Settle or Keep Looking? Tenant Selection Guide for Landlords

It's difficult to choose tenants. It can be challenging to determine when to accept the tenant applicant you have or to keep seeking for a better tenant. All landlords want to avoid undesirable tenants, but it can be difficult to know when to do so.

If you're wondering how to get the ideal renter for your rental home, you must accept a crucial reality: Almost no tenant will be ideal or satisfy all of your requirements.

Good landlords select renters based on a set of criteria that they have established. They work as hard as they can in a reasonable length of time to find a good tenant who fulfils this description. So, choosing the best tenant requires striking a balance between the amount of time you've spent looking and the tenant's quality.

The stakes are high since finding a decent tenant can help you avoid revenue gaps and assure that your investment property will be well-cared for.

In this blog article, we'll outline what qualifies as a desirable renter and provide background checks, a tenant selection checklist, and advice on how to build up your tenant selection plan. We've also discussed certain considerations that landlords should make when choosing tenants, like whether to rent to someone with poor credit or short-term tenants.

What is a good tenant?

Good tenants reduce the financial risk to your property and help you avoid unforeseen expenses. They improve your financial status and make managing your rental property much simpler.

This is due to a reliable tenant:

1. Is a dependable renter
2. Timely rent payment
3. Respects and cares for your property, and when necessary, will make reasonable repair requests.
4. Efficiently communicates with you

Good property managers are aware that no tenancy situation is universally applicable. You might have a lot of excellent candidates, however some tenants will find your house to be wonderful while others won't.

Selecting the ideal tenant is essential. It entails lowering the risk associated with your investment property, securing a more steady income, and appointing someone to look after your property.

When imagining the perfect occupant for your rental home, take into account:

• The number of tenants you wish to live on your property.
• Which tenants would be most at home in the area surrounding your house.

Sadly, the majority of property managers and landlords have dealt with a few difficult tenants. These tenants frequently have an adverse effect on your bottom line and tend to make managing properties much more difficult than it needs to be.

You should try to steer clear of problematic tenants because they:

• Might result in rent arrears
• Don't report property damage or repairs that are required and decide to leave right away

You now understand what characteristics make tenants suitable and why it is worthwhile to give a tenant a lot of time and consideration. Let me explain how to locate quality tenants.

How to pick a good tenant

Even if it's nearly impossible to get the ideal tenant every time, having a well-organized procedure for finding and servicing tenants will greatly improve your chances.

This will be known as your "tenant selection plan." When you're looking for a responsible tenant for your rental home, it will become your closest buddy once you become familiar with it.

Your strategy for choosing tenants consists mostly of:

1. Approaches you intend to employ for candidate vetting
2. A check list for choosing tenants as tenants

In this method, you can quickly and easily make a wise selection by weeding out tenants who are unfit for your rental property. As part of managing your home like a business, it also helps you remain more impartial and use the same selection criteria for all tenants.

1. Tenant background checks

When choosing a tenant, the step you cannot omit is conducting background checks. While it's important to use your instincts when choosing tenants, you can't only rely on them. Only choose to evaluate each applicant.

When evaluating an application, you should make sure to check the following things:

1. Check the tenant's identification to ensure that it corresponds with various papers.
2. Obtain evidence of income. Tenants can provide this information on their own, or you can ask the HR department of the company they say they work for to verify their employment. Though many people may find this uncomfortable, we advise taking more lenient action.
3. Verify their credit rating. If a tenant doesn't supply one, you can check their credit report on your own. Remember that the tenant needs to be informed of this.
4. Analyze their tenancy history. Asking for at least one referee is a smart idea. Inquire about the tenant's behaviour at prior rentals by contacting references. To ensure that they were the landlord for the renter, you can also cross-check landlord references on the national tenancy database.

2. Tenant selection checklist

The easiest approach to rapidly scan and discover tenants who are a good fit is with a tenant selection checklist, which is also how property managers locate you, good tenants. You can contrast your findings with your checklist once you've completed your background checks.

The following should be your main standards:

1. Rent should be 30% more than the tenant's weekly wage.
2. If the renter has a history of renting, the references and previous landlords have nothing but good things to say.
3. When it comes to the tenant's credit score, everything is in the clear.
4. Your correspondence and interactions with tenants during open houses are cordial and nice. It will give you a clue as to how they will interact with you throughout the tenancy.

Every applicant won't have excellent credit or a high income, and frequently there are good reasons for this. However, it should raise concerns if a tenant is secretive about their money or rental history.

It's a good idea to ask the applicant about any worries you may have. Allowing them to tell their side of the story will reveal how responsible most applicants are.

Although this list shouldn't be taken as gospel, it should be utilised to aid in selecting a tenant. In an ideal world, you want someone to complete all the requirements.

The tenant selection checklist's ultimate goal is to make the choosing process more transparent and impartial.

So, when should you stop looking for tenants and settle?

Knowing when to accept the tenant you have and when to keep looking for a better one can be difficult. After all, making the incorrect decision could significantly harm your bottom line, but you also don't want to have a rental property empty for an extended period of time.

You may have to pay as much as $1,750 per month for a long-term vacancy.

Your choice of tenant should be based on your financial objectives, preparation, and resources.

If you want to choose a tenant as soon as possible, bear the following in mind:

• You'll soon find yourself searching for new tenants if the short-listed applicant is simply seeking for a short-term rental. Short-term rentals should be avoided at all costs.
• While it's not always possible to guarantee that a tenant will be completely fit, if you rent your property to someone who just fulfils the absolute minimal requirements, you put yourself at risk for issues later on, such as a sudden breach of the rental agreement or having to collect unpaid rent.
• By making improvements to your rental property and doing preventive maintenance, you may make the most of vacant periods. Give the walls a fresh coat of paint if you have the time; good property investors will see it as an opportunity to raise the value of their investment property.

It may be time to compromise for the finest alternative you have if you're under a lot of stress and the vacancy is taking a lot longer than the typical duration a house is on the market.

You run the danger of putting your future at risk if you rent to a renter who only meets the absolute minimum requirements. If you choose to do this, be sure to have a strong rental agreement and landlord insurance.

If you're thinking about choosing a tenant, this is the very minimum standard they should meet:

• The tenant has a history of making timely rent payments.
• Through your interaction with the tenant, you get the impression that they are trustworthy and reasonable.
• The tenant has cleared the background checks or provided an explanation for why they didn't meet all of your requirements for selecting tenants (like a poor credit score).

Consider continuing your search if your applications don't exactly fit the tenant selection requirements. If they do, you can approve a rental agreement with that applicant, but there is a risk involved. If you decide to, make sure you have landlord insurance and use our new tenant checklist to ensure you've done your homework.

A lack of qualified applicants may indicate that you've mispriced your rental property, it's also important to note. To evaluate if lowering the rate could address your issue with low-quality applicants, we advise reading our guidance on when to drop the rent on your rental property advertisement.

Renting to tenants with a bad credit score

If you find yourself in a bind, you might be considering whether it's worthwhile to rent to a tenant who has a low credit score. Banks do offer loans to people with bad credit, despite the fact that it can seem like something you should never do. You can use some of the same safety precautions to reduce the danger of your decision.

Even while tenants with poor credit aren't the best, it doesn't always follow that they won't be able to make their rent payments on time if an applicant has an otherwise stellar record but a low credit score.

Even reasonable people are susceptible to extenuating circumstances and financial blunders that might damage their credit.

However, what should you do if a tenant has a strong application but a poor credit rating?

1. Talk to the applicant

Have a sincere discussion regarding your tenant's poor credit rating. Because of circumstances beyond their control, good individuals frequently find themselves in unpleasant circumstances. For instance, you might learn that they lost their jobs as a result of the epidemic or that they had to pay urgent medical bills.

If their justification makes sense, the credit score is probably an anomaly in their strong overall application, which ought to make you feel more at ease about renting to them.

2. Follow up with their references

Asking for at least one reference is highly recommended when dealing with tenants with poor credit.

Inquire about the applicant's prior behaviour and whether they have ever been late on a rent payment by contacting their references.

Even if they only offer to sign up the tenant and laud them, you should still give renting a shot.

3. Add a cosigner to the rental agreement

When considering renting to tenants with poor credit, you can feel more secure by having a cosigner.

A tenant's friend or relative may serve as the cosigner or guarantor. Cosigning a lease guarantees that, in the event that your tenant is unable to pay rent, the cosigner will do so.

Run the same kind of thorough background checks on the guarantor if your tenant is ready to cosign the rent agreement so that you can be sure they are trustworthy and able to pay the rent if necessary.

4. Sign the tenant with bad credit for a shorter period

Consider renting to your best applicant on a temporary basis if you are concerned about the danger linked with them having bad credit.

Even while this is not ideal, if maintaining a steady income is a top priority for you, it can end up being preferable to having to keep your property empty while you hunt for new renters.

Say you agree to a 3-month lease with them, with the possibility of an extension if all goes well. Then, if they don't consistently pay their rent on time, you have options, and if they turn out to be a terrific tenant, you have a chance to keep them.

It's not as terrifying as it might appear to rent to people who have poor credit. There are several steps you can take to make the decision less dangerous, so it would assist if you didn't automatically assume that a tenant with prior mistakes is irresponsible or unruly.

One of the trickier parts of managing a rental property is finding suitable tenants and knowing when to stop seeking. The process of choosing a tenant can be made much simpler by hiring a property manager.

The final say in the matter always belongs to you, but a skilled property manager will make the lease process simple for you by conducting the required background checks and getting to know the applicants. Additionally, they have access to the most substantial applicant pools on realestate.com.au and Domain.com.au.

If you want to learn more about leasing with a property manager, see our article on how good property managers can help you discover decent tenants.

Hold or fold? When Should You Lower the Rent on Your Property Ad?

Rent reduction: whether or not to make it happen. The query is that. Reduce the rent you wish to charge for a property that is on the market if you have a vacancy for a while and aren't getting consistent rental applications.

It's a straightforward strategy, but if used properly, it can have a significant positive financial impact over time.

If it helps you locate a tenant just one week faster, cutting your rent by, say, $30 will put you in the black financially. There is always a chance that you could have earned more throughout the course of the year, but you have minimised your risk and early secured reliable income.

However, you also don't want to cut your prices if you don't have to. So when should you fight the good fight and when should you give up?

This article explains precisely what to look for and when you should consider cutting the rent to help remove the guesswork. In order to maximise the earnings on your investment property, we'll also explain how much rent reduction requests should cost and how to handle them.

When is it OK to lower the rent on a property that is for sale?

Numbers are reliable. Because of this, you can be confident that lowering the rent will almost always be more financially advantageous than experiencing a prolonged vacancy. It enables you to reduce your risks and find a reliable source of income as soon as possible.

If you could think about lowering the rent in the following scenarios:

• Comparable listings offer the same price with extras for the same price or a lower price with the same additions.
• I will be without a tenant for a few months.
• Receiving on average fewer than two applications every day.

1. When maintaining the competitiveness of your rental property

The single most important thing you can take away from this book is to make sure that the rental property you own complements the other possibilities available in your market.

Let's say that your home's rental price is $500, but the surrounding homes that are equivalent only rent for $450 per month. It's a safe assumption to assume that prospective tenants looking through rental ads would glance at that comparison, consider it for a moment, and then decide against considering your property as an option.

Or, let's say that the following characteristics can be found in surrounding rental homes:

• Built-in wardrobes
• Air conditioning
• Internal laundry
• Parking

Your home is missing every one of these features, which have recently been introduced in rental properties in the neighbourhood.

Put yourself in the shoes of a tenant who is looking for a place to rent online, and think about how they may evaluate all of their possibilities, including your rental property.

If you want to fill your rental units, lowering the rent should be your main priority, with the exception of making any necessary upgrades. In order to maintain your position in the competitive market, you need to connect it with the other options that are available.

2. When a rental property is too long empty

Consider the length of time that your home has been on the market as an alternative method for assessing whether or not lowering your rent is the most prudent line of action.

But exactly how long is considered to be too lengthy?

If your rental property is starting to sit on the market for a much longer period of time than it should, lowering the rent may be the best course of action that you can do.

For instance, recent data taken from the Domain database reveals that the average number of days a rental home spends on the market in Sydney has increased by 15%, from 43 to 50.

Let's say you have a rental property in Sydney that has been posted online for more than 60 or even 45 days, but you haven't gotten any qualified applicants to apply for the position.

Both of these situations are clear indications that you need to cut the rent that you are asking for the rental property that you have marketed.

3. When you don't have enough applications for rentals

If you are receiving a low number of applications for your investment property as a baseline, it is possible that you have set the rent at an inappropriate amount. The vast majority of prospective tenants ought to initiate the application process within the first few weeks of your property being listed for rent on the market.

The submission of two to five applications each day on average demonstrates a fair level of interest in the position.

Keep in mind that the lack of effect exerted by your investment property could be the result of a number of other factors that are also at play.

Have you made an investment in photography from a professional?

• Does your listing do a great job of emphasising the rental's features and setting?
• Do you offer the improvements that tenants want?

It's likely that making an investment in high-quality images for your rental property might give it the boost it needs, or that the description could use some revisions. Both of these options are worth considering.

The most important thing to take away from this is that you need to pay attention to a range of variables whenever you investigate other options that are presented to you on the market.

If you have no interest in renting out the property, despite the fact that it satisfies the criteria for standing out in the market, consider lowering the rent that is being asked for it.

Read our article on how to make your rental property stand out to get a better understanding of how you can ensure that your investment property is competitive with other options that tenants may consider. This will help you gain a better understanding of how you can ensure that your investment property is competitive with other options that tenants may consider.

How much should the rent on your rental property be lowered?

Unfortuitously, this problem does not have a single, all-encompassing answer. It is contingent on the particulars of your financial condition, such as the manner in which you make loan repayments, the investments you pursue, the flow of cash, and any other relevant elements.

Let's imagine that some of the properties in the neighbourhood have lately undergone improvements that have resulted in an increase in their value. In that case, you might want to consider lowering your rent to reflect the increased value that those other properties have achieved as a result of the repairs and extras they have received.

An overall summary is as follows:

• A built-in robe can add $5-10/week
• Air conditioning can add $10-20/week
• Internal laundry can add $10/week
• Parking can add $30-$60/week

You won't just have to make a list of the many amenities and features; you'll also have to conduct some experiments to determine how much of a discount you should apply to the rent.

If you are having problems finding potential tenants, you might want to consider dropping the rent by $30 and seeing if that helps. If that's the case, that's fantastic news! In such case, you could consider bringing it down by an additional $30.

It is permissible to overshoot the target. It indicates that you already have a tenant that is paying rent on time and that you have the option to change that tenant when you start looking again.

Bear in mind that pricing yourself out of the market and generating no money at all in the long run is a far more better outcome than making a little less money each week. This is something that you should keep in mind.

If you want a personalised response, however, it is best to seek the advice and assistance of a property lease manager who is an experienced professional.

A professional property manager would typically have experience working with hundreds of different rental properties throughout the course of their career.

They will be able to evaluate the drawbacks of your rental or your marketing, and they will be able to aid you in drawing a suitable number of applications that are in line with your financial goals.

How to handle a request for a rent decrease

The request of a tenant for a rent decrease is just one of the many rental hurdles that you can encounter during the course of your investment in real estate.

In the same vein as the other scenarios, it is possible that it would be desirable to have a somewhat lower rent rather than a vacant home that does not generate any money. But how exactly should you go about reducing the rent in a way that is fair to the tenant as well as to yourself?

When deciding whether or not to provide a rent decrease to a tenant, the following are some important considerations to keep in mind:

1. Keep all talks in good faith. On this, The Tenant's Union NSW has very specific rules.
2. You and your renter always have the option to file a complaint with Fair Trading if attempts to negotiate a rent decrease fall short. They'll serve as a middleman in an effort to reach a win-win solution.
3. The rent reduction must be supported by facts and data. The tenant needs to let the landlord know that there are adjacent rentals with comparable amenities available for less money.
4. Verify the tenant's claim that they need a rent reduction because of their financial situation. Of course, not everybody wishes to disclose their financial records. It's great and simple to gather something like a signed letter from their former employer who fired them.
5. Later, you can raise it: Even if you do decide to lower the rent, it need not stay there indefinitely. In NSW, the rent can go up once every 12 months. You can adjust the rent to be more in line with market trends as long as the economy is doing well.

When it comes to dealing with rental reductions, whether while your rental property is on the market or during a tenancy, the conventional wisdom is that it will almost always be worthwhile to take a small hit now to mitigate a vacancy. This is true whether you are dealing with rental reductions while your rental property is on the market or during a tenancy.