Commercial Real Estate Tips - Tenant Screening

Vacancy in your property isn’t ideal, but leasing to problem tenants can be even worse. If you let a tenant sign a lease without running them through an in-depth screening process, you could end up chasing rent payments, paying damages to your property, dealing with troublesome evictions, or constantly trying to fill space because of high turnover. Screening tenants for commercial real estate (CRE) involves a lot of leg work, but the peace of mind that comes from leasing to a reliable tenant is well worth the hassle.

How to Screen Tenants for Commercial Real Estate

Screening tenants for commercial real estate is tedious, but it ensures that you lease your property to responsible and reliable tenants. While good financial standing should be one of your primary concerns, other factors are equally significant in determining a tenant’s suitability. Here’s a comprehensive approach to tenant screening.

1) Risk Assessment

Conducting a thorough risk assessment is essential in confidently renting out your CRE. A risk assessment ensures that you can lease your property to tenants who will uphold their responsibilities. This process includes various checks that allow you to gauge the reliability of the tenant and their likelihood of paying rent on time and respecting the property. It involves an in-depth background check examining the tenant’s criminal record, eviction history, and past failures to pay rent.

Additionally, reference checks with previous landlords provide insights into the tenant’s past behaviors and reliability. It is essential to use a background check provider that is Fair Credit Reporting Act (FCRA) compliant to ensure the process adheres to legal standards.

Background Check: This covers the tenant’s criminal record, eviction history, and past failures to pay rent.
Reference Check: Contact previous landlords to gauge the tenant’s reliability and behavior.
Income Verification: Confirm that the tenant has a steady income to cover rent payments.
Fair Credit Reporting Act (FCRA) Compliance: Ensuring that the background check provider complies with FCRA regulations, which safeguard consumer information.

2) Financial Assessment

Assessing a prospective tenant’s financial viability is crucial in determining their ability to meet lease obligations. This step goes beyond merely looking at income; it involves a detailed review of various financial aspects to ensure the tenant can sustain the rent payments throughout the lease term. Start with income verification to confirm that the tenant has a steady source of income sufficient to cover the rent.

Reviewing their employment history helps to understand their job stability and the duration of their employment. Personal financial statements offer insights into their financial health and liquidity, which are important indicators of their ability to manage rent payments. A credit check provides a broader view of their financial responsibility and creditworthiness, while a bankruptcy search ensures there are no past financial issues that could impact their ability to pay rent.

Employment History: Reviewing the tenant’s job stability and duration.
Personal Financial Statements: Analyzing the tenant’s financial health and liquidity.
Credit Check: Evaluating the tenant’s credit history and score to predict their financial reliability.
Bankruptcy Search: Checking for any history of bankruptcy which might indicate financial instability.

3) Business Analysis

Beyond personal and financial checks, understanding the potential tenant’s business is essential. A comprehensive business analysis ensures that the tenant’s business operations align with the property and the surrounding area. For instance, a tenant with perfect credit and a squeaky-clean background might still be unsuitable if their business model doesn’t fit the location.

You should assess who the business’s expected customers are and how well they align with the local market. Evaluate how long the business has been established to gauge its stability and success. If the business is moving into a new space, understanding the reasons behind this move can provide valuable insights into its business strategy and future plans. Additionally, analyzing the market outlook for the industry helps determine if the business is likely to thrive in the current economic climate.

Let a Property Management Company Handle Tenant Screening

Screening your CRE tenants is as important as it is overwhelming, so you don’t want to come up short in your efforts. By enlisting the help of a property management company to perform tenant screening, you can ensure that this critical task is handled with expertise and thoroughness. EpiCity has extensive experience in the local market and access to a vast network of trusted contacts, allowing us to expedite the screening process and quickly secure high-quality tenants.

Don’t let the complexities of tenant screening and property management overwhelm you. Contact us for assistance, and let our professional team manage your property efficiently and effectively. With our support, you can maximize the profitability and longevity of your commercial real estate investments. The property management experts at EpiCity are ready to help you secure reliable tenants and manage your property with ease.