Credit and Investment Property Part 1: How to Protect Your Assets

Investing in rental property can be a credit-boosting and lucrative undertaking. Using real estate to establish installment debt is only part of the appeal. When leveraged correctly, a rental property will grow in value and serve as passive income. The x factor: Finding tenants to help you accomplish these goals. Ideal circumstances lead to ideal results. On the other hand, renting your property to a shady tenant can force you down a path of unforeseen expenses and inevitable credit repair. If your tenant refuses to pay the rent, do you have the cash to cover the mortgage yourself? How will the lost income affect your own stability? What are the eviction laws in your city? What would you do if a tenant damaged your property and failed to pay for repairs? Questions like these should be foremost in a landlord’s mind. Allow your property to serve as a money-maker rather than a bank account-drainer. Review the checklist of tenant must-haves before drafting a lease.

1. Creditworthiness

Let’s face it: If Rental Contestant #1 doesn’t take his own credit seriously, what are the chances that he’ll care about yours? Background and credit checks are imperative before allowing a stranger to assume residence in your property. Check for disparaging marks (e.g., a criminal record) and past credit blunders. While a single late payment can be overlooked, chronic financial problems do not represent a reliable renter. Don’t get stuck holding the bill. Find a tenant who upholds his commitments.

2. Stability

While Rental Contestant #1’s record may be flawless, his future relies on financial stability. Ask him to include a list of current and past employers on the rental application. Check for time gaps between jobs and beware of the “career jumper,” i.e., someone who switches professions every year. In addition, require at least one month’s rent as a security deposit. A financially stable tenant should have enough in savings to secure the deal.

3. Accolades

A stable renter can usually find a friend to vouch for him. Ask Rental Contestant #1 to list three references on his application: two professional, one personal. For example, a brief conversation with his current boss could solidify his professional standing and reliability. Similarly, a talk with his previous landlord could provide a glimpse into his level of domestic responsibility.

4. Similar lifestyles

While you may have nothing in common with Rental Contestant #1, his take on personal hygiene and cleanliness is your business. In addition to reference calls, pose a few questions to better learn his lifestyle views. For example, will he treat your home with care, or will it become a crash pad for parties? Property value relies on quality and long-term maintenance. Ensure a sound investment by limiting tenant-induced damages.

5. Respect

Within the caveat of lifestyle is the issue of respect. A good tenant is a good neighbor to other residents on the block or in the building. A disruptive tenant can lead to a long (and costly) eviction process. Ensure that Rental Contestant #1 respects the privacy and comfort of those around him. The best tenant is a courteous one.