Attracting the wrong type of tenant can make or break the experience and may leave the investor out of pocket, so it’s important to take the time to properly screen potential occupants to help minimise the risk of malicious damage and loss of rental income.
When assessing a tenancy application, there are two important questions to ask yourself:
Is the tenant capable of paying the rent (without financial stress)?
Is the tenant capable of taking care of the property?
If the answers to these two questions can’t be answered appropriately, the application would need to be seriously considered.
The following tips can help you effectively screen potential tenants to help ensure your investment experience is a positive one.
1. Attract a number of different applicants
The process of attracting a suitable tenant begins before you’ve even purchased your rental property.
When choosing an investment property, think about the type of tenant you want to attract, whether that is a family, sole tenant or couple, and choose a property that is likely to appeal to them.
Poorly maintained properties in low socioeconomic areas may be less desirable for your target tenants and, in turn, attract a smaller pool of appropriate tenants.
Established, well-appointed homes that are close to good schools, shops, and public transport are usually highly sought after and will likely give you a larger pool of prospective tenants from which to select.
Presenting a well-managed property sets the standard of the property and may attract applicants that are likely to keep up those standards during their tenancy. Poorly presented properties may attract bad tenants.
2. Gather the appropriate information
When taking applications from potential tenants, it’s important to accrue relevant information that will help you weed out the wrong type of tenants while shining a light on the right ones.
Along with confirming an established history of rental payments (that are made on time), you also want to look at their employment e.g. length of employment, stability of employment, salary, etc.
Lifestyle information should also be included in the application. Does the applicant have any pets? Do they work irregular hours or away from home? Or do they regularly have visitors or guests that will be occupying the property?
Contact information for previous landlords should be included, along with previous addresses, amounts of rent paid and reasons for leaving. Any discrepancies or gaps in information may suggest underlying issues that are not being disclosed.
Keep in mind some applicants may put down false information - which is exactly why you should ask for 100 points of ID, proof of income (recent payslips), and/or a bank statement. This way, you can gauge their honesty and determine whether they can afford to live in the property.
3. Interview the tenant
After receiving applications and reviewing the information, you may like to consider conducting an informal interview with the applicants – either over the phone or in person at the property.
Take the opportunity to determine if the person smokes, and if so, indoors or outdoors? Is the person unkempt? Does the person conduct themselves professionally and respectfully? Is the person satisfied with your rental stipulations, such as rent per week and bond? Why are they moving?
The answers to these questions may help you decide whether the applicant is likely to meet the requirements of your rental agreement.
An interview can also be a good place to air out any grievances or confusions regarding the application e.g. work, past rental experience, etc.
You may also consider speaking with previous landlords or property managers to see whether they have had any issues with the tenants being reviewed. Most typical tenant applications require at least three references, from personal referees, past employers, and previous landlords.
Here are the possible questions to ask a previous property manager:
What type of tenants were they? How was the property kept?
Was rent paid on time consistently?
Was the bond refunded in full?
How did the vacate process go?
If so, on what grounds was the tenancy terminated? Was permission granted?
Were pets kept on the property?
Would you lease to this tenant again?
If need be, you can also chat with the applicant's employer to verify their income and give an overview of their character.
4. Consider appointing a property manager
Contracting a property manager may take the stress out of managing your investment property, including screening tenants on your behalf.
They may also have access to the National Tenancy Database which provides access to historical tenancy information including tenant checks, individual public record checks, identity verification and visa verification. Self-managed landlords are not able to access this.
5. Obtain appropriate insurance
Despite your best efforts as a landlord in screening your tenants, there are still risks associated with owning a rental property. Even the best tenant can accidentally damage property or run into financial hardship.
Every landlord should consider having a tailored landlord insurance policy that covers them for both malicious and accidental damage, their legal liability as landlords and the loss of rental income.
This type of cover can provide landlords with peace of mind should unforeseen insured events occur. A standard building and contents insurance policy generally won’t cover landlords for the risks associated with owning an investment property.
So, check your insurance policy before seeking a tenant, or if you don’t have insurance already, consider seeking professional advice.
6. Choose the right tenant for your property
Once you’ve gone through the entire process and have a short list of potential tenants, it’s time to select the right one. But, be mindful of anti-discrimination laws.
Under the Equal Opportunity Act you cannot discriminate against applicants based on their:
Whether they have children
However, it’s not against the law to choose not to rent out the property to drug users or smokers, if this poses a potential issue.
Landlords do have the right to choose the most suitable tenant for their investment property, as long as no unfair direct or indirect discrimination occurs.