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How to identify the ideal tenant

How to identify the ideal tenant

14 Aug 2019 5 mins read

Ask most landlords and they will say the perfect tenant is one who pays their rent on time, does not make constant demands and looks after the property like it is their own. So, where do you find this perfect tenant? Get the vetting right!

Securing the right tenant/s for your rental can make owning and managing an investment property a dream. On the other hand, a bad tenant can turn the dream into a nightmare… property damage, unpaid rent, angry neighbours, illegal activities, overcrowding, squatting… the list goes on.

So, just how can a landlord avoid renting their property to a rubbish tenant? Well, thoroughly screening them is a great first step!  

There are two things landlords and agents should look for when screening a tenant – their ability to pay rent and a track-record in looking after a property. To do this you will need to ask potential tenants the right questions and then verify the answers.

A word to the wise landlord: At EBM RentCover, we recommend landlords engage the services of a professional property manager to undertake the vetting process on your behalf.

Top tips for vetting tenants:
  • Ask all potential tenants to fill in a rental application form and closely scrutinise the information they supply.
  • Look over all identification (ask to see their passport and/or driver’s licence and sight utility bills in the tenant’s name).
  • Speak with previous landlords and property managers and ask:
    • Is any rent still owed?
    • Was there a history of late payments?
    • Did they leave any major property damage?
    • Were there any recorded issues with neighbours or police?
    • Did they get their bond back?
    • Would you rent to them again?
  • Check references thoroughly (landlord, employer and character).
  • Confirm income (ask to see three months’ of payslips or bank statements, use a credit referencing service and ask to see evidence of assets). Their income should cover the rent plus normal living expenses.
  • Review their deposit ledger, which shows a history of their rental payments (only available if they have previously rented through a real estate agent).
  • Secure a guarantor (if necessary), such as a parent.
  • Confirm employment status (check income and how long they have worked for their current employer; if they have recently changed jobs, call their past employer to establish their employment record).
  • Search the National Tenancy Information Centre of Australia database to see if they have been listed as a ‘bad’ tenant.
  • If possible, meet prospective tenants in person (even if your agent is handling the process) to get a ‘feel’ for who they are before they sign a lease.
Watch out for these ‘red flags’:
  • Tenants that have a thin employment history (i.e. a string of short-term jobs, gaps in employment and unstable income).
  • Gaps in their rental history or the names and contact details of some landlords are missing from the application.
  • They don’t show you proof of income.
  • The ratios are out – the ABS says the spread of rent-to-income should be between 25 and 38 per cent. If the tenant would be paying more than 30 per cent of their income in rent, they may not be able to afford it.
  • They try to negotiate the bond or ask to pay after they’ve moved in (this breaches the legislation).
  • They don’t have independent references (e.g. they provide the names of family or friends).
  • They offer to pay in cash and weeks in advance (this could be a warning that the intention is to use the premises for illegal purposes like drug manufacture).

A word of caution: Any checks you perform on tenants must be within the law. You cannot invade their privacy or seek information beyond what could be regarded as ‘reasonable’ (note: it may not be considered reasonable to ask for copies of credit reports, visa validation, conduct criminal record checks or seek out sensitive information).

As landlord insurance providers we know that, aside from the wrath of Mother Nature, the greatest risks to an investment property are tenant-related. Each year thousands of claims for rental losses (rent default, absconding tenants, denial of access, tenant hardship, tenant death) and tenant damage (accidental and malicious) are paid out. In fact, in 2018 more than $7 million worth of loss of rent claims were paid, along with approximately $4.5 million for tenant damage

Of course, not all tenant-related risks stem from bad renters; even the best tenants can cause accidental damage or see their lives turned upside down by death, relationship breakdown, job loss or illness. So, while good tenants will usually try to make good on any rent owed or repair any damage, sometimes even the best intentions are thrown out the window by circumstance.

That’s why it’s important to have specialist landlord insurance that protects the investment property against tenant-related risks and covers a range of scenarios that might lead to the need to make a claim. Our Expert Care team can help you with a policy that covers you for tenant-related risks – give them a call today on 1800 661 662.

Every investor wants a secure investment and reliable tenants. But, not everything always goes to plan. And some events cannot be controlled. What can be controlled is whether the property is protected by landlord insurance. So while you can never really be certain your investment is secure, you can be certain EBM RentCover will be there in times of need.

Main photo by Soroush Karimi on Unsplash

*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are there, contact 1800 954 374 if you have any questions. 

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