I always dreaded tenants moving out. I had to conduct the final inspection to determine what needed to be fixed, cleaned or taken out of the bond. The worst part was the disagreements with the tenants. It didn’t take me long to realise a good condition report meant less disagreements and a well left property.
#1 Take mental notes at the inspection
Screening potential tenants starts at the inspection.
Good tenants come across as:
- Slightly particular about the home (they care about the property they live in)
- Healthy, clean and tidy. They look after themselves and their belongings
- They argue
- They’re negative
- They tell you their life story (desperate)
- Don’t use the inspection as a complete screening tool. It just starts at the inspection. Take a mental note about each person that inspects your property.
#2 Good application forms on the ready
You can’t properly screen tenants without good applications forms.
You can grab a copy of a rental application form here and provide it to your tenant.
#3 Shortlist Your Applications for a Quick Response
There is not a lot of time to waste. Your ideal tenant may have gone to two or three open homes today, and put in an application for each of them. You should aim to get back to the tenant within 2 days.
Quick screening tips:
- The total income should be 3 times the rent amount. Eg if the property is $500 per week the total income should be atleast $1500.
- They love the property. They see it as ‘home’ not a roof over their heads for a few months.
- The rent they are paying at their current property is not too dissimilar to your rent amount. Unless they have more income to support the move (pay your higher rent).
- The number of adults moving in should be equal or less than the number of bedrooms otherwise there is a high risk of overuse (more maintenance costs for you).
#4 Proof of Income & 100 Points of ID
Once you have shortlisted your potential tenants, you want to make sure you have proof of income and 100 points of ID.
Sometimes this step is left for the end of the screening process, but I think that is a mistake. Asking for the information now motivates the tenants to provide it promptly (so they can get approved).
Proof of Income – This might include all of the below:
- 3 most recent payslips
- Bank statements (just showing their income is fine)
- End of year Tax Returns
You should do not accept invoices as proof of income as they are not proof that money is actually coming in, rather a bank statement (or tax return) is a good alternative for self employed people.
100 points of ID is self explanatory, but we sometimes forget to explain why we need it. At this point, you will need it to check your tenant on the National Tenancy Database, but you will also need to be sure that the people you rent to are actually who they say they are. This information is on the application for the tenants to read.
#5 Get your Mindset Right
When you are going through a request to rent, it is important not to be sidetracked by your own personal thoughts or any other form of discrimination (it’s illegal, if nothing else). Your tenant screening is focused on two very important questions:
- Can they pay the rent?
- Will they look after the property?
Keep this in mind at ALL times while you are checking the application.
You’re running a business here, don’t let it get personal.
#6 Calling ALL the References
The most important person to speak with is the agent or owner your potential tenants are currently or previously rented through. If your tenant was a good tenant before, they are likely to be a good tenant for you. If they were bad rent payers, they will be again.
Since they are pressed for time, many real estate agents think it is OK to fax or email references. I am NOT a fan of the practice. I always prefer to call and actually speak to the person who was in charge of the property, whether it was the owner or an agent.
You can get a lot of facts from an email, but for really getting a feel for what someone thinks, a phone call is a lot better. On the phone you get to hear all the silences, umming and arring. Sometimes these can tell you more than their words.
Hesitations can tell you a lot. If you ask an owner if they would rent to their previous tenant again, they are likely to say yes. But if they hesitate before giving a soft yes, what are they really telling you? Probably that they were a borderline tenant and not worth renting to.
Some agents may want to give a bad reference, but don’t want to put it in writing because someone might show the tenants the reference. So they are often more candid on the phone.
Never Forget to Ask These Questions to the Current and Past Owner/Agent:
1. Did they pay the rent on time?
Find out if they ever missed a rent payment. This may mean discussing this topic a little further. Ask for an email copy of their rent ledger, there is nothing like seeing it with your own eyes.
2. Would you rent to them again?
This is my favorite question to ask. It is especially effective if the person you are calling has the same high standards for great tenants that you do. If you get an unhesitating Yes, you know you have a winner!
The next person you need to talk to is their current employer (the previous employer is good to talk to as well, if you can). I have always found that if a tenant is a good employee, they are more likely to be a good tenant.
Don’t forget to ask these questions to the Current and if possible previous employer:
1. Do you think they will be working for you in six months time?
Not only do you need to know that they can pay the rent now, you need to know that they can pay the rent six months down the road. This can also show what the supervisor thinks of your tenant. If he says “I hope so”, you know you are onto a winner!
2. If you had a rental property, would you rent to them?
This is a single question that can eliminate about five others. If you get a definite ‘Yes’, great. If you hear a hesitant ‘Maybe’, you’ll want to dig some more. Most of the time ‘Maybe’ is a polite way to say ‘NO’.
Hint: Don’t forget to confirm their income!
#7 Check your tenants on the National Tenancy Database
So you’ve called all their references and your tenants still sound good. The next step is to check them on the NTD (National Tenancy Database). An NTD search looks for:
If they have ever been a ‘bad tenant’ for someone else.
Owners and agents can list tenants who have previously left a property with money still owing after the bond has been used. For example, if the tenant left a property that had a cleaning bill that was more than the bond and refused to pay the extra amount, they could be listed on the NTD.
If the person has declared bankruptcy in the last seven years, it will show up on the report. This is a good way to find out their past financial history.
A full tenant check through the NTD also verifies their ID against 20 other databases, so a fake ID is likely to show up.
Court orders and judgments
If the tenants have any court orders or judgments against them, the NTD will pick them up.
A search costs $29, but the peace of mind is priceless. You can request a NTD check through Cubbi, a local online property management company for a one of cost with no strings attached. Click here.
#8 Follow your GUT Instinct
I believe that in many cases, your instincts about a person can be more accurate than raw data. Sometimes I get to this stage of the screening, and everything indicates that they should be good tenants except for a nagging feeling I just can’t shake.
Here’s an example:
I once put a tenant into a house even though I had a gut feeling that something was not quite right. After taking them to tribunal twice so that I could get them out (after less than two months), they managed to vandalise the property from top to bottom with graffiti before they left. If only I had followed my gut instinct about these tenants those 2 months of hell would never have happened. Don’t underestimate this step.
#9 Approve your Tenant & Lock ‘em in Quick!!
Approve your tenants as fast as possible, because remember good tenants will be snapped up quickly. Once done you can move on to signing the lease and organising the first period rent and bond to be paid from the tenant.
People eventually move out of rental properties. That’s just the way the business works. You need to know when to start looking for new tenants so your property is never left vacant for too long.
Ideally, you want the next tenants to move in the day your property is available to avoid any loss of income. It would be great if you could advertise your property, show tenants through, screen the tenants, sign a lease, and move your tenants in, all within 24 hours. But most tenants need to give notice to vacate their current rental home before moving into your place. This is generally 3 to 4 weeks, depending on the state your new tenants are in.
Australia is filled with real estate agents and property managers, so it’s no wonder landlords can feel a little overwhelmed when they start looking for one to manage their rental property.
If you’re using a property manager, then you need someone experienced and switched-on. They need to care about the property market both generally and in your area, and above all take the time to know your property just as well as you do.
It pays to know what you’re looking for: we’ve put together a list of steps you should take to find the best possible property manager, with some questions you need to ask as well. Read More
Talking about change – the investment lending space continues to evolve and adapt to the new norm of Australian Prudential Regulatory Authority (APRA) intervention. Oh, and by the way, APRA won’t be going away anytime soon. There have been the obvious shifts like increased interest rates, larger mandatory deposits and interest only caps. This is the stuff that makes the news but what about the nitty gritty likes lenders dumping equity release products? Higher credit assessment rates, shifts away from rent reliant portfolios, reduced Loan to Value Ratio (LVR) limits, new assessment ratios or even the increased scrutiny of living expenses. Read More
It’s one thing to get your rental property advertised on a site like realestate.com.au or Domain – it’s another thing entirely to manage the day-to-day operations of one.
That’s exactly what a property manager does. But many landlords are still confused about what goes on during the daily operation and maintenance of a rental property.
So…what does a property manager do?
A property manager is someone who handles most of the ongoing operations of your rental property for you. They act as your representative, doing all the things that a landlord normally would on your behalf.
So what are some of those tasks? A good property manager, in theory, should do most of the following:
Find new tenants when the property is empty
That can include things like managing inspections for prospective tenants, getting photographs, advertising on listing platforms like REA or Domain and looking through applications to present to the landlord.
Collect bond payments
Collecting bond and submitting it to the relevant authority isn’t a straightforward task, as we’ve shown before. Property managers ensure the process is followed according to the law and is handled appropriately.
Collect rent and forward to the landlord
Collecting rent isn’t just about managing a bank account and transferring the cash, although that’s a big part of it. Property managers also chase up late rent payments, figure out what’s going on with the tenant and work to make sure there is a smooth process to catch up on any late rent. They also follow up if any legal action needs to be taken.
Manage routine inspections
While landlords can do their own inspections, they often rely on property managers to do this for them and then make sure that everything is in order. Many property managers will take pictures and send a full report to the landlord to show everything is okay.
Receive and deal with maintenance requests
Maintenance is a serious issue and many landlords can become liable if certain maintenance conditions aren’t upheld. Property managers will generally act as the first line of communication for tenants if things go wrong, organise requests for repairs and then hire tradespeople to carry them out.
Manage and prepare paperwork for parties to sign
Many property managers have the authority to act on behalf of the landlord and can sign many things but managers will often prepare paperwork and have it ready for landlords to sign. This usually includes a tenancy agreement along with any other bills or relevant charges.
Ensure all processes follow the relevant legal authority
Landlords who opt to do things themselves often find they have problems when it comes to the small, legal details of what they need to do. Having that level of legal knowledge on your side is invaluable, especially as many states have different real estate laws and some issues – such as home security – can be ambiguous. Many property managers help out in this regard.
Generally act as the first point of contact for tenants
If tenants have questions about small details, or any inquiries, the property manager is the first person to handle them.
So, as you can see, property managers handle a lot of the day-to-day work in managing a property.
What’s the difference between a real estate agent and a property manager?
Nothing really. A person who sells or manages property on behalf of someone else is a real estate agent. However, typically a person who manager’s property is specifically referred to as a ‘property manager’ but they are one and the same.
Should I use a property manager, or become a DIY landlord?
Neither. I actually think neither of those two options are good.
Well, take being a DIY landlord. First of all, you need to be an expert in your state’s laws on real estate, and it’s just way too easy to get yourself into trouble. One little slip up on something like home security or smoke alarms, and you could potentially open yourself up to legal action.
Not to mention, being a DIY landlord takes up a huge amount of your time.
But what about hiring a property manager?
As I’ve already said, property managers definitely do a lot. But there’s a catch – more often than not they run out of real estate agencies, and that comes with disadvantages.
There are good reasons why 1 in 4 landlords don’t trust their agent.
Firstly, most of them are agencies that depends on sales. The focus and attention of the business is often on the sales department, dragging the property management department further and further behind. That means many of the processes they took on 20 years ago are still the same today. It’s no wonder why key things get lost, don’t get done or just take a long time!
Secondly, many property managers are young! There’s nothing wrong with that, but it means they’re inexperienced and won’t give you – or your tenants – the experience you’re looking for. Remember, this is about tenants too – you want good tenants to stay as long as possible.
Finally, property management fees are often very high when you consider what you actually get – even if you’re paying a property management company that focuses solely on management, not sales. That eats into your rental yield.
So, what’s the solution?
There’s a third option
Do it online. Technology has made it possible to cut out the traditional middle men and outdated manual processes for managing your property.
With Cubbi you can have the best of both worlds; have complete oversight over your rental property to ensure everything is taken care of but without having to worry about the labyrinth of rental laws and the time consuming admin.
Getting ready to rent out a property? Here’s a tip:
Never give your new tenants the keys to your property unless the bond has been paid in full.
Harsh? Maybe. But for a good reason: regardless of how good the tenants are, it’s good peace of mind for you to make sure everything is set and ready to go for your property, including the bond, before the tenants take possession.
Your investment property could be at serious risk of damage with a new trend of tenants holiday letting rooms or the entire property through Airbnb on a per night basis. This can significantly increase the risk of damage and security of your property without the extra reward for you as the landlord.
In other words your tenant could be making extra income from your property but you are wearing the risk.
When you buy an investment property you have to decide how you are going to own the property. Will it be in your name, a self-managed super fund, a company or even a trust? Each one has their own pros and cons so you need to weigh up what works for you. Solid advice is hard to find on this topic but when we were approached by Alan an avid property investor it was too good of an opportunity to pass up. Alan explains in simple terms how to determine what ownership structure works for you. Enjoy.
You would think making the right investment choice is the key to a successful property portfolio. But having the best ownership structure could be even more important to your portfolio’s profitability.
The options can present as a mine field, so getting the right professional advice ahead of your first purchase is critical to minimise tax.
A few weeks ago I received an interesting message from a long time reader of our blogs with a link to a great resource they had put together that helps you figure out if your potential tenant is going to a good or bad one. They asked me to share it with you however it was just not that suitable for the process we take in Australia to screen tenants. So I had to make a few changes before it was appropriate for you. I have now made the tweaks and here it is.