Finding a good tenant crucial to investing in Rent-to-Buy properties
Investors, says Tony Clarke, MD of Rawson Properties, are now climbing back into the buy-to-rent residential property market.

The danger in this type of investment, however, is that a non-paying tenant can wreck your returns.

“Finding a good tenant, therefore, is crucial to the whole buy-to-rent exercise,” said Clarke. “A bad tenant can not only destroy your income flow, he may well get you blacklisted with the Credit Bureau or with your bank because banks are now totally inflexible about bond repayments being right on time.”

(In this regard, he added, it is a wise idea to get your bank to agree to let you pay on the 8th or 9th of the month rather than at the month end. This will give you time to chase up your tenant at the end of the previous month.)

When looking at a possible tenant the trick, said Clarke, is to “try very hard to find a reason for not accepting him or her”.

“Probe into every aspect of their background, dig to get the facts, accept no statements on their face value.”

Many prospective tenants, said Clarke, will arrive at the landlord or agent’s offices with credit records that are apparently impeccable, but if one gets hold of their previous landlord it may well transpire that they have been problem payers.

“Landlords very seldom take legal action against a tenant even if he is a poor payer. As a result some ensure that their commercial credit records are clean while letting rental arrears accrue month after month.”

It is essential, he added, to check out not just with their last landlord but with all those from whom they have rented over the last four or five years.

In this checking out process, said Clarke, it is these days acceptable to ask some very personal questions. The applicant must, for example, be asked for written proof of income and bank statements for three or four months. He must also list all his expenses including his credit card owings – and the investigator should bear in mind that some people have two or three card accounts.

“Anyone borrowing close to his maximum level,” said Clarke, “should immediately be recognised as a high risk.”

Questions, he said, should also be asked about the applicants court convictions, if any, and whether he has been evicted from any previous accommodation or been summoned for debt.

“The applicant should also have no problem about allowing you to get in touch with his employer and, if he is a churchgoer, with the pastor of his church.

“If the tenant is not prepared to be open with you and to answer all your questions, drop him,” said Clarke. “It is far better to carry two or three months of non-rental returns on your property than to spend months battling with a non-paying tenant who may have to be evicted in the end.”

It is sad, but true, added Clarke, that people’s circumstances do change and that very often their characters change along with them. The loss of a job, the break up of a marriage or a partnership or the sudden incursion of death can all lead to people deciding to make the landlord their last payment and then only if and when they are again in funds.

For all these reasons, said Clarke, investigations into the prospective tenant’s past have to be very thorough indeed and have to infringe to an extent on the applicant’s privacy. However, he said, the effort of securing a really good tenant very definitely makes this difficult work worthwhile.

Article by: www.rawsonproperties.com