Wednesday, May 11, 2016

Ten tips on how to pick great tenants

Oh if we investors could choose tenants perfectly every time, how easy it would be to be an investor!

First you need to attract the right tenants to your property.  See our post on advertising for a few key pointers on this.  If you find everyone who inquires is on your 'no way, no how, not ever' list, then you either need to change the property ad, change the price (upwards is my recommendation), or change your property.  For the purpose of this post, I'm going to assume there are at least a few decent seeming sorts who are keen to take it.

There are the things that are desirable and should be sought, and things that are undesirable and should be avoided.  This list covers typical areas where people make tenant selection mistakes, in no particular order of priority.

1. Steady means to pay the rent.  I don't care if this is a trust fund or a job or running a business or a benefit.  What I do care is that it is approximately three times the amount of the weekly rent.  Any lower ratio that this and tenants are likely to get into rent arrears when unexpected expenses pop up, like needing work done on their car.  Much higher than this and you've got to wonder why they want somewhere so cheap for them.  Ask.

2. Stable household structure.  This means couples that have been together a while (rather than first time playing house), friends who have known each other for years (as opposed to 'flatmate wanted ad' friends), established families, or a single person who intends to stay that way.  Nothing means another vacancy sooner than a household relationship that implodes.

3. Longevity at their previous properties.  If they stay a long time at each place they've lived at before yours it suggests stability in all aspects of their lives.  Be cautious if that stable address was with Housing New Zealand however, as market rent and household budgeting might not have been a feature of their tenancy.  Avoid people who flit around from property to property.  This is only OK for people who are new migrants and had temporary accommodation provided by their employer before moving into a permanent place.

4. References from former landlords.  If they don't have these, really consider if you want to take them.  The exception is for first time renters who have parents willing to guarantee them, homeowners who are now renting, or new migrants.  Everyone decent will have someone who is willing to vouch for them.  Always.   If they don't, and don't have a verifiable good reason, don't take them or you'll be another name they avoid giving to other landlords.

5. The right number of people, pets, and vehicles for the property.  If your property only has one car park, and five vehicle-mad men apply to live there together, it's probably not going to work for the neighbours or your lawn.  Don't allow tenants to pack in extra people to save them money, it's not their budget that should concern you.  If they want more people than you do, don't take them, or negotiate the rent upwards accordingly as you will have a lot more wear and tear.  If you don't want pets, you don't have to take them.  If your property isn't suitably fenced for dogs, don't accept they will have them tied up, it's not good for the dog or your garden.

6. Non smokers.  Yep, sorry smokers, yet another way you are discriminated against.  Lets face it, your peers who think smoking outside is leaning out a window have let you down.  I've also had applicants who were moving because their house burnt down.  What started the fire?  A cigarette butt flicked into the garden.  Nope, we didn't choose them to be our tenants, alarm bells were ringing, and I don't just mean the fire alarm.  The exception to the non-smokers only rule is if the smoker has young children and a non-smoking spouse.  They really will smoke outside for the sake of their family, almost guaranteed.

7 People who have the whole household show up to view the property.  Parents who bring their kids, couples who both attend, and all flatmates who come to view are all much better bets than those who elect a representative to make the choice.  With parents you get to see how effective their parenting is and therefore how much damage you might be facing from rampant children (I sawa kid break three things before his oblivious mother finally got the increasingly strong hints to leave!).  For couples you don't need to worry if the partner is a gang member, or highly strung.  For flatmates, you don't need to worry about disagreements about who gets what room leading to disagreements on who cleans the loo and puts rubbish out, or worse.  Check the vibe in the household.  If they seem to hang well together, you are probably onto a good thing.

8. People who remove their shoes and don't park in the driveway when they come to see the property, and look you in the eye when they say hello.  Respect for you and your property here speaks volumes about how they will treat it going forward.  You don't actually need to hear them say 'be gentle, it's a rental' if you see them acting that way.

9. People you get a good vibe from.  Trust your gut.  Weirdo's should be apparent.  Don't accept tenants who make you think 'what the??' when you meet them.  Be careful not to discriminate unfairly though.  I once met a gentleman with a full face moko at a busy property showing.  On speaking to him I discovered he was a man of high mana in a respected position in the community, and doing great work.  I could have easily dismissed him as a gang member.  My gut said 'yes' so he got the property and was an exceptional tenant.

10. No sob stories.  You are not a charity.  Don't make someone else's problem your own.  Yep, people sometimes have bad luck, but mostly people create their own luck with how they react to what life throws at them.  Are they a survivor or a victim?  People can change their luck, but you won't be able to change it for them no matter how hard you try.  Don't give your property to someone you feel sorry for.  Talking with someone in the Tenancy Tribunal scheduling team I discovered just how often they see situations go to Tribunal where a landlord gave the property to someone they wanted to help, and it went badly.  I have to wonder how many more the Tribunal didn't see because the landlord kept their charitable blinkers firmly in place and lost out to a bad tenant who, unsurprisingly, suffered more 'bad luck'.

And a bonus tip because I'm feeling generous:  People who have a good credit score and clean tenancy history tend to stay that way.  Be careful before you take someone who doesn't.  See point 10 above as to why.

These basics work very well for me and my team.  Perhaps you think we are being too harsh?  Maybe, but we have a duty of care to look after our clients properties well.  You also have a duty of care to your family, your bank, and yourself to choose great tenants.  If you want to be a long term landlord, be careful who you trust your very expensive asset to.  If you had a Ferrari, who would you give the keys to?  I'm guessing that list would be pretty short.  Your investment property is worth about the same, so why would you risk it?  Don't worry about those you reject.  I hope in time they will get the hint they need to change how they behave to get what they want, and that will be better for landlords and tenants everywhere.

Perhaps you are wondering how to get all that information?  Yep, you could seem like a creepy landlord if you try to interrogate the information out of tenants.  Become a master of non-judgmental 'tell me more' statements.  Being a Chatty Cathy works wonders to get people opening up and telling you their life story.  Listen closely and you might just find yourself the best tenant you've ever had.  Lets hope they feel the same about you!

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