As the landlord of a commercial rental property, your rental income needs to remain steady, especially in times of economic uncertainty. After all, you have business costs such as property taxes, mortgage payments, operational expenses, depreciation, maintenance, seasonal upkeep, and more.
A disruption in your revenue streams can negatively impact your profitability and put your assets at risk. For example, if you don't have the money to repair your property, you may face liability issues or fines from the city. Thankfully, there are steps you can take to improve your chances of getting paid on time:
1. Screen Your Tenants
Screen your tenants carefully before signing a lease. Check their business credit score to get a better picture of their financial health. If it's a relatively new business, then ask for the business owner's personal credit score. If the business is moving from another location, then conduct a background check by asking for reference letters from previous landlords.
A business with bad credit is more likely to struggle to pay rent on time. Such a company may also find it more challenging to secure a bridge loan in an emergency to meet operational expenses such as rent.
Likewise, make sure that their business is a good match for your commercial property. For example, a tattoo parlor may be a bad fit for a commercial property in a residential neighbourhood and is unlikely to be profitable.
2. Use the Right Documentation
Craft a lease with assistance from a lawyer that specifies all federal, state, and local laws, and outlines all terms and conditions. A good lease will protect you in case of problems down the road. Penalties for late payments should also be clearly outlined to incentivize timely rental payments.
Maintain a record of all documentation. For example, you may need to prove that your tenant has a habit of paying late. It's also best practice to give all notices in writing. Communicate through email or text message as much as possible to avoid misunderstandings later.
3. Be Professional
Complete your responsibilities on time. Pay attention to all maintenance requests and keep all lines of communication open, especially in emergencies. Always interact with your tenant in a friendly yet professional manner.
Tenants will treat your property with respect if you make upkeep a priority. Likewise, they're more likely to pay rent on time when treated with respect.
#4 Don't Ignore the Warning Signs
If your tenant has stopped paying their rent or broken their lease, then don't hesitate to seek professional help. A collection agency can recover your revenue before other creditors beat you to the punch.
Be sure to pick a tenant debt collection agency that takes a diplomatic approach to debt collection and treats debtors with dignity and respect. With such an agency on your side, you can collect your late payments while preserving your reputation and professional relationships. Remember, your late-paying tenant may turn into a reliable renter in the future.
As a commercial landlord, it can be challenging for you to get paid on time. However, by finding the right tenant, using proper documentation, remaining professional, and seeking professional help when needed, you can improve your chances of avoiding late payments.
