If you self-manage your investment property, then it is up to you to advertise for new tenants before your property becomes vacant.
Even if you do use a property manager, you may have some say in the tenants that are allowed to rent your property.
A lot of people fear owning an investment property and getting bad tenants.
They are out there and a bad tenant can fall behind on rent, cause damage or just be generally uncooperative with the landlord or property manager.
Let’s have a look at a few important ways of screening out low quality tenants:
Whilst it is common for some suburbs to be stereotyped as lower class, lower income dominant areas, it is not really fair to do this.
You can avoid buying an investment property in these areas but often there can be great opportunity for growth in these cheaper suburbs and you don’t want to sacrifice a good deal just because the area has a less than stellar reputation.
Don’t get me wrong, there may well be “no go zones” in the area you are looking to invest. If the area really does have a big crime problem and is not safe, then it might be best to avoid it.
The point is you can still find quality people who just happen to be on lower incomes in some of these lower class areas, so do not rule them out.
Obviously though, if you can find a quality investment property in a well-respected area, then you are probably not going to have too many issues with finding a quality tenant.
Types of Tenants
Once again, it is not recommended to stereotype a group of people, but in general you will get worse performing tenants in certain groups.
Lower Risk Groups
- Young Professionals
- Securely Employed People
Higher Risk Groups
- Welfare Dependants (Because it can be difficult to meet rent payments on such low income)
- Those with Criminal Records
Those with secure jobs and children around are less likely to be causing trouble or falling behind in rent, it is common sense. However, those that are younger, have less income are more likely to have problems paying the rent or keeping your property well maintained.
Like I said, there can be good or bad tenants in any of these groups so use this as a guide only and do not make the mistake of assuming that all young groups of men, for example, will create stress for you. If their backgrounds check out, it is worth giving them a chance.
It also needs to be said that you definately should not discriminate between groups based on race, religion or sexuality.
The real estate industry usually has access to tenant black lists but if you are self-managing the property, you may need to pay to access a service yourself. Here a couple of services available:
TICA – Tenancy Selection
Rent Check Credit Bureau
Tenancy Information NZ
SafeRent – Resident Screening
Blacklists are not 100% reliable and there are lots of issues surrounding privacy and accuracy of these records, so it is best not to use this as the sole indicator of a tenant’s prospects.
It is also very possible that a problem tenant does not yet exist on a blacklist so proceed with caution.
In some countries, blacklisting may not even be legal, so check your local laws.
As part of submitting a rental application, the applicant normally needs to provide details of the previous rental property that they lived at as well as employment records.
Make sure you follow up on these (or if you have a property manager, that they follow up) as these will be your best indicators of the quality of the tenant.
If their previous landlord says they are fine, then this is a good sign. Landlords and property managers generally like to stick together and will often warn you if the tenant has been troublesome.
In the end, there is no 100% way to make sure your tenant will be perfect and you cannot reasonably expect that they will be.
In the past, I have had tenants not pay rent for a number of weeks (to the point of administering a summons to appear in small claims court) and I had one tenant who was operating a business out of my townhouse which was against the by-laws of the complex.
As a property investor, you will most likely come across some sort of questionable tenant behaviour but if you take the necessary precautions it should not be too much of an issue.
In my case, I had a good property manager who chased up the tenants for the rent and eventually got them back on track. The tenants that were running the business in the townhouse were also given an ultimatum to either fall into line with the by-laws or be served with an eviction notice.
They ended up moving out of their own accord not long after.
The final word is that you can further protect yourself with Landlord’s insurance. For more insight into this check out Managing Risk .