The single biggest mistake you can make in property investment is buying the wrong property. The next one – and by far the most common – is getting the wrong tenants to live in it.
If you have the wrong tenant in your property, your life as a landlord can be hell. The right tenant, on the other hand, will look after your property like it’s their own and make your job easy. That’s why it’s so crucial to invest time and effort in your tenant choices.
Here’s my top ten tips for getting it right.
1. Don’t rush into it
So many of the landlords I work with jump into rental agreements because they’re losing money on empty rooms or empty houses – they just want to get them filled up, and get the cash flow flowing.
The thing is that the cost of the wrong tenant is far higher – and far longer term – than the temporary hit you’ll take on an empty property while you’re searching for the right person to live in it.
2. Know your strategy
You need to match your tenants to your property, and stick to your strategy.
Are you looking for long term capital growth, or a monthly income? Where is your property? Are you targeting young professionals, families, or people on benefits? How much risk is associated with your tenant type? Do you want to be hands on or hands off? The answers to these questions will affect who you rent to, how you find them, and what kind of arrangement or contract you put in place.
Using a letting agent or other third party to find your tenants is a valid strategy – but it does mean you have much less control over who’s in your property. Most landlords I work with want to retain some sort of involvement with their investment. Even if you are using an agency, you can still have some level of oversight. At the very least you should make sure you understand how your agent plans to vet applicants, and you can even meet or checkout the final candidates yourself.
3. Know the system
Bad tenants know the system – and that means you’ve got to know it too. Once someone is in, they can stop paying rent and it will take you time and effort to serve an eviction notice. Tenants can live rent free for up to 10 months while you’re jumping through legal hoops.
Make sure your contract is watertight. You don’t have to have the same or standard contract for every property – if you want to lengthen or shorten the notice period, be flexible on clauses or include a six month break clause for new tenants, get it written in up front.
Being prepared for the worst and getting the right support around you is absolutely key. You should have a great solicitor on your team from the very beginning – and if you are relying on your rental income consider taking out both Rent guarantee and Legal protection insurance to cover you should you have to pursue an eviction.
4. Don’t dismiss tenants on benefits – but do do your research
I always warn landlords not to judge a book by it’s cover – good or bad. Tenants on benefits get a bad rap. But renting to tenants on benefits can really work for the right property in the right area. Some of my best and most reliable tenants are vulnerable people who happen to claim benefits as part of their income – and for me as a family lawyer, renting to them is a way to give something back.
If your strategy is about long term capital growth and you want to be hands off – you might want to consider renting out to a local authority for social housing tenants. Councils can guarantee you rent for 4-6 years – no management, no maintenance, and no letting fee. I’ve done this with several properties. With the value still going up I’ve pulled the money out of them to fund other investments. Yes, I could be making more money from them renting privately, but keeping this part of my portfolio ticking along in the background suits my purposes.
It’s worth noting here, however, that the rollout of Universal Credit is going to be a game changer. It means you won’t get your rent paid directly – payments will go to your tenants first and it will then be their responsibility to budget for rent. That will add an extra layer of risk for landlords – and unfortunately another barrier to quality rental accommodation for struggling tenants.
5. Turnover can be good
Having a high turnover of tenants in your property can make for a lot of tenant-finding work for you – one of the reasons finding the right person is so important.
Sometimes, though, turnover can be a good thing. In HMOs, for example, there’s usually a higher turnover as people tend to move on with their work, studies or lives. But that means there’s often less to go wrong in terms of problem tenants – and multiple housemates tend to police each other and let you know who’s not following house rules.
What you want is to get tenants who’ll stay for 6 months rather than 6 weeks, and they key to that is making sure you’ve got the right mix of people. Don’t put an 18 year old lad in with four middle aged women!
6. Be flexible if you can
To get the most out of being a landlord you have to be flexible. Yes, keep your strategy and your end in mind, but think outside of the box about how to get there.
For instance, if you’ve got a family home and you want long term, reliable tenants, consider what you can do to be flexible for the right family. Are you prepared to allow pets, or allow them to decorate the children’s bedrooms? I’ve had the same family in one of my properties for several years – and the result is they treat it like a home. That’s absolutely great for me as a landlord, and it means I’m prepared to bend over backwards to keep them happy.
7. Telephone vet tenants first
There is no point meeting up with someone and showing them round your property if you discover they’re only looking for a very short term lease, or if they’re not familiar with the area and decide they don’t like it. You’ve wasted several hours of your time on what could have been a 20 minute conversation on the phone.
I always text potential tenants the postcode and ask them to check out the street before I’ll meet them. I have another list of questions I always ask everyone too – from how long they plan to stay to what’s really important to them – are they looking for a communal area, parking, good transport links, ensuite rooms, female only housemates?
You’d be surprised how many people you can eliminate just by having a friendly chat and deciding you don’t meet each other’s requirements. As a result, 98% of the viewings I do myself are successful – because they’re a formality rather than first contact.
8. Run references
Never, ever skip the references. I normally get bank statements and a copy of their passport and driving licence, previous addresses, employers references and parents addresses. I also ask for references from previous landlords – but I don’t rely on them. A landlord will be desperate to get rid of a bad tenant – and may gloss over any gory details to do so.
If you’re new to being a landlord, it’s well worth investing in an independent reference check too – which can start from as little as £15. Link to Simple Tenant Referencing here.
9. Look after the good ones
Don’t underestimate the value of a good tenant. If you look after your tenants, they’ll look after your property, and they are worth their weight in gold. Keep those lines of communication open – send a Christmas card, bring over a box of chocolates when you do your inspections, and keep talking about what they need, what’s going on, and what their plans are.
10. Insure for the bad ones
Sometimes, things do go wrong with tenants. If you’re insured you can put it right with the minimal amount of fuss or personal expense. Having specialist landlord insurance is essential – and a good insurer will help you find the right balance of cover to premium for your particular properties and tenants.
Look into Rent guarantee and Legal protection, and consider taking out Malicious damage cover , which means that if your relationship with your tenants does turn sour and they take it out on the property – you can fix the damage. Always check your insurance policy to see if tenant references are part of your cover requirements – and double check you’ve got everything in place.
Source: simplelandlordinsurance.comAuthor: Ashley Mead