Owning a rental property is a smart way to build wealth. When you have an income property, you have a valuable asset that you don’t have to sell to profit from. You can simply hold onto your property and rent it out. It’s a great source of passive income, and a wise way to increase your nest egg more quickly.
To make your income property work in this way, of course, you’ll need a tenant. That’s the deal — without a tenant, nobody is paying rent! Fortunately, most tenants are more than happy to hold up their end of this arrangement. But you need to be careful because it is always possible to end up with a bad tenant. And a bad tenant can hurt you and your operation in a big way.
A bad tenant can damage your property
When you manage a rental property, your financial situation is pretty straightforward (even if your day-to-day work is not) — your profits are equal to however much you bring in in rent, minus your expenses.
But your expenses can go way up with the wrong tenant because a bad tenant can be disruptive and destructive. Bad tenants can throw wild parties that damage spaces. They can create water damage situations in bathrooms, put holes in walls, and run electronics and ovens for dangerously long periods of time. A bad tenant can cause a disastrous fire or slowly destroy your property over time. And all of this will cost you big time, even if you have good landlord insurance.
A bad tenant can neglect basic maintenance and communication
A bad tenant does not have to be actively destructive to cost you dearly. He or she can simply be neglectful. Failure to do basic things such as clean the bathroom or kitchen can lead to serious long-term damage and even unhealthy and dangerous situations.
And then there’s the fact that you can’t do your share of the repair and maintenance work if you don’t know what is needed. If your bad tenant notices a leak but doesn’t tell you, your response could be significantly delayed — and, in the meantime, the problem will get worse and become more costly to fix.
A bad tenant can stop paying rent
Costing you more is one way that a bad tenant can cut into your profits. But they can also attack from the other direction by starving your operation of its gross income (before expenses). A bad tenant could stop paying rent or only pay a portion. And, unfortunately, recovering the lost money in court or evicting the bad tenant can be a costly and drawn-out process.
A bad tenant can bother your other tenants
It’s bad enough that a bad tenant can wreak havoc on one of your rental properties. But what if you have a property that contains multiple units or own multiple properties on the same block? Suddenly, you need to worry about one bad tenant disrupting your relationship with your other tenants. A noisy or frightening tenant could drive down rental values and cause vacancies to appear elsewhere on your balance sheet.
A bad tenant could land you in court
Bad tenants could force you to file a lawsuit to recover funds. They could force you to initiate eviction proceedings. Or they could turn around and sue you for frivolous or unfair reasons. With legal fees being the way they are, all of this could prove to be a very costly endeavor indeed.
Fighting back against bad tenants
If you’re dealing with a bad tenant, you should work with a trained and licensed attorney to figure out your options. But be prepared to deal with some harsh realities. It is sometimes not worth the legal expenses to sue over back rent, and eviction can be a very drawn-out process, especially in states and cities with lots of laws on the books protecting renters.
The best way to fight back against bad tenants is to avoid them in the first place. You should use landlord software to set up a rental application online and perform a tenant background check free before you let anyone sign a lease. While there are no sure things in this business, a little due diligence could go a long way toward protecting your property from the dangers of a bad tenant.