Bad tenants don’t only cause hair-pulling headaches, they can cost property owners and investors thousands of dollars. From chasing up back rent to property damage, neighbour issues and forking out for clean-up costs when you finally get rid of them, tenant problems can be a nightmare.
It can be a really hard task finding the right tenant for your investment property. Talk to various landlords and you’re bound to hear their fair share of horror stories about tenants who’ve left behind a trail of trashed rentals and serious financial losses. But it’s not all bad news. Landlords and property investors can avoid problem tenants with a few smart tips and sure signs to watch out for. The first step is to identify the typical culprits. You’ll also want to make sure that you screen your tenants thoroughly, meet them face-to-face before making a decision and present your property well. Here are a few guidelines to help you avoid tenant problems and protect your investment property and income:
Invest in Landlord Insurance
Insurance is usually an afterthought, but when it comes to your property investment, making sure you have adequate protection is essential. Building insurance is great to have, but it won’t cover tenant defaults in rental payments or property damage that exceeds the bond amount. It’s not a legal requirement to take out a Landlord Insurance Policy, but it’s a smart move to help protect your investment. Even a good tenant can turn into a default tenant through job loss or illness, so it’s always best to be prepared.
A Landlord Insurance Policy can cover a range of issues including loss of rent, legal expenses for tenant eviction, damage caused to the property by tenants and/or their guests and theft.
Tip: Always obtain a quote from an insurance company that specialises in investment property insurance. This way, their policies will be best aligned with your needs and their core focus will be on helping you stay protected.
Conduct all the Right Checks
Tenant screening is important for determining your best and most reliable occupant options. First, think about the type of tenant you want to attract and make sure your investment property is presented in such a way to reflect this. Credit checks and employment verification will help to ensure your prospective tenant has a steady source of income. Speaking with previous landlords (at least three is ideal) is the best way to gauge the tenant’s rental history and whether or not they have a good track record of leaving the properties in a good condition.
Tenant databases are also available from property management agencies to screen against. This will flag any reported issues to be wary of and will also show any legal action which has been taken against the tenant. Most professional property agencies will have access to this. Once your options have been narrowed down, speak with the tenants directly to ask questions and where possible, meet them face-to-face.
Tip: When conducting your checks, make sure you ask all previous landlords whether or not they would rent to the tenant again. If you sense any hesitation in their response, don’t be afraid to ask questions as to why, as this will give you a better understanding of the tenant in question and whether or not they’re suitable for your property. It can also be worthwhile appointing a credible property manager, as their experience and expertise in the screening process will not only help to ensure you avoid a bad tenant, but will also save you a lot of time.
Set Clear Guidelines for Tenant / Landlord Responsibilities
Before you begin renting out your investment property, it’s essential that you understand your obligations and rights as a landlord. This means it’s up to you to ensure that your tenants know exactly what’s required of them too. The best way to do this is to put everything in writing. A written tenancy agreement will clearly lay out all the terms and conditions and will require the signature of both the tenant and yourself.
It’s also crucial that you check the legislation for each state as the legal requirements and rights of both landlords and tenants do vary considerably within Australia.
Tip: If you’re renting out your investment property privately, there are free tenancy agreement contracts online which you can download, but don’t just download one and use it as it is – you’ll need to customise it. It’s up to you to determine what’s suitable and what should and should not be included in there to protect yourself, your property and your tenants.
Advertise Short-Term Leases
Don’t be afraid to test the waters of your tenants with a 6-month agreement to start off with. Problem tenants generally look for longer-term leases, so for this reason, it can be better to advertise short-term leases. If you’re worried about missing out on good tenants by promoting short-term leases, you can always mention in the ad that a long-term lease may be considered for the right tenant.
Tip: Your rental ad should be detailed enough to avoid miscommunication or attracting the wrong type of tenant. In addition to advertising short-term leases, warn applicants that thorough background checks will be completed and references verified. If there are any specific rules that are important to you, such as non-smokers, make sure you include this in the ad to eliminate anyone who doesn’t fit the profile.
Price Your Investment Property Right
Make sure you’re offering your investment property at the current market value to avoid a lengthy and costly vacancy factor. The rental price should be competitive to attract the potential tenants. If it’s too low, this can signal lack of confidence as a landlord. If it’s too high, you can scare away good tenants and instead get a pool of possible problem tenants who aren’t concerned about the high price, because they’re unreliable or not intending to pay their rent down the track.
Tip: Once the applicant has been approved, make a habit of consistently checking that rent is being paid on time. Don’t forget, a stable tenant that looks after your investment property and pays on time for a slightly lower amount is far more valuable than a sloppy non-payer at a higher rent.
This article is written by Jayde Ferguson, who recommends Momentum Wealth. Offering market leading research and advice on the Australian property market, the company helps clients accelerate their wealth through property investment by assisting them in the strategic planning, financing, acquisition, management and development of their commercial and residential investment properties. Catch Jayde on Google+.