The importance of good tenant selection

Recently I found myself thrown back into the rat race that is the Sydney rental market – as a hopeful renter. While I am an investor myself, I am actually not an owner-occupier at the moment, choosing instead to rent with a friend to both save on costs enjoy a change of scenery. But due to personal and work-related reasons, I'm looking to relocate to the other side of Sydney. So, I've once again found myself at mercy of leasing estate agents. And aren't they a tough lot! 

But this time around I bring with me a different perspective, one that has prompted me to write today to would-be and active investors out there, on the importance of tenancy selection. Both I and my flatmate-to-be are in our late 20s/early 30s and have long-term employment with decent salaries. We each have assets and a flawless rental tenancy history. We applied for a number of properties using as many tactics as possible, including the usual offering more money, providing more I.D, rental ledger and references, etc. than required in our application process. Where possible we also had our applications pre-completed, so upon favourable viewing we were able to submit them on the spot. 

For most of these rental applications, we weren't successful. Once we got over the usual “Why didn't they accept us – we're perfect tenants!” emotions, we did end up sourcing a place to live. 

However, the process made me reflect upon my own tenant selection experiences. Sure, as an investor you've likely taken out insurance to protect against tenant property abuse and loss of rental revenue, but finding good tenants offers so much more to an investor than just this. The “right” tenant will be longer term (ideally you'll get a good two or three years), saving you money on vacancy periods, stress and time wastage of finding new tenants, and above all, peace of mind. 

So I thought to myself, why not interview some of the agents who'd rejected our application in favour of others, to see what insights I can gain on the perception of what makes a “good tenant” by landlords in the Australian market? And what did I find? Some surprising things, some not so surprising. As a landlord myself, it came as no surprise to hear the agent say “Even though you offered $20 more per week in rent, the owner selected other tenants”. This is a strategy I encourage to all investors. If your leasing estate agent is worth his salt, after the open home, hi will have received a solid volume of applications, some of which will offer more money per week. Never let this be the defining factor to tenant selection. 

Instead, you should be looking for other things. Stability and longevity of income/revenue stream provides you the security and stability that the tenant won't skip town, leaving you months behind in mortgage repayments. This is important yes, but honestly, insurance can protect you for that. What insurance isn't so great at protecting against is vacancy. Treat vacancy like the plague – it is effectively “bad debt”. So look for applicants who stack up but also request longer-term leases, and applicants who have been in a previous rental for at least two years and a job for at least four. 

So, initial disappointment for me paved the way to logic and then self-assessment/reflection. Experiences you have “on the other side” of property investment can influence you and bring new perspectives. And that is something we can all take note of.

Cameron McEvoy is a property investor and maintains a blog, Property Spectator.