HOW DOES A LANDLORD KNOW how to choose the right tenant?
In most instances, a landlord will decide on a tenant after looking at the tenant’s credit profile, payment history and then go with a gut feel that all will be well. One may get away with it most of the time, but what happens if something goes wrong?
In general, tenants are good people with no hidden agendas to do a landlord harm. I can say this from experience as I am involved in rentals since 1992.
The rental industry has changed completely during the last decade and both tenants and landlords have to stay within acceptable parameters to remain active in the market.
Legislation however made it a complex process to evict tenants who are in breach of contract. It brings forth both the cost of eviction and a loss of rental income for the landlord. On the other hand, tenants who have been evicted will find it extremely difficult, if not impossible, to find alternative rental accommodation.
WHY CHOOSE RIGHT?
Because of the complex and costly eviction process, it is of utmost importance to make the right choices and decisions BEFORE tenants move in.
Let’s consider the following example:
You (as a landlord) have tenants in your property that is causing damage to it, either due to neglect or on purpose and they have fallen behind in rental payments. After the required notifications have been delivered to them, the situation deteriorates and good relations went through the window.
The landlord now must do the following:
1. Start the eviction process. (Budget for a 6 months’ plus time frame)
2. Get a court order to make the landlords hypothetical right enforceable.
3. Bring the property back to standard (repair damages) before it can be rented out again.
4. Financially bridge the lack of rental income and the expenses incurred by the items listed above.
As mentioned before, by CHOOSING RIGHT most of the above can be avoided. Though tenant choice is not a 100% guarantee that issues will not occur, issues could be avoided to a very large extent. In this regard, I am rather proud of my track record. During my last 10 years of being active as both a landlord and a rental administration agent, I only had to facilitate one eviction. Of the present rental portfolio that is being managed by our office, we only have 2 tenants that are paying slow. They are not behind, but they need to be managed each and every month. These results were only possible because I will rather leave a property vacant for another month than rushing the process and thereby taking the risk of placing the wrong tenants. I will share some of my strategies in this article with you.
Residential property rentals became a science rather than an administrative process. I counted 28 published pieces of legislation, being acts, amendments or regulations that knowledge is required regarding residential property rentals. It can’t be expected of a landlord who is not full time involved in the rental industry, to have a vast knowledge of all these. DIY rentals by “part time landlords” are thus becoming more and more risky.
In a follow up article, I will touch on the legislation that regulates the rental industry.
I found this very informative video clip about the whole eviction process.
For now, I just want to touch on a few points that may be of assistance to you to make the right choice in placing tenants in a rental property.
THE CRITERIA I USE:
1. Number ONE, I want to meet prospective tenants in person.
There is a saying: “Don’t judge a book by its cover”, BUT let me tell you, the cover page of a book reveals a lot of what is to be expected on the inside.
-Look out for signals-
2. Application forms: Let the main applicant, as well as everyone else who is contributing to the household budget fill out a separate application form. Should they be successful, it is also best to make them all parties to the contract.
3. Assessment: Do proper assessment, screening and credit checks of applicants. Take the time and contact previous landlords / rental agents and ask relevant questions.
My closing question always is: “Would you accept this applicant as a tenant again?”
Avoid referrals of family members and work colleagues. Employer referrals has value though.
Check on previous payment patterns. Though all payments may be up to date, what was the pattern of payments? Tenants who tend to deal with rent payments in a “lay buy” pattern will not be my tenants of choice.
4. Duration of previous stay: If a tenant only stayed for short periods at previous addresses, find out why.
“House Hoppers” tend to repeat the pattern and often there are underlaying issues that gives cause to this.
5. Duration of employment: As with duration of stay, frequent moving between jobs is also an indicator for caution.
MY RED-LIGHT INDICATORS:
There are a few indicators that is making me extremely cautious. Please note, it is indicators and some people may have circumstances and conditions that needs to be considered. If someone however approaches me in one or more of the following conditions, I am always very careful and I will rather go with other applicants if possible:
1. The applicants that romps up and need a place to stay immediately, activates all my alert senses. They either have been evicted, or they simply didn’t pass the assessment by other rental agencies, or they were completely slack in finding a place in time.
2. The applicants that make a payment of the rental deposit before asked for it or even before their application have been assessed. It is almost like they want to buy them into the rental.
…My question is “WHY?”
3. The applicants that offers to pay rent in advance for a period (6 months to 12 months) There must be a reason for that. In almost all instances, they will not pass the National Credit Act criteria on monthly affordability. They may have a once off lump sum available, but what happens after the 6 months period. Will they then be able to pay? Will they move if they can’t pay? Is it worth to take the risk?
4. When an applicant does not want to disclose the details of family members. Though affordability, payment patterns and everything may look excellent, beware of staged applications. The application may very well be on one person’s name who is trying to assist a friend or family member and then someone completely different moves into the property. This is one of the reasons why I want to meet prospective tenants beforehand in person and I want to hand the property to them in person. If proper screening is done, the previous landlord will tell you if his/her tenant did not give notice to vacate. I had experience of one such case, but luckily due to our proper assessment process, I found him out in time.
At INCOMPROP, Renting out property is our business. As with all business, there is risk involved. There are no guarantees that the selection methods described above will avoid tenant issues, but we can certainly assist in avoiding issues.
Apart from making the right tenant choices as described above, we also have excellent administrative and legal systems in place through which we manage our whole rental portfolio. We operate our system through a credit bureau and a debt collection third party platform.
See what our clients have to say about their experience of our services.
Please contact us if you need more information or any assistance in this regard.
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Author: Cobus van der Merwe.
Copyright INCOMPROP 2017