Are You Searching for the Right Tenant? You have taken the plunge and invested in your first buy-to-let property. You have researched the best location for your investment and secured a good price on the property. You feel energized and excited as you embark on this new and rewarding future. Now you are looking to become a landlord to generate the passive income that you have planned for, which means finding good, reliable tenants. For your investment strategy to have any success, tenant demand will play a decisive role.
The key to finding the ideal renter for your property is finding someone who can cover their payments on time as well as take good care of it. Finding this type of tenant may seem difficult, but what should you be on the lookout for while searching for this ideal tenant?
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Careful consideration of any prospective tenant’s income is a good start in evaluating a suitable tenant. The figure that most agents and landlords aim for is about thirty times the monthly rent. For example, if the rent is £800, then you should look for at least £24,000 in income. This should ensure the tenant has plenty of breathing financial breathing space with their finances.
Evidence of income is easily obtained, and when it comes to the self-employed, you can ascertain the income over a prolonged period by asking for tax returns or bank statements.
Although not a guarantee, by making sure that tenants will be able to comfortably afford their monthly rent, you will be in a much better position to avoid any issues with payments down the line. But of course, it’s likely that you will have to consider tenants with lower incomes that don’t reach the level of expectation you are looking for. For these prospective tenants, you can still minimise the risk of payment issues by providing guarantors for them. For students, say, this will typically be a parent.
Although it’s true that landlord insurance will cover any potential unpaid rental income due, considering the tenant’s job and income level goes a long way in making the letting process simpler and headache free.
Interview prospective tenants
Starting out with clear and effective communication with your tenants is a good idea. It opens doors and allows the free flow of information. As you will know from daily living, getting on with people helps massively with getting things done with their cooperation. The tenant interview is thus an important way for landlords to gain a first impression and to kick-start friendly dialogue.
With friendly chatting with the tenant, you will be much better able to gauge their personality and trustworthiness. The more you do it, the better at judging people you will become.
Moreover, you will be able to better evaluate whether they will take good care of your property while renting it. This is particularly important for landlords that will be unable to carry out in-person checks on the property, such as overseas investors or those who live far from the property. Scheduling regular video call meetings is one way you can gauge how things are going. Working with letting agents is another way to achieve better monitoring, though it will eat into profits.
The interview affords a good opportunity to assess whether the tenant is interested in maintaining the property to high standards. One way of doing this is by encouraging them to report any issues, such as repairs needed, and observing if they react positively to this request. This way, you get an idea if they will likely maintain their living space and help protect your investment.
According to Jamie Johnson, CEO of FJP Investment, “Tenant references are just as important to landlords as income level and interviews. They are an effective way to ascertain if the tenant has been truthful with what they have told you. ” Indeed, “If a tenant has been reliable and truthful in what they’ve told you”, said Jamie Johnson, “they are more likely to be reliable tenants.”
References from employers or previous landlords will open a window into what you are likely to expect from the tenant. Previous landlord references can show their history of renting, and employer references can elucidate things like responsibility or reliability. If the tenant was punctual, responsible, and reliable at work, for example, it’s a good indication they will be responsible for paying their rent when it is due.
A landlord entails many responsibilities, and the more properties you have, the greater they will become and take up your time. Employing a property management service is one-way landlords can offload their responsibilities, including sourcing reliable and trustworthy tenants.
These management services do come at a cost and will eat into rental income profits. On the flip side, however, they are very helpful at sourcing tenants, arranging contracts, conducting repairs, dealing with complaints and regular property inspection visits. Depending on your investment strategy, using management services is one way to help manage your investment portfolio.
Contracts are a vital part of the tenancy process and should be done with care. After finding and selecting the tenant you want, you will also want to make sure that you are thoroughly briefed on what the contract contains and, moreover, what you want to have in your specific contract.
Deciding what type of tenancy, you want is important. There are a few different types to familiarise yourself with, but typically you may want an Assured Shorthold tenancy as the preferred choice. If you are renting a private home that you do not reside in and are looking for a full-time tenant, the lease will most likely be an Assured Shorthold tenancy.
Getting the right tenant for your buy-to-let investment will reduce the likelihood of later issues. Having your property empty will have detrimental effects on your investment portfolio strategy, so getting it right from the start, by finding the right tenant and keeping them onboard, is key to long-term success.