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How Investors can Choose the Right Tenant

How Investors can Choose the Right Tenant

Your investment property is one of the most valuable assets you own. That’s why it’s so important to make sure that you get the right tenant.

A good tenant is a real asset. They’ll look after the property carefully and take pride in its appearance. They’ll pay their rent on time. They’ll alert you to any serious issues so they can be rectified promptly, but be flexible about the minor things that arise from time to time. And with good communication and respect on both sides, they’ll hopefully stay as your tenant for years to come.

What to look for

There are a few main things that you should look for with every new tenant. Your property manager is experienced in vetting potential tenants, and will check references and background thoroughly to ensure these elements are present.

Financial responsibility

The primary concern of any property investor is to realise a return on their investment. That means checking that the prospective tenant is willing and able to pay the rent.

First, review their employment or other sources of income to determine their ability to pay. This might mean confirming their employment status with their existing employer, and perhaps previous employers. If the applicant is self-employed, ask them to provide tax returns and business activity statements (BAS) for the past two years to show their income and outgoings.

A high salary isn’t the only thing to consider when you’re assessing the tenant’s financial background. Responsibility is just as important. You want to know that they’re willing to pay the rent, not just that their salary allows them to do so.

You should request a bond from the tenant prior to them moving in. This provides you with some level of security in case they fail to pay later or cause damage to the property. It’s also a way to assess their seriousness as a tenant: any tenant who is willing to pay the rent should be able to come up with a deposit.

Pride in their surroundings

You want a tenant that will take as much pride in your place as you do. They don’t have to keep the place spotless at all times, but tenants who don’t clean properly can cause lasting damage. For example, if carpets aren’t regularly vacuumed they can get carpet beetle, which eat the fibres and cause bald spots. Showers and wet areas that aren’t kept clean may develop permanent staining or stubborn mould.

Your property manager should undertake regular inspections to ensure that things are kept in reasonable condition, but you’ll want to ensure that your tenant is house-proud from the outset. Checking previous rental references is a vital step, and if there is no previous rental history, check personal references from previous housemates.

Another way to help your chances of getting a house-proud tenant is to make sure your place is well presented. If it’s run down, with shabby paint or threadbare carpets, it may give the impression that you don’t care about it. That could attract interest from people who don’t want to have to look a property, while great tenants might be put off. If it’s presented well, however, it will attract people who want to live in a nice, clean, attractive home, and will be motivated to preserve that appearance.

Stability

A high turnover of tenants can be costly and stressful, so your ideal tenant is one who will stay for several years if you intend to rent the property long term. To maximise your chances of a stable tenant, look closely at their history.

There are a number of reasons why a tenant may have moved frequently in the past, not all of which are red flags.

Some people have work commitments that require multiple transfers. If this is the case, it might not mean anything bad about their character, but it might be an indication that they won’t be with you long, either.

Others may have had a relationship breakdown, a change in lifestyle circumstances, or simply been unlucky enough to encounter a series of landlords who are selling up.

But it might also be a danger sign. Especially if the applicant has moved a lot between private landlords, you want to dig deeper into the history. Do they have proof that they’ve paid regular rent, so that you know they haven’t been evicted for non-payment? Do they have large gaps in their rental history? References are always important, but for applicants with a chequered history, they’re absolutely vital.

What to do if you have tenant issues

Sometimes issues arise even if you have done your due diligence. An early response is usually the most effective way to prevent them from escalating. If that doesn’t resolve things, there are specialist tribunals in every state and territory that exist to help resolve disputes.

If there’s an issue with your tenant, follow these steps.

  1. Know the law  - The best way to avoid disputes is to make sure you and your tenant know your rights and responsibilities. Often, disputes arise because one party is mistaken as to what they can and can’t do, or whose job it is to rectify something, or what conditions you can set. That means making sure that everybody understands both the lease agreement and the laws that govern tenancies. These differ between states and territories, so make sure your advice is local as well as current.
  2. Don't take it personally - When a dispute arises, try and treat it like a business transaction, not a personal slight. Many landlords only own one investment property and are otherwise not business owners, so it can be hard to separate the issues. If you’ve lived in the property yourself, it’s even harder not to personalise. If you find this difficult, consider hiring a property manager to manage communication. A third party is often an excellent mediator who can defuse the situation.
  3. Rental tribunals - Every state and territory has a body tasked with helping to resolve disputes between landlords and tenants, usually the Civil and Administrative Tribunal of that state or territory. The Tribunal will provide advice on your next steps, and forms to follow the correct procedures.
  4. Pre-hearing conference - If the Notice doesn’t resolve the issue, the Tribunal will hold a pre-hearing conference between the parties to try and sort things out. This proceeds like a mediation, with the Registrar actively helping the parties to find common ground and come to an agreement. If successful, a consent agreement is lodged with the Tribunal.
  5. Hearing - If the pre-hearing conference fails to deliver mutual agreement, your next step is to proceed to a hearing. You can be represented by your property agent, attend yourself, or instruct a lawyer. The Tribunal can issue wide ranging orders depending on its findings. They aim to reach a fair outcome for both parties.

With any tenant dispute, communication and documentation are the keys to resolution. Sometimes you’ll be able to sort it out on your own: if not, a paper trail of events will strengthen your case.

Talk to the team at Peter Blackshaw Real Estate about how they can help you find the right tenant for your investment property today.

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