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Many property owners share the concern on how to guarantee rental income from their property. This question is being asked on a regular basis, and that is not really strange, because when you decide to rent out your property, it comes with a certain amount of uncertainty.
1. Security deposit
The first step for every property owner that rents out his property, is asking for a security deposit. According to the Spanish Rental Law (Ley de Arrendamientos Urbanos or LAU), landlords are allowed to request a minimum of a month’s rental fee as a security deposit.
This security deposit is then collected by the official authorities of each Autonomous Community, in the case of Catalonia this is Incasòl, and in Madrid it is Ivima.
2. Additional security deposit
An additional guarantee – so more than the legal minimum deposit according to the LAU – may be requested. The extra deposit is known in Spain as a “depósito de garantía” (guarantee deposit) or a “fianza complementaria” (supplementary deposit).
The law allows for an amount of two extra months worth of rent to be asked, in additional to the minimum legal deposit, and this is in case it concerns contracts of up to 5 years (or 7 years if the property owner is a legal entity).
If a tenant solvency report cannot convince the property owner, more deposit can be requested (even more than 4 months), but then the length of the rental contract must be at least for 6 years.
3. Ask the tenant for a letter of guarantee
The property owner can also request a guarantee by the bank to ensure he will receive rent from his tenant every month. Normally this means the bank will keep an amount of two months worth of rent with rental contracts of 5 or 7 years long. If the rental agreement is for more than 6 years, this amount may be more than 2 months worth of rent.
4. Tenant solvency report
Professional real estate agents are able to thoroughly analyse a tenant solvency status. Preparing a solvency report is a detailed process, but it does make sure each property owner finds the right tenant.
5. Relocation clients
A relocation client is mostly an executive with no solvency issues. When your tenant is being relocated, he or she works at a company that is moving (part of) the company or department to another city or country, and the company then hires a relocation agency to smoothen the process.
6. Arbitration clause in rental contracts
A lesser-known, but effective solution to settle disputes over payments, clauses and possible home evictions, is making use of arbitration.
With an arbitrator you will receive your rent quicker than through the usual route in court. This intermediary solves problems with both parties, and both the tenant and property owner should accept the outcome of the mediation process.
7. Take out rent protection insurance
Property owners may take out a policy that will cover in the event of non-paying tenants. This type of insurance usually also covers damages and legal actions (trial), when a tenant needs to be evicted from a property, if he is staying there illegally.
Rent protection insurance is getting more and more popular these days, as it provides property owners with the guarantee they will receive their rent.
8. Home insurance, home contents insurance and liability insurance
In addition to rent protection insurance, which provides financial coverage in case a tenant stops paying rent, a property owner can also opt for classic insurance options, like a home insurance, home contents insurance and civil liability insurance.
These policies can be included as additional clauses in the rental agreement. This means both the property owner and the tenant will take their responsibilities when needed.
9. Stay in contact with your tenant
Covid-19 has had a negative impact on many households, with many people losing their jobs or savings, or having temporary payment issues. So we can all relate to that.
This makes it even more important to stay in touch with your tenant, so you know what is happening. You can even decide to renegotiate contract terms, even if only for a specific period of time.
10. Selecting the right tenant
ShBarcelona takes great pride in finding the right tenant for each property. Our extensive tenant solvency checks are a guarantee for property owners who decide to rent out their property.
After checking all documentation provided by a potential tenant and matching him with a property, we can even arrange for a meeting between the possible tenant and property owner. After the interview, the property owner can decide if this is the right tenant for his rental property.