If you are like most landlords, you think that the largest risk to being a landlord is getting your rent. You know that deposits will protect you, and if you are calculating your numbers correctly, you will make a big profit.
Make no mistake, if you think all you need is a deposit to protect you, you will be headed for disaster.
The number one way to protect your income stream from tenant defaults is to get great tenants to begin with. Good tenants will bring in a solid income of at least 3.5x the rent in income. Preferably much more. With the average family income over $50K annually, just getting an average income will probably be well over 3.5x the rent in income.
Income will tell you the tenant’s ability to pay rent.
The second piece of the puzzle is credit score. With a C-grade credit score north of 620, and the average tenant’s credit score being north of 650, it is easy to weed out lower scoring tenants to reduce risk.
Why take the bottom of the barrel tenants in terms of credit score, and increase your risk? These people may be great people, and some will definitely pay rent, but it is a higher risk potential. Mitigate your risk by selecting a tenant who has proven their ability to stand behind their financial commitments.
Do you have any interesting tenant deposit stories? What is your policy on deposits, or what have you experienced as a tenant?