In conversations with owners new to property investment, and with people who have chosen never to invest in property, we often hear this sentence: "What if the tenants trash the place?".
The feeling of apprehension and nervousness is understandable. No one wants to risk having something of value handed over to someone who will cause damage and disappointment. However, while the feeling is understandable, it is usually not justified.
Most people choose to drive a car even though there is a small risk someone may run into them. However, many people consciously avoid owning a rental property because of the perceived risk (which is small and largely avoidable!) and fear that it will get "trashed".
Here's a reality check. In over a decade of managing hundreds of rental properties, a number of which were moved to our agency with existing tenants in place, we could count on one hand the number of properties which had suffered significant damage at the hands of a tenant.
How To Avoid Having A Tenant Trash Your Rental Property
1. Good Tenant Selection
Without doubt, first and foremost comes tenant selection. Poor tenant selection in the first instance will increase the chance of a negative experience. In the few cases we have seen tenants damage a property through neglect or malicious activity, they have been tenants we inherited from a previous agency - not tenants we actually screened, recommended and chose ourselves.
There are some basic activities a quality property management company will go through to ensure an excellent and low-risk applicant is chosen in the first instance, minimising the likelihood of a negative experience. These activities include:
2. Reference Checking
As mentioned above, most agencies will request a rental reference from a tenant's previous agency. We know from experience though that many agencies do not complete rental reference checks!
How do we know this? On many occasions we have had tenants give notice that they are moving out of the property we manage as they have been approved for another rental. Even though they were approved for another property, their new agent didn't contact us to ask some basic questions before they were offered a lease e.g. Do they pay the rent on time? Do they keep the property clean and tidy? Have they ever been issued a breach or termination notice? Would you rent to them again? etc.
Failing to ask these questions up front is setting everyone up for a fall.
3. Regular Routine Inspections
Even the best tenant selection will need to be followed up with regular routine inspections. People's lives can change. No one plans on breaking up with their co-tenant, losing their job, or suffering some other significant event which could impact their focus on maintaining a quality tenancy.
We complete a full inspection of every property we manage within the first 60 days of tenancy. This is supported by a written report including comprehensive photos for the peace of mind of the owner. We then inspect the property approximately every 6 months after that.
Without regularly attending and reporting on the state of a tenant and the property, the risk of something going wrong increases.
You Need A Safety Net. What If Your Tenant Does Cause Damage?
We've established just some of the measures taken by a quality property manager to minimise the risk of bad tenancy. But this is not enough. You need a safety net.
1. Rental Bond
A claim on the rental bond is the first means of recourse if something goes wrong during or at the end of a tenancy. In NSW, a bond of up to 4 weeks rent can be held and claimed from in the event of a tenant breaking the terms of their lease, including causing damage, unsatisfactory cleaning, non-payment or rent, and much more.
We have met landlords who have placed family members or other close friends in their home and not requested a bond payment. Sometimes this has worked out without issue, but not always.
Our process is to always require the full 4 weeks bond at the commencement of every tenancy.
2. Landlord Insurance
Just as you wouldn't drive your car uninsured, you should never own an investment property without an active landlord insurance policy in place.
The reason for this is that not everything is in the property owner's control, the property manager's control, or the tenant's control - and things can go wrong in ways which can impact your rental income.
According to landlord insurance provider Terri Scheer and various other sources such as domain.com.au and canstar.com.au, the most common landlord insurance claims are for:
In summary, landlord insurance is an excellent and essential safe guard.
3. Working With A Professional, Experienced Property Manager
Of course, engaging a quality, experienced, professional property manager will go a long way in guiding both the owner and tenant, and minimising risk to your investment and your financial well-being. Good decision making in the beginning and throughout a tenancy is invaluable.
You also need to know you have someone on your side who knows the legislation and correct procedures should a tenant's lease need to be terminated. This includes knowing when and how to formally end a tenancy, the steps to take if the tenant does not leave as required, right through to the lawful removal of rubbish and possessions left behind at a property.
But remember, this is the extreme and very unlikely end of the property management spectrum! The majority of property investors we have come to know enjoy a largely trouble-free means of investment growth, with quality tenants in place.
We trust we have provided some comfort to those of you who may be nervous about renting out an investment property. The A Current Affair style "nightmare" stories you may hear about truly are few and far between, and should not hold you back from making a potentially very rewarding property investment decision!
Carnelian Property Management Newcastle NSW
We are a family-owned and run Newcastle real estate agent offering expert property management across Newcastle and Lake Macquarie.