The punctual collection of the rental income of flats is today the main concern of the landlords and it is not for less. A landlord-tenant dispute can not only be costly, but also a lengthy legal battle where not a penny of rent is collected. Then, the passive income that you had planned to generate with your apartment vanishes, becoming a nightmare and putting the recovery of the property at risk. For this reason, many landlords feel that uncertainty when choosing a tenant, but how do you know if a tenant is solvent?
How to find a tenant with a steady income?
The first thing you should know is that most tenants are great people and they are all willing to pay their rent on time. No tenant would like to have a case of delinquency in their economic history, but it is also true that there are bad tenants and these make landlords defensive when renting.
The truth is that the bitter experience of having a delinquent tenant can be prevented, in fact, we can assure you that most cases of non-payment and delinquency by these people are due to not being properly investigated and They applied effective methods to find out who they are and what their economic solvency is before even renting the property to the person who wants to live in it.
At Geräh Real Estate Partners we have an effective method to find a solvent tenant. It is based on determining the Willingness to Pay and calculating the Capacity to Pay. The Willingness to Pay is a more subjective study, while the Ability to Pay is an objective study, where the study of the Economic Solvency of the future tenant is made.
Willingness to Pay
Analyzing the willingness to pay of the potential tenant is something subjective, you can see it as red flags or signs that reveal that this person may be a “toxic tenant”. In our experience, there are three signs or points that you should take into account when evaluating your tenant.
1. Rush or urgency in the move
Be very careful with tenants who tell you that they need to move today, tomorrow, the day after tomorrow, etc… You have to be very careful, in general, the cause of this request is usually due to problematic reasons with the previous tenant. Although it is true that not all the reasons are due to a problematic cause, we must be attentive and investigate the causes of that urgency well.
2. Ask for references from previous owners
Next, I recommend asking for their references with previous landlords. Here you can compare the information and data that the previous landlord will give you with what the tenant told you. This is your opportunity to ask key questions that will allow you to find out who that person really is, how they were punctual in paying the rent and if they were careful with the property.
While it’s true that some tenants might give you false information, such as asking a friend to pretend to be their previous landlord, I recommend asking where was it rented? With the address you can verify the ownership of the owner and see if it is really that person. It is also not superfluous to check the internet, social networks or any information that is public and check the veracity of their words.
You should know that there are many owners willing to share their experiences. From Geräh Real Estate Partners we invite you to join our solid network of owners where we share and corroborate information that will be very useful to you.
3. Follow your intuition
How was your first conversation? What was your first impression? Here he takes into account how everything went, from the first call, to how his interview in person went. Sometimes our intuition saves us from negative situations. Listening to it at times can prevent us from uncomfortable and unpleasant situations.
The ability to pay
Here we speak directly of economic solvency. In a few words, what is sought is that the tenant has a minimum net income of 2.5 times the monthly rent. You seek to identify that you will not only be able to pay your rent, but also that you will have a comfortable lifestyle and be able to respond to unforeseen events. This number of 2.5 times is the minimum, but ideally the tenant is always looking to earn more than that amount.
It must be taken into account that when carrying out an economic solvency study, it is recommended that it be done by professionals, entities or real estate companies that offer you rent non-payment insurance. They will know what documentation to request, detect if there is something false or strange, compare with delinquency bases. In addition, the documentation changes depending on the situation of the potential tenant. This can have income as an employee, be self-employed, be a pensioner or be a foreigner.
Documentation that you must request from the tenant.
In general, this is the documentation that you must request when evaluating the ability to pay or economic solvency:
- Request the last 3 pay slips and the employment contract. Check that the net income is greater than 2.5 times the rent. The employment contract takes into account the age of the company and the type of contract. An indefinite contract is ideal. You must discount the loans and debts you have. Today the last three payslips are requested, plus the income statement of the previous year. If the future tenant is self-employed, you should also ask for the IRPF and VAT declarations. For the self-employed, the ideal is to ask for the last three years. In the case of pensioners, verify the type of pension they have. If it is not enough, you have to resort to a personal guarantor. If this does not exist or does not meet the solvency requirements, an extraordinary guarantee must be resorted to, which can be a bank guarantee or an extraordinary deposit, but due to the current law in Spain, this last proposal can only come from the tenant. I tell you that the owner, by law, can only ask the tenant for a maximum of two additional months of guarantee, apart from the deposit.
- The tenant must show you their DNI or identification document to verify that the person requesting the rental is really that person.
- Check the debts: with the consent of the tenant, you can go to the Risk Information Center of the Bank of Spain and request information on a tenant’s debts.
Many times due to the rush to rent quickly, which is something we all seek, inexperienced landlords and real estate agents omit certain steps, including documentation that would have allowed them to identify when a tenant is really solvent, if they will religiously pay rent and know how to take good care of your property. Knowing how to choose your tenant will save you time and money. Don’t take it lightly.
It is good to tell you that renting a flat can generate passive income for you safely and for a long time. For this reason, most landlords seek stable, cordial and long-term relationships with their tenants to have a constant income stream that allows them to have greater financial freedom. This is where having non-payment insurance becomes very attractive to ensure that investment in the face of any eventuality. I invite you to get to know our Comprehensive Rental Management service in Madrid, where you will have that financial support.