Apartment investing is all about cash flow, so credit losses are an important negative component that must be reduced as much as possible. While expense line items like repairs and maintenance can be controlled through contracts, negotiations, and other means, credit losses aren't best controlled after they happen. Apartment investing credit loss needs to be addressed in management practices to avoid these losses as much as possible from the first prospective tenant contact.
Rental Application and Reference Checks
First and foremost, a thorough rental application, with no blanks left unfilled should be the rule. Make sure they're all legal questions, with examination by an attorney if necessary. A credit check should be done, as well as a rental payment history check if there's a service available locally to provide one. The cost is worth it. Get past rental and current personal references, and check them. You want to know how to track down a renter that disappears during the night.
Rent Payment Rules and Enforcement
Your rental or lease agreement should carefully explain when rents are due, when they're late, and penalties and enforcement practices when rents aren't paid on time. The trick here is to follow those rules, and act on the first date the policy and landlord/tenant laws allow. Tenants who might have a tendency to push the limits will think twice if that late notice is right on time, and late payment penalties happen immediately when they're supposed to. From the first day late through eviction if necessary, all actions should be legal, follow the rules, and happen on dates as outlined in the lease.
Alternative Payment Methods
Offering credit card payment can help a tenant through a rough financial patch. They would not likely want to make multiple rent payments on credit, even if they have the balance for it, but an unexpected problem could be relieved by a credit card payment of rent one month. Making rent payments easy, or offering online payment and electronic bank drafts could cut credit losses, as tenants have busy lives, and easy payment of rent can keep them on track.
Minimizing vacancy and credit losses will enhance the cash flow from apartment & multifamily investing. It's just as important a financial area as operational expenses.
