How to Protect Your Rental Property Investment

Purchasing, improving, and managing a rental property, no matter how large or small, is a big job. It's a large upfront investment, and it takes time, energy, and money to protect and maintain it. From the beginning, you want to make sure you're making wise choices as a business owner and rental property owner, and that begins with setting goals and taking steps to achieve them. Here are our top four ways to protect your rental property investment.

Get the Right Insurance

Homeowner's insurance, renter's insurance, and landlord's insurance are all very different, but so are the different policies and plans within each type of insurance coverage. Talk to a trusted insurance broker or agent to ensure that you have the right coverage for your specific type of rental property and whatever needs come along with your property. Also decide if you'll require renters to carry their own renter's insurance policy and what you will require from them in that. Whether you're renting out a single home for long-term or short-term, or if you own a multi-unit rental property, your needs will vary and your insurance should meet those needs.

Focus on Safety

Safety is huge in any rental property--both for you and for your tenants. There are legal requirements regarding repairing and maintaining the physical space of your rental properties, but it's even better to go above and beyond to ensure it is as safe as possible. This includes the physical structure of your property, as well as the grounds and surrounding areas. One way to maintain a focus on safety is to reduce the likelihood of crime by improving security and screening your tenants for criminal backgrounds. It is one thing to improve security against outsiders, but you welcome a whole new level of security challenges when you allow someone with a criminal history to reside in your rental property.

Be Prepared for Emergencies

In the event of a natural disaster, severe storm, or another unexpected emergency, you want to ensure that your tenants and physical property are both safe and secure. Prepare your tenants and property for unexpected events by having evacuation and emergency plans in place and posted (if possible and applicable). Make sure tenants know where fire extinguishers and utility shut-offs are, and be prepared with extra flashlights, batteries, space heaters or fans, and even generators. If an emergency does occur, you want to keep everyone and everything safe while still maintaining and running your business efficiently, so put whatever you need to into place in advance so you are prepared for anything.

Be Smart with Your Business Practices

Making wise business decisions and being consistent in your business practices is key to not only the success of your business, but also in maintaining your investment in your rental property. Create and enforce rules evenly across all properties, tenants, employees, residents, and so on. Always have tenants fill out an application and make sure you're screening every individual who will reside on your property, even if they are a family friend, relative, or acquaintance of any kind. You don't need to sacrifice business practices and tenant quality in any situation, so make sure you're being as smart as possible with every decision you make.

Self-Screening Rental Applications

As a property owner, you may receive hundreds of rental applications a month, especially if you own a large apartment complex or something similar. You may already have some systems in place for quickly weeding out those not-so-great applicants, but there are some additional self-screening techniques you can utilize to further eliminate potential tenants who are less than ideal. With these processes, you'll save yourself time, money, and the headache of renting to someone who won't be a good tenant. You can do these screening and wedding methods yourself, or you can have a property manager, leasing consultant, or other staff member go through individual applications to look for some red flags. Here are four things to focus on as you self-screen rental applications.

Employment History

Red flags here include multiple jobs over a short period of time or large gaps in employment. People who switch jobs frequently are not generally as reliable as those with longer stints at the same job. They also tend to make less money since they are essentially starting over with each new position.

Income Level

You likely already have a minimum income limit in place, such as three times the monthly rent. But it is important to compare the applicant's income to their time at their current job, and also look at other lifestyle information that may lead to higher monthly expenses, which could impact their ability to pay rent. They might check all the boxes with income level, but taking a look at these other things could give you more information about how likely they are to be a great tenant versus an okay tenant.

Financial Information

Depending on how much financial information you ask for, you may need to run a tenant background check before you can dive into this information. No matter how you get these details, however, you should look at debt to income ratios, credit scores, length of credit, total balances, and other monthly expenses. Having this overview of financials can help you determine how likely it is for a tenant to be able to consistently pay rent on time.

Previous Residences

Look at how many residences a tenant has had in the past few years and if there are any gaps in their rental history. Compare the cost of each rental to what they are currently planning to pay as your tenant, and compare income from the past to their current income as well. You should also contact any previous landlords and inquire about their payment history, what type of tenant they were, and why they left the property. This can give you additional insight into how they would be as a renter at your property and maybe help you make an easy decision regarding their application. If you've gone through these items and feel relatively confident in a tenant, the next step is to complete a background check on the individuals who will be renting your property. With tenant background screening, you'll get a large amount of information about your applicants that will give you a better picture of how they will be as a tenant so you can make the best decision for your rental property.