As a landlord, it can financially hurt if your tenants don't pay the rent. Luckily, there are ways to help avoid that scenario and insure you collect the rent. If you want consistent monthly rental income, check out these five tips:
1. Screen your tenants.
Do not just rent out your investment property to the first person who shows up with a cheque for the deposit. Instead, make sure that you screen each applicant carefully. You can collect info and run a background and credit check, or you can simply call their old landlords to ask about their history of rental payments.
2. Secure a guarantor.
If you aren't confident that a tenant will be able to pay the rent on time every month, secure a guarantor. A guarantor or co-signer signs the lease with your tenant, and if your tenant fails to pay, you can contact the guarantor for payment.
This arrangement works well with uni students who can use their parents as guarantors, but you can also extend this type of arrangement in other situations as well.
3. Collect first and last month's rent and a deposit.
Many landlords only collect the first month's rent and a deposit. As a result, when their tenants decide to move at the end of the lease, the tenants may opt to not pay the last month's rent. The landlord has the deposit, but if that has to cover unpaid rent, it doesn't cover the cost of repairing any damage.
To avoid being in that situation, collect the first and last month's rent before you let the tenant move in.
4. Screen the area code before investing.
If you want to insure yourself against unpaid rent, start thinking about that before you even buy an investment property. You can get reports that show the financial state of an area and how likely rent defaults are in those areas. These reports are used by landlord insurers to determine insurance rates, but if you consult these reports before you invest, you can reduce your risk of facing unpaid rents.
5. Invest in landlord insurance with unpaid rent coverage.
There is a lot you can do to increase your chances of receiving rent every month, but the only way to completely insure yourself against unpaid rent is with a landlord insurance policy. You can buy policies that offer a range of coverage for everything from natural disasters to unpaid rent.
Look carefully at the excess of the policy to ensure it actually provides the coverage you need. For example, if a policy covers unpaid rent but the excess is $1,000 and the rent on your property is only $1,000, the excess cancels out your claim, and you may want to look at other landlord insurance policies closely to ensure you find one that gives you the coverage you need. You can also consult an insurance broker for more about this topic.