Quick guide to selecting the right tenant
BUYING an investment property and renting it out can be a mutually beneficial arrangement for both the landlord and tenant, provided the owner of the property adheres to a few key principles when selecting a suitable tenant.
This is according to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who says due to South African legislation, selecting the right tenant can be a rather complex process.
However, there are several methods that landlords can use to ensure that they are protected from the risk of delinquent tenants and choose the best possible tenant to occupy their property.
Goslett says the initial step that landlords should take before they advertise the rental property is determining the conditions of the rental agreement. He says landlords should be specific about what they want with regards to the conditions within the agreement, dealing with issues such as pets and whether or not the tenant is a smoker.
It is essential for the landlords to stipulate in their advertisement that each tenant will be vetted before any rental agreement is entered into, he says. This will have a significant impact on the number of potential tenants who decide to view the property, narrowing the selection down to only those who meet the landlord’s criteria.
Landlords can narrow down the selection further by requesting that each potential tenant fills out a detailed application form when applying. The application form should request the tenant’s personal information such as their employment details and contactable references.
Tenants can also be asked to provide supporting documents, which would include a copy of their identity document and a salary slip to verify employment and affordability.
According to Goslett, once the landlord has received an application form with the attached supporting documents, they will be able to proceed with a credit check and criminal record check. He says during this stage of the vetting process, the references provided by the tenant should be contacted and verified.
Once the vetting process has been completed and a suitable tenant has been selected, it is imperative that a comprehensive and legally-sound lease agreement is drawn up, which stipu- lates all necessary conditions in detail.
The terms of the agreement must be agreed upon and signed by both parties. To avoid any confusion or uncertainty regarding each party’s obligations, the lease agreement should be as detailed as possible.
The agreement should include a pre-occupation inspection report to be concluded with the tenant present, along with details regarding aspects such as the deposit, rental amount, maintenance and upkeep.
Time frames should be allocated to the required clauses as well as penalties, should any condition be breached, he says.
Even though a lease agreement has been signed, the property still remains the landlord’s responsibility. Goslett says if at any stage of the tenancy, a utility bill is not paid, the landlord will ultimately be required to settle the outstanding balance.
Ideally, he says landlords should be aware of what is happening with their property and ensure that all accounts are paid and up-to-date. Golsett says certain measures can be taken to minimise the risk posed by a defaulting tenant, such as prepaid electricity and water meters, for example.
If this is not an option, a deposit for these accounts can be agreed upon beforehand.
While landlords need to be respectful of the tenant’s rights and their privacy, it is advisable that home inspections are conducted on a regular basis. The inspections must be at the tenant’s convenience, ensuring that any issues or breaches in the contract are dealt with as soon as possible.
“If problems are left, they will cost a lot more to rectify further down the line.
“For example, if a late or nonpayment is not addressed immediately, within a short space of time, the tenant could be a few months behind and incurring further utility costs.”
Aside from the escalating costs, legal action may need to be taken in order to get the tenant removed from the property, which will also be a costly and time-consuming exercise, he says.
According to Goslett, a professional rental agent is a good option for landlords who don’t have the time to manage their rental portfolio.
For a percentage of the rental income, an experienced, reputa- ble rental management agent will have the expertise and resources to ensure that the property is managed in the correct manner.
He says a professional management agent will assist the landlord with tenant selection, reference and credit checks along with the day-to-day management of the property. They will also be up-to-date with the latest legal and regulatory developments to protect landlords and tenants, he says.
Rental agents will have procedures and systems in place to professionally avoid any potential problems and deal with any disputes that may arise. If necessary, they will also have access to the legal resources and experience to deal with any situation efficiently, he says.
If a property rental is handled in the correct way from the start, with ongoing professional management, many unnecessary and unpleasant situations can be avoided. Goslett says taking the right measures from day one could mean the difference between a landlord in trouble and one whose buy-to-let portfolio is producing a regular income and growing in capital value.