You’ve got the keys to your first investment property and now you’re ready to start renting it out. While there’s a lot to consider when buying an investment property, the hard work doesn’t end there.
The next step is to find the right tenants to ensure your property is taken care of and you enjoy the returns from your investment. But choosing great tenants isn’t as easy as it looks. There’s a lot that goes into it, and a little effort now definitely pays off in the future.
1. Attract the best candidates
Finding great tenants means attracting the best candidates you can. Start by considering who your property is suited to, like large families or singles. This will affect how and where you market your property.
Do your property justice – and get more people in the door at your open house – with clear photographs and a favourable yet honest description. And make sure your property appears clean and well maintained at the inspections. This will help attract tenants who will treat your property with respect.
Another tip is to spread the word amongst friends and family that you’re looking. Doing so can often help you find great tenants who come highly recommended.
2. Screen and check references
Once you’ve received the applications, you’ll need to review and consider each one carefully. Thoroughly read each application and make a shortlist of potential candidates who meet your criteria.
Most important is that your tenant will be able to pay their rent on time. Ask for their most recent payslips as part of the application process. For the self-employed, get Profit & Loss statements for the past two financial years to confirm their income and capacity to pay.
It’s also important to check references as you narrow down your candidates. Ideally, you should ask for three references: an employer, a previous property manager/landlord, and a personal reference. When interviewing referees, ask about the candidate’s reliability, work ethic financial status, current employment, and employment history.
Be mindful of candidates that only provide friends and family references. As these people will typically give a good reference no matter what, their opinions can be unreliable. If a potential tenant can’t provide an independent reference, be cautious about renting your property to them.
3. Look out for warning signs
If you want to avoid the headache of bad tenants, be aware of signs things might not work out. The first thing to look for is their income-to-rent ratio. Generally, a tenant’s rent should be less than 30% of their monthly income to ensure they can pay. Depending on the type of property and where it’s located, this ratio may not always work, but it’s a good guide to ensure your tenant isn’t stretched to pay rent each month.
Also look out for an unstable employment history. Although there are many reasons someone may change jobs regularly, keep an eye out for tenants who have a history of frequent job-hopping without a reason. Unexplained gaps in employment history could also be cause for concern.
You should also be cautious of tenants who request to pay the bond after they move in. As well as providing security for any damage caused to your property, a bond can help filter potential tenants. If an applicant is unable to pay the bond up front, they may also have difficulties paying rent.
4. Enlist the help of professionals
Finding the perfect tenant is never easy. If you’re feeling unsure about the process, consider enlisting the help of a property manager. Not only can they help screen applications and manage tenants, they can also help advise you on the local market and rental conditions.
When choosing a property manager, be sure to investigate their fees, experience and policies. Alternatively, in certain areas, you can consider leasing your property to a housing organisation, such as Defense Housing Australia.
Once you have great tenants in place, you’ll want to keep them around. This means treating them well and promptly dealing with any issues that arise.
But, be aware that problems can occur with any tenants, no matter how perfect they seem on paper. Landlord’s insurance can help you prepare for such issues by covering your rental income if your tenant doesn’t pay or if the property is uninhabitable due to damage. It can also cover legal fees if you want to take any action and may include cover for repairs.
View Bank Homes creates quality homes for property investors and owner-occupiers in Melbourne. See our upcoming developments here.