Success in leasing out commercial real estate depends greatly on the companies that you rent your properties to.
While many businesses look good on paper and can satisfactorily answer your questions during the application process, there is often hidden information which could have a negative impact on your business and your property.
Perhaps your prospect has a bad history of not paying bills on time and is in arrears with creditors or maybe limited cash flow makes them unable to meet obligations. In some cases, they may even be going about business in a way that could damage the reputation of your building, lowering its value and minimizing your future profits.
That is why, when choosing your tenants, it is important for you to take the time to screen each applicant so that you can be sure you are selecting the right one for your property.
To screen your tenants, you will want to look at several factors including:
- Company Profile – Whether your prospect is a corporation, partnership or sole proprietorship, you will want to look at their company profile to verify corporate status and standing.
- Individual Guarantor – If the lease requires an individual Guarantor, a full background check will ensure that the individual has the necessary financial stability.
- Bank Ratings – Before approving a prospective tenant, you will want to obtain current information from banks and financial institutions.
- Landlord References – Reach out to previous landlords to find out about past leases and the prospect’s payment history.
- Supplier References – Supplier references will help you to determine whether the applicant carries balances and if there is a positive payment history.
- Financial Profile – Reach out to previous and current business partners (banks, landlords, creditors, etc.) to ensure your tenant has the financial ability to maintain the lease on a go forward basis.
- Judgments, Legal Actions and Collections – Ensure that your prospects do not have any negative records that could jeopardize the steady receipt of rent or damage the reputation of your property.
Taking the necessary steps to gather this information will offer several benefits! Here are just 5 of the many reasons you should consider enhanced tenant screening.
- It will Increase cash flow
By being certain you select the best possible tenant for your property, you can increase the likelihood of rent being paid on time, ensuring a positive and predictable cash flow every month.
- It will improve the building’s reputation
When you maintain high standards and implement an enhanced screening process, you will be able to select tenants of the best caliber. Doing so will ensure that your property, and the area in which it is built, stay in good repute, increasing property value. This will enable you to attract a greater number of high-quality tenants, optimize the resale value and allow you to charge an increased premium for the leasing of your space.
- It will minimize risk of income loss due to frequent turnover
By ensuring your tenants are reliable and have a strong repayment history prior to entering into a lease agreement, you can feel confident that your tenants will be able to maintain their lease on a go forward basis.
- It will decrease the risk of damage, fraud, or theft
Background checks not only highlight a prospect’s financial situation, but also uncover information about their character and how responsible they are as a tenant. For instance, by completing a media search or by contacting previous landlords, you can determine whether your prospect is respectful and commited when it comes to maintaining the properties that they lease.
- It will minimize exposure to legal claims by or against delinquent tenants
Creating a successful property management company takes a lot of resources. The last thing you want is to waste time and money on pursuing a delinquent tenant. By ensuring your tenants exhibit the qualities to be respectable, long-term business partners, you can minimize the number of legal claims made by or against them, allowing you to re-invest your resources into your business.
For more information on our enhanced screening reports for prospective tenants, contact us today.
Tags: Property Management
