8 Ways for Landlords to Reduce Their Financial Risk

8 Ways for Landlords to Reduce Their Financial RiskEntrusting a property of any kind to tenants brings with it a serious financial risk. The monthly rental payments can seem insignificant if thousands of dollars must be spent on repairs thanks to a careless tenant.

Fortunately, however, there are a number of ways to limit your financial risk, and help new landlords to rest easy at night…


Protecting your investment should start before a tenant even moves into your property.

Many landlord horror stories spring from omitting this critical step, and renting out a property on a casual basis. Even if you personally know the tenant in question it is still worth investing the time (and a little money) to thoroughly protect yourself.

Tenants Credit Checks

The first thing you’ll want to do when a tenant applies to rent your property is check their credit.

In this way you can identify that they are a solvent individual, and have no recent history of non-payment. While not perfect, a detailed financial status report can be very effective for identifying potential problems early on in the process, hence avoiding major headaches at a later date.


All tenants claim to be perfect, just as anyone applying for a job will make themselves out to be the perfect employee.

Seeking references helps to gain a fairer view of the individual, using a third-party perspective. The range of references requested depends on the landlord or agent in question, but may include a letter from previous landlords, character references from reliable resources and proof of gainful employment.

Security Deposits

While a degree of natural wear-and-tear is natural in a property, and should be expected, considerable costs can come from carelessness.

It is wise therefore to request a security deposit which can be held securely during the tenancy. In cases where a tenant does not live up to their contractual obligations sums can be deducted to cover repairs.

Increasingly, landlords are also specifying in their tenancy agreements that the financial liability for repairs is not limited to this deposit, and that if necessary the tenant may be expected to make further payments.

Pay particular attention to tenants who pay pose a higher risk to your property, such as those who spoke, or expect to bring pets with them.

Legal Contracts

A tenancy agreement should lay out carefully the rights and duties of both parties. In such a way, your tenant will be under no uncertainty of your expectations, and you will have legal recourse in cases of negligence.

During Tenancy

While these pre-tenant checks will weed out many potentially-problematic tenants, thus reducing your financial risk, it would be a mistake to assume that no further effort is required.

Property Inspections

Regular property inspections offer several benefits. Firstly, such a check encourages even messy or untidy tenants to clean up after themselves. An inspection also allows you to check for general wear and tear, and to identify any causes for concern. The tenant can then be informed of these, in order to quickly bring the property up to standard.

Lastly, of course, such a check also allows you to converse with your tenants, and to address any issues they may have had. Perhaps a toilet no longer wants to flush, or a tap is dripping. Under such circumstances quickly resolving these issues can help to build a bond of trust, and to encourage reliable tenants to stay put.

Prompt Payment

Let’s be honest; while investing in buy-to-let properties can be an exciting and enjoyable business it is still a business. The key here is that you’ll need to ensure the rent is paid on time, every time.

In cases where payment arrives late it is generally best to deal with the situation as soon as possible. Often, a gentle reminder is all that is required. In more extreme circumstances it may be necessary to recruit the services of a debt recovery agency, the promise of which is often enough to encourage rapid payment.

Lastly, if you are unlucky enough to have tenants abscond without paying their rent, or having caused damage to the property, then an experienced tracing agency may help you to track down the individual in question. Many such agencies act on a no-trace, no-fee basis, and many will also double as a debt collection agency if requested.

Landlord Insurance

In most Western countries private dwellings and those rented to tenants require entirely different insurance policies. Accepting tenants into your property without the correct insurance can lead to a range of headaches.

Instead, compare landlord insurance policies carefully to get full coverage for the most competitive cost, knowing that if accidents happen you have a further level of financial protection.


When at last it becomes time for your tenant to move out it pays to carry out a final check before waving them off with a smile on your face.

Inventory Checks

If you were wise enough to carry out a thorough initial inventory of your property, now is the time to revisit that paperwork. Look for damage that has been done – walls that will need to be repainted, equipment to be replaced and make a fair assessment of who is responsible. Remember that natural wear-and-tear means that not all work is automatically the responsibility of the tenant.

This is the time, however, to do whatever is necessary to bring the property back up to marketable standard, in order to quickly fill the vacancy once again.

Deposit Repayment

Lastly, of course, once all fair deductions have been made of the deposit, the remainder can be returned to the tenant. In truth, most tenants take great care over their homes, and the sizable sum of money they left as a deposit will be greatly anticipated. It therefore seems fair to return this deposit as rapidly as possible, before moving on to finding your next tenant.

As you can see, while there are many steps to consider, a huge amount of financial risk can be guarded against by following a few simple steps.

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