Purchasing property as an investment can provide a steady stream of income over a number of years. Once you have found the perfect property; the next step is to rent it out to reliable tenants. Choosing the right tenants is really important. You will want to find individuals who will not only be able to pay the rent on time but who will also take care of your investment property as if it was their own. With a tight rental market, it’s common to receive hundreds of applications, making finding the right tenants a daunting task.
Attracting Solid Candidates
The first order of business is to attract the right type of candidates. It’s a good idea to extend your search to encompass the widest variety of potential tenants from which to choose. Working with your real estate agent or property management agency, you can devise an effective marketing strategy for your property. It’s best to place advertisements in a wide range of sources, both online and in traditional print media, in order to attract interest. You’ll want to be careful about setting a rental price – although it’s tempting to set the bar high in order to maximise your income, this could pare down the number of applicants you have to choose from.
To find a reasonable price range, you can speak to your real estate agent about the current market. It’s best to keep your rental price in line with similar properties in the area, or other landlords will gain a competitive edge in the search for good tenants. Keeping your property updated, with modern amenities according to your target demographic, is an excellent way to stay on top of the competition. For example, suppose you have spoken to your agent and found that most potential tenants in the area will be students. In that case, it may be desirable to offer a furnished property, which would be more attractive to transitory students who may be coming from abroad to study and not have many possessions, thus widening your market to include that demographic.
The type of tenants who take care of their belongings and property will most likely look for a property that’s in top condition, to begin with. Take the time to clean the property thoroughly and fix any minor repairs to ensure it’s in top shape before showing it to potential tenants. A clean, tidy, and well-maintained property will attract like-minded tenants.
Screen Tenants Thoroughly
After taking the time to advertise your property and ensure that it’s in the best possible shape for showings, you’ll have attracted a suitable volume of applicants. The next step is to screen them to find the ones who will be the best fit. A real estate agency or property management firm can take care of this step for you to ease the process. The screener will look at factors like references, rental history, and income during any background check. It’s tempting to choose the applications that show a willingness to pay more rent or pay a large sum upfront, but this could mask a less than desirable rental history. The only way to know for sure is to check references.
The first references to check are the applicant’s previous landlords. They can provide answers to questions such as:
- How long did the applicant live at the previous property?
- Did they pay the rent on time?
- What type of condition did they leave the property in? Was it clean and well-maintained?
- Did they keep pets?
- Did they allow anyone else to live on the premises without notification?
The answers to these questions can indicate what the applicant has been like as a tenant in the past. The next reference check to consider is employment-related: during this part of the screening process, the following questions can be asked:
- Is the applicant employed full-time, part-time or on a temporary basis?
- Would you describe the applicant as a good employee?
- Do you expect this employment to continue in the future?
Finding out how stable the applicant’s source of income is can indicate whether they will be able to pay rent in the future.
Some screening agents will also contact personal references, but these are usually checked last. This is because they are provided by close friends or relatives, who are unlikely to share anything negative about the applicant.
The Benefits of Using a Property Management Company
Although it’s possible to conduct these various reference and background checks on your own as a landlord, many choose to find tenants using real estate agents instead. Not only will the right agent have a strong working knowledge of the local market to help find tenants and ensure that you set a realistic price, but they can also assist with the screening process.
Property managers also have access to tenancy databases, which allows them to dig deeper when it comes to background checks. They can find a wealth of information about potential tenants, including court judgements, public records, and whether a tenant has a history of not paying rent. Credit checks may also be a useful part of this process.
Another benefit of using a property manager or estate agent is that they can serve as a mediator between the two parties, which often helps eliminate any conflicts of interest. If the landlord befriends the tenant, it may become difficult to demand rent on time or take care of other managerial duties. The property management company handles all administrative tasks to make life easier for the landlord.
After finding the right tenants, you will also need to inspect your property at regular intervals to ensure that it is being taken care of. This is another task that a property management team can take care of for you in an efficient manner. Although your tenants may be perfectly behaved; their pets or guests may not follow suit. Taking out landlord insurance can be a good idea as a form of protection for your investment.
Everyone has heard stories about nightmare tenants. Although the majority of potential tenants will be respectful and gainfully employed, it’s better not to take any chances and always screen your applicants thoroughly. By using the strategic know-how of a qualified real estate agent, you can ensure that you get the most out of your investment over the years.
Finding good tenants and other tips for landlords
Buying an investment property is an exciting milestone, but there’s a lot to consider as a landlord. From finding a good tenant and understanding your responsibilities to knowing the tenant’s rights, there are some tips below to help make the transition easier.
Tips for finding good tenants
Getting the right tenant into your investment property is crucial. Ideally, you want a long-term arrangement with a good tenant that’s mutually beneficial for all involved and incident-free. The wrong tenant can be a nightmare of uncertainty, lost income, and damage to your property.
As the tenant’s rent provides you with a stream of income, you want someone reliable with a steady job and good rental history who can stay long term. There are a few steps you can take to make finding a good tenant easier.
Get your property online
Nowadays, most people hunt for rental properties online instead of going through a real estate agency. You want your property to appear on websites such as Domain, realestate.com.au or even Gumtree, where you can create a listing for free or a small amount.
Photos can make the difference between getting many applications or very few. It’s worth taking the time to photograph the property properly with good light and presenting all the features, plus accurately showing what condition the place is in. At a minimum consider uploading five photos, but more photos means more chance for potential tenants seeing something they like and then applying. A detailed description of your property will also make your ad stand out from the pack.
Screen prospective tenants thoroughly.
You want occupants who will pay their rent on time, look after your property and stick to their responsibilities as tenants. This is where the screening process comes in, as it examines various aspects of a prospective tenant’s history to give you an idea of their suitability and if they’re the right fit.
The screening process includes:
- A rental application. This must be submitted and is a good way to profile potential tenants and compare them to each other. It includes identification, their employment details and history, rental history, and references. When looking at rental applications, take note of incomplete forms – it may be a sign a tenant might not be responsible or reliable.
- Verifying their income and employment history. First and foremost, you want to make sure your tenants can afford the rent. Ask for copies of their payslips to confirm their income, and contact their employer to check their employment status. It’s also worth reviewing their employment history for the past decade to see if there have been any long absences from the workforce, or they’ve changed jobs every few months.
- Looking at their rental history. You can request to see a copy of the applicant’s previous rental ledger, which lists their rent payments and corresponding dates. This gives you an idea of their capacity to regularly pay rent on time. A tenant background check can also be done using the National Tenancy Database to ensure they haven’t been blacklisted.
- Checking references. Rental applications should come with both professional and personal references. It’s important to contact these referees as it helps you understand the type of person the applicant is outside of financial details and rental history.
Top tips for landlords
There’s more to being a landlord than just collecting rent. Being a landlord means you have a set of responsibilities you need to meet. Some are to protect you from unexpected financial costs or damage, and others are to protect tenants while renting from you.
Keep your property in good shape
Maintaining and investing in your property will help attract new tenants and keep your current tenants satisfied. Quality extras and finishes can be smart investments as you can charge more rent and attract tenants who may not have previously been interested. Good heating and cooling systems, a fresh lick of paint, new window furnishings such as curtains or blinds, re-polished floors, or new carpets can make a big difference to your property’s appearance and functionality.
Once tenants are living in your property, it’s up to you to stay on top of ongoing maintenance. This means responding to repairs as quickly as possible and ensuring they’re carried out professionally. Keeping your tenants happy will incentivise them to extend their occupancy and ensure your property stays in decent shape.
Stay on top of your finances.
Having a financial safety net will ensure you can cover unexpected costs when they arise, such as urgent repairs to the hot water system. If you’re paying off a mortgage, a financial buffer will also reduce the chance of defaulting on your repayments.
Another way to protect yourself from unexpected financial issues is to take out insurance. You can take out landlord insurance which protects your investment property and can cover buildings only, contents only or combined buildings and contents. It can also cover the loss of rent, associated legal costs incurred, and the cost of fixing malicious damage caused by tenants or their guests.
Staying up-to-date with the relevant tax rules will also make managing your property much easier. Keep good records of your rental income as well as any property-related expenses you can claim such as insurance, advertising for tenants and body corporate fees. If you decide to sell your property, get familiar with Capital Gains Tax (CGT). You’d be subject to CGT if you make a profit (capital gain) on your property when you sell it if you purchased it on or after 20 September 1985.
The Australian Taxation Office (ATO) website has several useful resources for understanding property and tax.
Understand your rights as a landlord
As a landlord, you’re entitled to certain rights. You also have a set of responsibilities to meet which are designed to protect your tenants. It’s worth understanding these to keep both you and your tenants happy and to resolve disputes as quickly as possible.
Each state has its own set of laws so familiarise yourself with the legislation relevant to you. Generally speaking, the most essential points to be aware of are your landlord rights and responsibilities around:
- repairs and maintenance – you typically have to respond to urgent repairs within 24 – 48 hours
- bond payment including what happens if your property is damaged
- rental concerns such as increases and arrears
- lease agreements including amending or breaking a lease
- evicting tenants
- your tenants’ right to privacy
- security and safety at your property, including working smoke alarms.
Maintain a good relationship
Once you’ve found suitable tenants, try and retain them for as long as possible. Quality tenants will respect your property and may rent it for years from you, plus there will be less chance of having your property unoccupied for lengthy periods.
Aside from efficiently responding to repair requests stick to your responsibilities as a landlord, listen to their needs, communicate with them professionally and courteously and think about them as long-term prospects. If your tenants have proven to be good renters and you want to keep them for years to come, you could consider keeping the rent unchanged for a time and be flexible on pets or minor amendments they wish to make to the property.
Prepare for the unexpected.
Even with the very best tenants, issues can occur. This is where landlord insurance comes in handy; it offers financial protection when you’re renting out your property. It ensures you don’t end up paying for damage inflicted by your tenants or losing rental income if your tenant suddenly leaves the property. Put simply, it gives you peace of mind knowing your property is adequately protected.
Landlord insurance often covers:
- loss of rental income if covering rent if the property is being repaired due to an insured event, and is uninhabitable
- intentional or accidental damage to the property or theft caused by tenants or their guests (this includes windows, light fittings, carpets and blinds, as well as appliances)
- cover for natural disasters, such as fire and flood
- legal expenses associated with taking action against a tenant.
Landlord insurance isn’t compulsory, but you may still need it as most mortgage lenders will require it if you intend to have tenants living in your property.
ANZ Landlord Insurance has been awarded the Canstar 2018 National Award for Outstanding Value by offering competitive premiums and comprehensive protection, like full building replacement and rental protection against theft and damage caused by tenants.