As a landlord, you own commercial property in order to make money, right? In order to make money on your commercial property, you need to find the best tenants to rent your property.
Briefly, commercial property is often thought of as the strip malls, industrial business complexes, office spaces – where people work and shop. But commercial property also can refer to private residences – the houses, condominiums, and apartments. It doesn’t matter which type of “commercial” property (or properties) you own, you still need to have qualified renters occupying your properties.
Evaluating a good commercial property tenant
Thanks to some creative advertising, you have some possible renter candidates for your commercial property. How do you choose the best one?
- Require that each prospective tenant complete an application. The application should include an area where the candidate (and guarantor) grants permission for you to perform a credit check.
- Do as thorough a background check as you can. The background check should provide a “tenant profile” that includes:
- A financial profile of the business and its owners.
- Bank references and accounts of the business for the most recent 3 years.
- Evidence of the ability to provide sufficient security and protection.
- Information on the tenant’s business, how long the business has been in existence, the number of branches, directors, etc.
- If the business is newly formed, the directors should provide a personal guarantee for the entity named on the lease.
- The ability to provide a 3 – 6 month rent deposit in advance.
- Ask for personal information to complete a credit check if the prospective tenant is a new business. A credit check can indicate the candidate’s ability to pay on time, has declared bankruptcy, or has the ability to pay the lease if the business closes.
- Evaluate the stability of the business. Look at the debts and creditors, the sales numbers, and if prior bankruptcy has been filed.
- Assess risk:
- Does the candidate have all required licenses and comply with applicable laws regarding that business.
- What is the purpose of the tenant’s business?
- Use social media to pick up on any positive or negative chatter about the company. An unusually high level of negative comments about the business (or individuals) may be a red flag about the reliability of the business as your tenant. Continue investigating it, if possible.
- Consider hiring a professional tenant screening company to perform criminal searches, evictions, check references, bankruptcies and liens, and run the credit checks.
When everything checks out
Once your due diligence is completed, the profiles you have built of each candidate should indicate which candidates should not be considered. When the remaining candidates are nearly equal in their qualifications, the final decision may come down to the face-to-face interviews. The interviews may give you that final “clue” you need to make your decision; or, you can toss a coin.
A handshake or verbal agreement is never enough to protect either the tenant or you. Work with a good real estate lawyer to develop a lease that covers all terms of the agreement, contingencies, and clearly identifies the responsibilities of both tenant and landlord.
Now, work on being the best landlord you can be so that your qualified tenant wants to remain your tenant for a long and profitable time.
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Thank you for reading.
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