Owning an investment property is like any other asset and as such should be looked at like a business. Now when running any business cash is King! Without it the business simply crumbles, leaving you with a whole lot of mess and heart ache. After all do we not work hard to earn (to paraphrase) 70cents in every dollar? And to have to shell out more of that hard earnt cash just for someone else to live in your asset is simply insane.
That is why attracting and selecting the right tenant is so crucial. A good quality tenant will not only save you on immediate cash flow but over the long term too (as Real Estate should be treated as such). In-turn this will potentially save you thousands of dollars. A good quality tenant will not only be the custodians of your asset but potentially dictate any future investments.
What do I mean by this? If you have a difficult tenant it could mean that any future works or alterations to the property is hindered. Or if they don’t look after and care for the property, future appreciation of that asset/property may not be in-line with the current economic climate (or surrounding houses). This in turn creates a negative impact on future borrowing (or equity available to pull out) to fund future properties or investments.
So ideally you will want someone that fits into the neighbourhood, pays rent on time and looks after the property as if it was their own. All of which is no easy feat! But with the proper screening and a good open relationship this can be achieved. So let’s look at a few key points to consider:
Rental Tips Number #1 – Open, honest communication and provide all details available
Whether screening yourself or utilising a Real Estate Agency you should always by open and honest. After all honesty is a two-way street! Give all the details and answer their questions as best and honestly as you can. This could be as simple as how far are the shops from the property to how much the utilities approximately are. Don’t under quote them as more often than not, if they are asking dollar related questions they are doing sums in their heads to see if they can comfortably afford to live in the property or not. Just because the property maybe vacant with the added attraction of quickly filling the dwelling, it will only create pressure and unwanted stress if they cannot afford to live there in the first place.
Rental Tips Number #2 – Present the property well!
Not that a rental needs to be 5 stars but a level of pride with a welcoming feel will attract a higher level of tenant. So why not present the property accordingly? It could be as simple as a coat of paint. To a fully upgraded kitchen, or even ceiling fans in each bedroom. All this is depending on your budget. The upside is any improvements will add value by potentially boosting 1/rental demand 2/rental income 3/immediate equity available in the property.
A key here is to talk to your local agents as they will really know what tenants are looking for in the area also where to add value in the property to maximise your return.
When planning upgrades try and think easy, low maintenance too. Just because you may love gardening or have time doesn’t mean that tenants will look at it the same way. For example don’t give them a high maintenance garden that needs a lot of attention or water – they may not want to spend their weekend attending to it nor the water bill that comes with it. Just be practical in your approach.
Rental Tips Number #3 – Does the property suit the tenant?
For example how far away do they work? Do they drive or do they need public transport? Is there a school nearby? Really try and reverse engineer the property to the potential tenant.
If their work, schools etc. are too far away it may be a sign that they are looking for something short term and may break the lease once they have found something more suitable.
Rental Tips Number #4 – Screen, screen, screen and screen!
As above the more questions you ask the better you can gauge their intentions. When conducting a one on one conversation with the potential tenant the key to any screening is asking open questions then wait for it – Listening! This truly is a time to put your ego aside, shut up and simply let them explain where they are at and listen to their intentions. When asking questions don’t be afraid of silence, do not be the first to speak – if they are silent there is something they are more often than not trying to hide. Sometimes it’s not what is said, but it’s what is not said that can lead you to an insight of their character.
When going through their references ask open questions like:
– Did they pay rent on time?
– Did they take care of the property?
– Was there anything that needed repairing when they vacated?
– How long did they stay at their previous residence?
– Did they have good relationships with the neighbours? Was there any complaints?
Rental Tips Number #5 – Do unto others as they do unto you
Simply put – don’t be that douchebag landlord! The tenant has done everything right, jumped through all the hoops, now uphold your end. Be open with them, tell them if there is an underlying issue with the property, tell them if you have plans of selling in a few months or you wish to develop the land in the future. Who knows only one 12 month lease or even periodical may suit you both. Don’t promise to upgrade something with no intention of fixing it! Your honesty will go a long way with them and in-turn they will be open with you.
Rental Tips Number #6 – Advertising the property
This ties in with number 2 – don’t advertise the property as 5 stars if it’s not. Photos tell a thousand words, put them all up! Who really cares if the kitchen door has that 70’s coke bottle glass, if it’s an older house and in great condition.
Also don’t a make claim it’s close to transport, shops etc. if it’s not. Clearly describe what’s in the vicinity and if it’s in a good neighbourhood.
So what is the benefit to finding the correct tenant for the property?
Whilst costs will vary between agencies (and also if you are self-managing), but as a rule of thumb if you are using an agency the costs can be quite substantial – often dictating if the property will be positively geared or not.
Most will charge you advertising fees, ranging from one weeks rent to a campaign of $120 or there about (again do your homework and research/ask lots of agencies). It is also industry standard that once an agency has found you a tenant they will take an upfront 2 weeks rent as a fee. Meaning you could quite easily be 3-4 weeks rent out of pocket. Then there is the week/s that the property is vacant.
Also there’s the cost if you need to evict a bad tenant – don’t get me started on this (I know this first hand and is still all too raw). Depending on the state (here in SA) just to go to the tenancy tribunal there is a fee of $69 and that’s before you can even apply for back rental, eviction or damages etc.
As you can see that finding the correct fit for the property is crucial. It will not only save you time but potentially a lot of money.
Don’t forget to visit our “Tips & Blog” page for further information on all things Real Estate! And why not download the FREE “The Property Buyers Guide App” while you’re at it 😉