Tenants are the core of every property investor's business. Without them, investors wouldn't have a monthly income from rental payments. Yet, the type of tenant you have occupying your properties is a huge consideration. You don't want to simply fill your properties with "just anyone" because one bad tenant can spoil things. Problem tenants can eat away at your return on investment (ROI).
Of course, investors need to consider their ROI and ask themselves, "how much can I rent my house for." However, to maximize ROI, it's also critical to think about how to secure excellent tenants. The best property management company Philly offers has the solution today for finding the right tenants. Read on to learn more.
Why is Tenant Screening Important?
Tenant screening is vital to maintaining a healthy ROI. In fact, with the right tenants, property owners experience better returns! Good renters pay the rent on time and take good care of your rental unit. However, bad renters cause property damage and don't pay rent, which negatively impacts your ROI.
Here are a few specific ways rental property owners must prioritize a thorough tenant screening process.
Bad Renters May Affect the Property's Value
Your property has a specific value when a tenant moves in. There is the initial cost of the property and whatever upgrades you put into it. With proper care, the property value should increase over time. If you decide to sell the residential property in the future, you would generate a nice profit based on appreciated property value.
However, a bad tenant's behavior can impact the property's value. For example, if a problematic tenant moves into your property, they may cause damage due to:
- Negligence. Tenants who don't keep up with their property upkeep responsibilities can cause issues with the property.
- Damaging behavior. The wrong type of tenant may be rough on the property. They lack carefulness in the home, leading to more wear and tear than normal. Additionally, tenants known for fighting could cause substantial damage to the place.
- Maliciousness. Some tenants may become upset at the owner and decide to take it out on the property. Maybe they received a notice to vacate or a penalty for a bounced check. Whatever their reasoning, malicious damage causes financial losses and stress for property owners.
In some cases, you may be able to seek a legal remedy for property damage, but that hits your ROI too. One of the best property management companies in Philly can advise you about your options.
The Wrong Tenant May Cost You Money
When you have to take legal action against a tenant, whether it's to recoup money from the damaged property or not paying the rent, it can be costly.
Consider the legal fees if you must go to court to be reimbursed for your losses or evict a renter. In addition, if you have to evict a tenant, you lose rental income for the time your property doesn't have a paying renter. You may also have to spend more funds repairing and advertising the home for new tenants.
Bad Tenants Are Time-Consuming
Bad tenants also require significant amounts of time to deal with their issues, and time is money! You may need to send letters, file paperwork, hire attorneys, and go to court—in addition to keeping up their complaints, requests, and documenting problems. Your time is valuable, and these tasks will eat it up.
Components of a Thorough Tenant Screening Program
There are several components of an effective and thorough tenant screening program to help property owners place quality tenants and protect their investments. Apply these elements to every applicant for a property!
- Background check. You can find a wealth of information from a thorough background check. For example, you'll have access to any criminal background, active warrants, and whether the person is a registered sex offender.
- Employment verification. This can give you a glimpse into a prospective tenant's employment history and if they have the income to cover the monthly rent amount and deposits.
- Rental history. This review helps property owners learn more about an applicant's rental behavior. For instance, are you getting a tenant who conscientiously pays their rent on time, or is it someone known for not paying on time and has past evictions? Any of these past problems are a red flag you don't want to overlook.
It's also a good idea to run a credit check and confirm that a potential renter pays bills on time and isn't saddled with too much debt. If you're not sure how to conduct these aspects of an excellent tenant screening process, a property manager can help!
A Philly Property Management Company Applies Tenant Screening Best Practices
Performing a thorough screening check on potential tenants is a big undertaking, but it's crucial for excellent ROIs. A Philly property management company is the ideal resource to apply fair (yet thorough) screening practices to help property owners enjoy better tenants and returns. Reach out to Rentwell to learn more about our residential property management services!
What else can property owners do to improve ROI? Get our free resource, "10 Things You Should Do To Increase the ROI for Your Investment Property!"