Making consistent, long-term rental income as a property investor is dependent on you selecting the right tenant from the onset.
Many landlords believe that good tenants should have a stable income and a character similar to themselves. But the reality is, your property may not always attract such tenants.
The type of people interested in renting your property largely depends on the socio-demographic of the community, and the average rental prices for the area.
Ignorantly, I had always envisioned a banker, lawyer or accountant as my ideal tenants. But, contrarily, my investment strategy was and is based on buying run-down properties in poorer areas.
Good tenants are not always like you
I learnt very quickly that these poorer areas have a higher percentage of inhabitants on lower salaries. There is nothing wrong with this. I grew up in a poor family and my parents always paid their rent.
As an investor, your property investment strategy should to be adaptable to the demographic and area you are targeting.
Though, admittedly, I do prefer builders and tradesman as tenants because they take more initiative to fix minor problems, as opposed to calling me immediately after something (temporarily) stops working.
How to select good tenants
Selecting good tenants often relies on the same criterion. Your tenant needs to have: a reliable source of income to pay the rent on time; a good credit history so they do not default on the rent; and a good character which can be verified by reference checks.
Many landlords assume that if a person ‘passes’ the above criterion, then he or she is potentially a good tenant.
This is partially true if you’re skilled at filtering strangers and have the utmost confidence in your judgement. Personally, I think many landlords lack one of these two competencies.
The alternative is that many letting agents and property managers can find prospective tenants on your behalf, without actually managing your property. You select the final tenant.
A fee is charged for this selective service, which includes interviewing people and organising the viewings, performing the credit and reference checks, as well as lodging the bond.
If you choose to manage your own property, I think it’s better to opt for a selective service than interview prospective tenants whom you do not have an existing relationship with.
“But why?”, you ask.
Because I’m a firm believer that you should build a good team of experts around you in the areas where you lack detailed knowledge or experience. (Please note, I don’t work as a letting agent).
Also, it’s higher risk to sign a legally binding agreement with a tenant, or in other words, a stranger, without having access to a national background and credit check database.
Sourcing the right tenant can take a lot of time, especially if you work full-time or own multiple properties.
From past experiences, my tenants tend to leave before the holidays, particularly Christmas, which means it can take longer to find new tenants when everyone is on vacation.
Additionally, good tenants can turn into bad tenants without notice. There is no 100% guarantee to prevent this, however, you can minimise your chances of selecting a rogue tenant by having a professional give a second opinion.
Remember, selecting the wrong tenant can significantly reduce your rental income over the long-term – and waste your valuable time.
And legally, you cannot evict your tenant instantaneously if they default on the rent or damage your property. You have to go through a mediation or court process first. Thus, i believe it’s better to use the knowledge of experts to safeguard your property from the onset.
Please note, though I own a few properties, I am not a legal, financial or professional property expert. I’ve written this post to share my personal experiences and would love to hear your opinions and views.
So, what tips can you share on finding good tenants?
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