Investing in property is not a set and forget venture, as much as some property investment gurus might want you to think it is. It is not intensely time consuming though, especially if you have a property manager looking after your property, but there are some decisions that deserve your attention. Tenant selection is one of them.
Work with your property manager during tenant selection. We will show you how.
The tenant selection process
A respectable property management company has processes, procedures and tools in place to help their managers identify good prospective tenants. A good tenant is ultimately measured by their ability to pay the rent on time and take care of your property well.
While attending open inspections, property managers will meet prospective tenants, collect applications and check prospective tenants’ rental, employment and personal references. If a prospective tenant has had a stable job and a good long rental history, they are a good candidate.
After a property manager or leasing manager has finalised the selection, it is common for them to present the final applicant’s details to the owner for a final approval. Some will present two candidates for the owner to select one of them, other companies choose to present only the best applicant. This can vary with the number of applications received and the quality of applicants. Ask your manager how they will present the final selection early in the process to avoid disappointments.
What the law says about it
As a landlord, you must be aware of anti-discrimination laws in Australia. The Real Estate Institute of Australia provides a guideline to the requirements that can be addressed when selecting a tenant:
- The number of people suitable to reside in the property
- The tenant's ability to prove that they have and can maintain the weekly rent
- The tenant's ability to prove that they have and can maintain a rental property in a clean and tidy condition
Stereotyping is a way to mistakenly oversimplify the process. A stereotype is a widely held but fixed and generalised image or idea of a person or group of people. It is simply not true that an executive couple will always be tidier or look after your property better than a family with 3 kids. Stability and past rental references can tell you more about a person’s ability to stay as a long-term tenant and look after your property.
Leave emotions out
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One of the advantages of hiring a property manager is emotional detachment. An effective property management company is in the business of managing an investment, focusing on cashflow, income and expenses.
Your manager will wear many hats: an investment manager, a conflict resolution party and personal adviser. They will analyse your prospective tenants aiming to maximising income and minimise expenses. Work with your manager to understand their selection process. You are paying them to provide you a service. Listen to their expert advice.
The structure of the PM company you have hired
Property Management agencies vary on how they structure their functions. If you want to make sure that the person who selected your tenant will be the same that will look after their tenancy day in and day out, you should choose an agency which does not have a Leasing only department.
The Leasing Department’s responsibilities are to show the properties, collect applications, process them and pick a suitable tenant. After that, the day-to-day management of the property goes to a Property Manager.
You probably can see the conflict of interests that arise from this structure. As the Leasing Manager’s only job is to lease properties, they will probably be measured on that outcome, what can lead, sometimes, to less than perfect tenants being selected.
In a lease and manage structure, the same person who selects the tenant is responsible for their management in the long run. It is likely that they will be somewhat more careful with their selection to avoid giving themselves headaches in the future.
There are pros and cons of each structure. Some might argue that a Leasing Department will speed things up and reduce vacancy periods. Check with your agency to find out how they structure their functions. Adelaide Residential Rentals has had both structures in the past. We feel that we can provide better service if the manager who chooses the tenant is the same who will look after the tenancy afterwards.
Experience of the PM managing your property
Experienced property managers will have the advantage of going through the leasing process hundreds if not thousands of times. They know to look for facts on applications and can usually recognise warning signs when they see prospective tenants during their open inspections.
Finding a good tenant is a balance of science and art. A property manager with many years’ experience is worth the investment.
Can I say “No”?
Yes, you can. As the owner of the property you will have the final say on who gets to live on your property. However, be aware of the costs creeping up as your property sits vacant. If you already decided that paying for the services of a property management company is a good investment, take their advice seriously when they present the new tenant to you.
Confirm that your property manager has completed rental and tenants’ databases checks and the tenant has a comfortable income to rent ratio. You can always ask for more details if you feel they are necessary for you to make an informed decision. However, be aware that it is likely that tenants looking for a property have applied for more than one and you may miss out on that elusive perfect tenant.
The approval process should be thorough but swift to avoid prolonged vacancy periods. If your manager has found a good tenant to present to you, do your best to help the process to progress as fast as possible.
The reason most people invest in real estate is to provide a stable income in the future for you and your family. Investing in real estate is a long process. Maybe decades long. Work closely with your property manager during the selection period. You will worry less about your new tenant selection if you understand the reason your property manager chose an applicant over another. Good managers will offer this information anyway, without being asked.
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