There are many advantages to entering the commercial rental property business. You can offset your cost of property ownership, diversify your income stream, and earn a steady rental check. However, with half of all small businesses closing within their first year, there are risks involved. Thankfully, there are steps you can take to improve your chances of getting paid on time by your commercial tenant:
#1 Screen Your Tenants
Screen your tenants carefully before signing an agreement. Verify their information and ask for references. It's a positive sign if they have a good rental history. But be wary of businesses that have disputes with their previous landlords.
Conduct a credit check. If their business is new, then considering asking for a personal credit check. Also, check their financial records to see if they're capable of paying rent. An experienced commercial tenant screening service will be well-versed in local laws and can help you find a reliable tenant.
Even if they've met all your requirements, meet with them and trust your gut feeling. Rent to a business owner who is organized and reliable.
#2 Screen Their Business
Ask for information such as the business name, date of incorporation, and type of business, to screen a potential commercial tenant. A successful business that is upsizing could be a reliable candidate, while a business that's downsizing due to poor sales may be a less reliable commercial tenant.
Check if their business will match your commercial property. For example, an ice-cream shop may not thrive if it's located near the docks. Likewise, a car dealership could struggle if your commercial property isn't large enough.
#3 Prepare an Airtight Lease
Use a detailed lease that spells out all their obligations as a commercial tenant. This will improve your chances of recovering your money should the tenant break their lease or stop paying rent. Add late-payment fees and a nonsufficient funds (NSF) penalty to improve your chances of being paid on time. Always collect the maximum legally allowable deposit.
#4 Partner with a Reliable Collection Agency
Despite your best efforts, you may run into a commercial tenant that stops paying rent, breaks their lease, or skips town. To improve your chances of collecting your dues, its important to act fast in this scenario.
If they're going out of business, then their other creditors may beat you to the punch and drain their assets
The collection process may become more complex if they declare bankruptcy
They may shut up shop and skip town, leaving you in an undesirable situation
When selecting a collection agency, it's important to find an ethical one. Partner with a commercial and personal debt collection agency that treats debtors with dignity and respect to preserve your reputation and important relationships. Also, use an experienced agency that has the resources to succeed in any situation. For example, an agency with an effective skip tracing department can find your commercial tenant, even if they've crossed state lines, while an agency with a good legal department can help if you need to pursue legal action.
By following these four steps, you can improve your chances of getting paid by your commercial tenant. Take all precautions before signing the lease, and don't hesitate to partner with professionals if you need help collecting rent.
