Let’s talk about the lifeblood of a successful property investment journey: good tenants. Finding them sounds simple in theory - you just need someone who can pay the rent, is nice and tidy and will take good care of the property. But somehow, investment property owners all around Australia just can’t get it right.
Problem tenants are a thorn in the side to new property investors and seasoned veterans alike. We hear stories about this all the time: tenants constantly moving in and out, damaged and poorly kept properties, and large gaps of income throughout the year.
If that sounds familiar, whether you’re a DIY investment property owner or if you’ve brought a professional property manager onboard, then it might be time to make a change.
Our property expert Wayde Hildrew has helped us make a checklist of criteria for tenants and explained why it’s so important to spend time finding the right one. We’ll also explain what good property managers do when finding good tenants for your investment property, using our process at :Different as an example.
Finding good tenants
Why is finding good tenants so important?
Put simply, it decreases the risk of your property investment and makes your life easier. Getting the right tenant really does make a world’s difference. Starting with a clean, neat and tidy property with a great tenant who pays rent on time and looks after it, just makes your property investing journey that much smoother. It's how you guarantee rent consistently for your investment property.
On the flip side, getting the wrong tenant hurts your bottom line. Repair costs from property damage, inconsistent rent payments, high turnover rates leading to vacancies, all of these things add up and become huge costs over the course of a few years.
“Doing a good job of getting good tenants is one of the most important parts of the investment process other than picking a great property manager.”
So, how do you know if your tenant is the right one?
How to determine if you have a good tenant
A good tenant will:
- Consistently pay their rent on time
- Be easy to communicate with and is accommodating
- Treats the property with respect and reports issues in a timely manner
- Want to stay for a long period of time
Always remember that mistakes and misunderstandings happen. Sometimes things just pop up when we least expect it. That doesn’t necessarily mean you’re dealing with a problem tenant. It’s impossible to control all the variables, so it’s good to assume that your tenant is doing things in good faith and to use reason.
"It needs to be a balance of both a speedy process, but also making sure that the checks and balances are there."
Now that we know what makes a good tenant and why we care about finding them, how do property managers help you in your search for the perfect fit?
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Things good property managers do when finding tenants
Your goal as an investment property owner should always be to have a tenant occupying your rental 365 days a year. That’s not rocket science! So, how do good property managers help you achieve that goal?
When it comes to leasing, a property manager’s duties and responsibilities are split into 3 main parts:
- Finding tenants
- Keeping good tenants
- Dealing with problem tenants
Checklist: is your property manager good at leasing?
Here are a few ways good property managers stand out from the crowd through the process of finding you new tenants:
- They understand that every property is unique, and that they have to look at each applicant individually and how they fit with your investment property.
- They’re strategic. They know how to market your property. They understand your target tenant, and how to reach them.
- They have a plan. They keep track of tenants who have seen your property.
- They use tenant databases to inform their decision. They look at previous rental records, payment history, credit scores and so on. This leads to you always getting your rental income on time.
- They contact references critically, and check that they’re legitimate.
- Their procedure for handling property maintenance issues is seamless and quick, which results in happy tenants.
- They’re proactive. They stay on top of lease renewals. They don’t leave things until the last minute, and try to lock in good tenants way before the lease expires.
- They try to solve problems before they happen. When they do happen, they deal with them efficiently on your behalf without causing headache.
“Having a solid understanding of the properties and potential issues that may come up and how we can avoid these during the tenant selection process is a sign of a good property manager."
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:Different’s journey of selecting the perfect tenant
So, what does this actually look like in practice?
Wayde explains the step-by-step process we have at :Different:
1. Advertising your rental property
Getting a strong pool of potential tenants starts with making the rental property as visible as possible. That's why our main focus is on Domain.com.au and Realestate.com.au, as they are the best places to find tenants in terms of traffic.
If that doesn't give us the volume we're looking for, we'll also make use of:
- Our own database of tenants
- Social media channels
- Subsidiary real estate sites
"The consumer depicts where it's best to advertise a rental property. Most of our tenant pool will come from ads on Domain and Realestate.com.au, but it's good to leave no stone unturned."
Finding great tenants is often a numbers game. Once we have a large pool of interested tenants we can start screening and selection.
2. Deciding on the tenant
Screening always starts with reference and credit score checks. No surprises there! But, that doesn't give you the full picture.
We look at a few more things to decide if a tenant is the one we're looking for:
- Can the tenant realistically afford to rent your property? We use the same rule as banks when they look at financing. The tenant’s net weekly income should be 30% greater than the rent.
- What's their history like? Have they rented similar places in the past?
- How does their profile fit with the property specifications? All rental properties are unique, so there's no rule of thumb on which tenant to put where. We look at each individual application and see if the pairing makes sense. For example, a group of 6 teenage boys is probably not a good fit for a quiet suburban apartment complex.
“It’s always good to judge each application individually, based on the references and the information you have on hand. Ultimately, it’s the owner’s decision, and they don’t need to provide us with any reason for declining or approving a tenant.”
We do this to prevent trouble down the line. Tenant turnover can cost an owner around $1,750 a month. Spending the time now to find a tenant you'll keep long-term is always worth it, instead of rushing a tenant into a home just to fill a vacancy.
3. Keeping tenants the property owner loves
We look at two main areas when we check if the tenant ended up being who we were hoping for:
- Rental payments
Did the tenant pay rent consistently and on-time? We ask ourselves if the tenant seems organised and has their paperwork in check. Of course, we take into account good-faith mistakes and misunderstandings.
- The condition of the property
We make it a point to do routine property inspections, like any good property manager should. This gives us a gauge on how the property is being looked after and what it will look like when it’s returned.
A tenant who ticks all the boxes and wants to stay is music to any property owner's ears. To keep these tenants, we make sure to offer a new lease and start any negotiation well in advance - two to three months before the current lease ends.
A strong screening and selection process prevents bad surprises, and drastically reduces vacancies.
4. Dealing with problem tenants
When issues arise, everyone wants a resolution that all parties are happy with. There are some common themes around the issues we usually see with tenants:
- A problem with the condition of the property was never reported
- The tenant couldn't pay their rent on time
- The tenant suddenly needs to move out
The root cause of these issues is always a lack of communication. That's why we make sure there are communication channels between the tenant, us (the property manager) and the property owner.
"I'm a big believer that most people want to do the right thing. So once that conversation is able to be had around whatever the issue is, then you can all come together and figure out the best plan."
Whether the tenant stays or goes always comes down to the individual issue, and what everyone agrees on.
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