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Foreign property owners who rent out their second homes abroad are making a smart financial move. However, in an unfamiliar country, it may be challenging to find and choose a suitable candidate to live in one's second home.
Here are some tips to consider when vetting tenants for a foreign property.
Just as in the U.S., it is important to check the candidate's financial background to ensure he or she is able to make rent payments, says Bill Endsley, secretary general of the International Real Estate Federation-U.S. Chapter (FIABCI-USA).
— Bill Endsley, secretary general of the International Real Estate Federation-U.S. Chapter
Checking the financial background of a tenant includes performing a credit check. There are several credit reporting resources, which offer international credit checks, including online sites like TenantVERIFY. A particular country's national credit bureau can also assist with credit checks.
"Someone fills out an application, and they say they make a certain amount of money a year, but do they?" Endsley says. "You have to vet that and make sure that is true information." This can be done by asking for the employer's contact information or asking for a current pay stub from the tenant.
If the candidate's paychecks are in a different currency, individuals can use a foreign currency calculator from a trusted online foreign exchange service to understand the exchange rate. They should also consider whether the tenant's income provides enough of a cushion for him or her to make rent payments if the foreign exchange rate becomes unfavorable.
Looking into the background of a potential tenant is essential. Michela Guarini, manager at International Property Management, a Miami-based firm that manages properties for foreign property owners, says one must conduct a security check, which includes looking at the person's criminal record and doing a background check.
It is also important to do some research on the candidate's previous tenancies by contacting old landlords, Guarini says. Be aware that some countries and some U.S. states may require the tenant's permission to contact a previous landlord.
When an individual is able to contact previous landlords, he or she should consider asking questions such as:
· How long did the tenant live in the unit?
· Did the tenant make his or her rent payments on time?
· Was the tenant evicted?
"Somebody who has been evicted in the past," Guarini says, "that for sure is a big 'no.'"
Beyond evictions, Endsley says it is useful to see how stable the potential tenant is. If a person moves around a lot, he or she is probably not the best candidate. Once again, contacting the tenant's previous landlords can help accomplish this task.
When vetting tenants, it is important to understand the country's discrimination laws. Each country will have different definitions for discrimination, Endsley says. For example, in the U.S. a landlord cannot refuse a rental unit to someone based on factors such as race, gender or ethnicity.
But other countries may have additional discrimination laws. "If you do your vetting, you also want to be careful that you are not going against whatever the tenancy laws are for discrimination," Endsley says. To gather information about discrimination laws, contact a local lawyer or consult the department of housing for that country.
Gathering the right financial, background and legal information can help foreign property owners make more informed decisions when selecting tenants for their second home abroad. By conducting due diligence at the outset, it's possible to avoid complications when making the transition to becoming a landlord.
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