How Landlords Can Reduce the Risk of Bad Tenants Without Breaking the Law

Securing reliable tenants is crucial for maintaining a profitable, stress-free rental business. However, the process of finding trustworthy tenants can be difficult. Additionally, there are state and federal laws in place that must be followed to the letter to avoid potential legal consequences. 

Even if you don’t do anything intentionally, certain actions can be considered discriminatory. 

Here’s a look at some effective strategies you can use to minimize the risk of acquiring problematic tenants while complying with the law.

1. Delegate the tenant selection process to a pro 

Managing rental properties will become a full-time job if you don’t have help. Hiring a property manager will allow you to offload the cumbersome day-to-day responsibilities of being a landlord and will bring professional expertise that reduces your legal risk. 

For example, Georgetown property management pros from Green Residential help Texas property investors find high-quality tenants by holding applicants to the highest screening standards. Using decades of experience, property management companies know how to spot red flags and use all tools at their disposal without violating the Fair Housing Act.

When you hire a property manager, you’ll not only get better tenants, but you’ll have peace of mind knowing that your properties and tenants are being taken care of in accordance with the law. 

2. Follow Fair Housing laws to the letter 

If you don’t hire a property manager and choose to fill your own vacancies, make sure you understand Fair Housing laws at the state and federal level. These laws were enacted to ensure all applicants are treated equally, and following them will reduce the risk of discrimination claims.

While each state’s laws vary, and some landlords are exempt from the federal Fair Housing Act, here are general guidelines to follow to stay compliant: 

Be consistent with screening criteria. Make sure to apply the same procedures, standards, and qualifying factors to all applicants to avoid discriminatory practices.

Avoid prohibited inquiries. Never ask questions related to race, color, religion, sex, disability, familial status, or national origin during the application process.

Don’t investigate social media accounts. In some cases, rejected applicants have filed race discrimination lawsuits after finding out a potential landlord checked out their social media accounts. Even if there is no basis for such a claim and you were just curious about their lifestyle, it’s not worth the risk.

3. Make use of written lease agreements 

Always detail the terms and conditions of a rental agreement in writing. Outlining the responsibilities and expectations of both yourself and your tenants is the only way to protect yourself legally. For example, outline the monthly rent, due dates, maintenance responsibilities, and policies for property usage. 

If you end up with a bad tenant, a written lease agreement is the best way to mitigate the damage, beginning with a legally-executed eviction. However, it should be drafted by an attorney to ensure it complies with state and local laws. Any clauses that violate the law won’t be legally binding. 

4. Require a decent security deposit 

Bad tenants won’t care about your property. They’ll do serious damage and never look back, leaving you to foot the bill. That’s why it’s important that you collect a substantial security deposit up front to cover potential damages. A tenant with money on the line is less likely to damage your property intentionally or carelessly. And nightmare tenants are less likely to agree to paying a high security deposit knowing they probably won’t get it back. 

If you do need to deduct repairs for damages from a tenant’s security deposit, make sure you consult an attorney first to do it legally. In many states, you’re required to provide receipts and a list of who performed the services. 

5. Write property inspections into your lease 

Routine inspections will help you identify and address issues early so you can maintain your property. However, it’s crucial to write regular inspections into your lease agreement from the start. Bad tenants who don’t want their landlords to see how they’re living will be unlikely to sign a lease that outlines regularly scheduled inspections. 

Writing inspections into the lease also gives tenants a heads up far in advance regarding what they can expect. It eliminates the surprise factor when tenants get a notice of an inspection they didn’t know was coming. 

Reduce your risk with a strategic approach 

While you can’t completely eliminate the potential for renting to a bad tenant, you can reduce the risk through your screening process, maintaining clear communication and documentation, and hiring a property manager to handle it all for you. 

By following these simple strategies, you can protect your investment property and foster positive relationships with your tenants.