When things go according to plan, renting out real estate to commercial tenants is a satisfying arrangement. By renting your property to a successful business, you're not only earning solid returns on your investment; you're also enriching the local community and supporting local job creation.
With that said, not every business is equal. Renting to an unsuccessful business isn't desirable. If the operation fails, you'll end up with your property left unoccupied. Some tenants may also engage in questionable business activities.
Thankfully, you can avoid bad tenants through a robust tenant screening process. Read on to learn some effective tenant screening tips.
Do an Extensive Background Check
An advantage of commercial real estate is that screening tenants effectively is easier than checking residential applicants. Businesses need to be legally registered, so any serious applicant can show their business license and registration details.
In addition to checking your registration, you should also consider your credit history. By running a credit check, you can ensure there are no major red flags, like unpaid debts or bankruptcy.
Evaluate Their Business Plans
You don't just need to trust your tenants as people; you also need to trust their business sense. That's why a commercial tenant background check should involve a careful evaluation of their business plan.
Not only should an applicant prove they can afford the rent, they should also demonstrate how they'll make a long-term profit. If you rent to a tenant without a long-term vision, you'll likely be screening new applicants in the near future.
Contact Former Landlords
If an applicant passes the background check and has a solid business plan, don't write up contacts just yet. You'll also need to see some reliable references. Unless you're dealing with a startup business, applicants should have references from previous landlords available.
Talking to a previous landlord can give you some valuable insight into how reliable an applicant is, and how they're likely to behave as a tenant. Of course, you should verify that the applicant paid rent on time, but you should also ask about less obvious things.
For example, how well did they take care of the property, and were they easy to get along with? If previous landlords have only positive things to say, it's a great sign.
Craft a Solid Lease Agreement
If you're satisfied that an applicant is trustworthy and has a viable business plan, you're ready to draw up a contract. Commercial contracts need to be comprehensive; there's no room for mistakes or casual agreements.
The contract should clearly lay out things like rental terms, property use restrictions, and security deposit conditions. A DIY approach to commercial property is a huge risk, so consider bringing in experts to help.
You Need a Tenant Screening Pro on Your Side
As a commercial landlord, you can't afford to take any chances with your tenants. If you're not stringent with your tenant screening process, you might end up accommodating a stream of failing companies.
The smart move is to work with a professional rental property management company. Here at PMI Fox Valley, we have decades of experience in helping landlords in Neenah, Wisconsin with their real estate needs, and we're well versed in the latest property management best practices. Contact us today and let's find your ideal tenants.
