost revenues but property damage as well.
Different states (and countries for that matter) have different rules, regulations, and laws which determine when and how a tenant can be evicted. The process can take up to a year. Not only do you lose the incoming cash flow from the rental payments, you have the additional expenses of paying an attorney to handle the eviction. A pre-leasing investigation known as a tenant report can help you avoid this situation.
While it's important to real estate investment companies to make sure that their tenants are financially stable, it's critical for individual investors. The loss of rental income from just one property can be devastating to an individual. The property can't be leased again until the current tenant is evicted for nonpayment.
Most investment companies have a number of properties and can absorb a loss on an occasional basis. Individuals who invest in residential properties that they intend to lease must complete the required due diligence to assure themselves that the tenant is credit worthy, ethical, and doesn't have a history of property damage, a criminal record, or prior evictions. A rental application is just the first step in this process. Tenant reports verify that the potential tenant is who they say they are by checking social security numbers, driver's license, prior addresses, and of course that they have the financial wherewithal to make the rental payments.
Tenant credit reports verify any bankruptcies, short pays, loans and credit accounts, all important factors which should be taken into consideration when signing a rental or lease agreement. A tenant who has not historically been financially responsible in the past has a much higher probability of being irresponsible in the future. In other words if there have been problems in the past with making the rental payments on time and in full, those problems will most likely continue in the future.
While in most cases the landlord won't be held liable for any criminal activities that take place on their premises, their insurance will most likely increase.
If you're considering investing in residential real estate and leasing the properties, there are services which will compile a tenant report for you. It's money well spent.
Tenant Screening Credit Report
Property crimes are at an all time high in today's world, and landlords need to feel they can trust the person they are handing the keys over to. Tenant fraud involving property damage, unpaid monthly payments, false credit reports, and criminal activity has increased exponentially over the last few years. Tenant screening is an essential step in order to feel safe and trust the identity and record of the renter. Proper screening involves several steps, which will be outlined below.
1. Obtain proper identification from the tenant. Verification of the entries on the rental application is a first round screening attempt. Names, addresses, social security numbers (where applicable) should match and be correctly verified for accuracy. Proper identification would include drivers licenses, birth certificates, or a valid US passport.
2. Require the tenant to fill out an extensive rental application. The application should include at a minimum the name, current and previous addresses, primary and secondary phone numbers, work and salary information, and bank accounts. Also included should be a section on credit history, with questions directly related to their ability to make payments with their current salary and expenses. In addition, the prospective renter should be able to list at least two references the landlord can contact for further verification. These items are essential; the rest is up to the jurisdiction of the landlord.
3.The next essential step is to obtain an accurate tenant background check. These checks will alert the landlord to a number of major issues that should raise red flags. A proper background check will include previous criminal activity and sex offender status. It should also include arrests nationwide, not solely in the state of application.
These checks will also display employment history, previous addresses, and alias information. As stated previously, these fields should be double-checked against the rental application to detect any possible errors or possible forgeries. This information could raise some red flags if certain fields are misrepresented or inaccurate.
4. Obtaining a credit history is imperative and should be included with the tenant background check. These reports will list the future tenant's credit mishaps, late payments, bankruptcies, and previous addresses. This information should be a major part of the decision-making process.
Landlords today are generally not responsible for the fees associated with the background checks. It is very common in the real estate market today to include these charges in the rental application fees. The tenant should be aware of the charges and what they are being used for. It is their right to know. If there are any complaints, then the landlord can make a responsible decision as to the character of the individual as this may also be used as further tenant screening.
Whether you are the landlord of a single unit or an extensive complex, tenant screening is not only a good practice, but it will save you money and time in the long run. Good renters are hard to come by and unfortunately there are more horror stories than good. You do not have to be one of those victims. Simple tenant screening with tenant background checks will give you all of the information you need to make the right decision.
Both Dee Power & Linda Rolandis are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Dee Power has sinced written about articles on various topics from Credit Cards, Sales and Negotiation and Business Plan. Find out more about Dee Power is the author of several nonfiction books and the novel "Over Time." Her. Dee Power's top article generates over 450000 views. to your Favourites.
Linda Rolandis has sinced written about articles on various topics from Real Estate. Guard your family from tenant fraud. Get a today! Prevent the loss of time, money, and property value. Determine out how. Linda Rolandis's top article generates over 5400 views. to your Favourites.
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