Tenants are the life-blood of long-term property investors. They pay the income and cover the expenses of the property. Whether it be residential tenants or commercial tenants, the process is very much the same. We’ve compiled a list of the 5 biggest mistakes made by property investors with tenants.
Sign up for the #21DayPropertyChallenge now and get the exact script we use when talking to sellers for FREE.
Running a property portfolio, even if it’s just 1 rental property, will mean that you are reliant on tenants to pay you rent. Landlords, or property investors, often become complacent when it comes to tenants and more often to the detriment of the investor.
Here are our top 5 mistakes that investors make with tenants.
When your property is about to become vacant,you must start advertising for a new tenant as soon as possible. Whether you do this yourself or use an estate agent, you need to start marketing your property and start looking for a new tenant.
When you start receiving enquiries on the property there are 4 main background checks that you need to perform, without fail. This is not to be invasive, but you are running a business and need to satisfy yourself that you will be receiving your income.
- Credibility check. This may sound silly but go and meet with the prospective tenant. What is your first impression of them? Often your first gut feeling will be correct.
- Credit checks. Many services offer credit checks on tenants. Don’t forget to obtain permission from the prospective tenant first. What is their payment history like?
- Reference Checks. Call their previous landlords and ask them whether they were good tenants. Do they pay on time?
- Affordability check. They only true way to perform this is with the prospective tenant’s bank statements (3 months is preferable). Analyse there income and expenses. Check when they receive their income, make note of their recurring expenses.
Failing to perform the necessary background checks can lead to a high probability of a defaulting tenant.
If they are not willing to provide all of this information, be careful what they are hiding.
When performing a reference check on a prospective tenant, don’t call their current landlord. Call the landlord before that.
If they are a bad tenant, the current landlord will say what they need to say so that the tenant moves out of their property and into your property!
The first criteria – Have a proper lease agreement in place. This is a minimal cost to have a lawyer provide you with a legal lease agreement.
Then you need to follow the steps in the lease agreement. If the tenant is supposed to pay the rent by the 1st of the month, and they don’t pay, what does the lease agreement say you should do next? Don’t delay, issue the letter of demand. This might sound unnecessary, but you don’t want to wait. If you are lenient 1 month, it will happen again next month.
The lease agreement is there to protect the tenant and the landlord. Make sure it is a legal agreement and make sure that you follow the agreement to avoid issues.
It is very important to inspect your property before the tenant moves in and preferably with the tenant present. Note any issue that you see, maybe a cracked tile, water damaged cupboard, etc.
It is a good gesture to give the tenant 7 days after moving in, to notify you of any problems that they might find. As the investor does not live in the property, often there might be issues that you don’t know about.
The next step is to arrange an inspection every few months. Once per quarter (every 3 months) should be sufficient. If you are concerned, inspected it more often.
Be courteous to your tenant, it is their home too. Arrange with them several days in advance and tell them you would like to do a routine inspection as per the lease agreement.
Before the tenant leaves your property, perform another inspection with them. Compare the move-in inspection, to the move-out inspection.
Don’t wait until the end of the lease to find out that there are some major issues in your property.
Inspect often and maintain it as needed.
If a tenant starts defaulting and making excuses, chances are that they won’t rectify this. As soon as issues start, begin the process to get them to leave.
DO NOT become emotional. This is your business and your property. Treat it like that!
On the other side, look after good tenants. Keep them happy and even negotiate rental increases. You want good tenants to stay in your property as long as possible.
As the saying goes, “The grass is not always greener on the other side”.
Do not become emotional towards tenants.
You property is a business and should be treated like a business.
This is something that is often overlooked, but it is valuable. Your property will attract the tenants that want to live in it.
If your property is in a bad state, great tenants will not want to live in it.
Keep your property well maintained. Paint it as often as possible (preferably every time a tenant moves out). Fix leaking taps, broken cupboards, etc.
A clean and tidy property will attract the best tenants.
Keep your property well maintained so that you attract the best possible tenants.
We hope this list of common mistakes with tenants will help you prevent some of these happening to you. There certainly are many more mistakes that property investors encounter, but we have found these 5 to be the most common.
Do you have others that you would like to share with us? We would all like to learn, so we can move forward. Please share these with the community in the forum.