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Title: A Landlord's Most Important Decision Is?

Author: Steve Norton

Article:
The most important decision any landlord makes is deciding who
can live in their property. Who will you, as the owner, allow to
live in your investment? This decision is so vital to the
profitability of any property investment business and affects
the business on so many levels that it's amazing that some
landlord don't have a formalised procedure to protect themselves
from making bad decision.

Let's think about what we're actually doing when we rent a
property. Instead of thinking of the property as a monthly
income generator think of it as a pile of cash. Cash you have
tied up in the deposit and purchasing costs. Cash you hope to
gain a regular income from through renting and more cash that
you'll receive if you sell the property and realise your capital
gains. (Assuming house prices have risen since you purchased).
If you include in this the value you place on your time spend
finding the property, buying and arranging the rental then we
have a very serious investment on our hands indeed.

Now, imagine all that money in real, tangible terms, stacked up
in a room in the house and then consider we hand over the keys
to someone and say, "See you next year". Now we can begin to see
how important it is to select the right tenant. Of course, I'm
being dramatic and we do have legal safe guards but I hope that
by considering your investment in terms of hard cash (like a
professional investor) then you'll treat the question of
occupancy very seriously. 

There's more to it than just financials. Not only are we
trusting the tenant to look after our investment but we're also
investing our free time with them. What do I mean? If we are
managing the property ourselves and not using a letting agent
then we have made a serious commitment in time to look after
that tenant. If you have a tenant who does not appreciate your
property or does not treat it with care and respect then you run
the risk of losing your evening and weekends in maintenance and
management tasks. What about rent collection? An unreliable
tenant who does not pay on time creates stress and worry. Legal
protection lets us all sleep better at night but the
practicalities of recouping money and legal costs are a headache
we do not need and one that's very avoidable.

Once we know how seriously we need to take the task of finding
the correct tenant we can start looking for the very best
people. In this case 'best' has two simple criteria. 1) They pay
on time and in full 2) They look after the property as if it
were their own. 

I'm going to discuss three tools we can use to help find good
tenants. The first is a long and very comprehensive application
form. I ask for as much detail as possible from the tenant. I
need all their contact details, ID, proof of current address
such as telephone or electric bills, previous addresses and,
perhaps most importantly, references from their employer,
previous landlord (if they're moving out of home I'll ask for
their parents' contact details) and a character reference from a
recognised member of the community such as a Doctor or Teacher.
Importantly, I always act on these references. I will check with
whomever they have given to make sure the details are correct
and they can vouch for the applicant. 

Secondly, I ask for a larger deposit than the usual 4 weeks
rent. Typically I ask for 6 weeks rent (UK law give the tenant
an automatic option to sublet if the deposit is too excessive,
say more than 8 weeks rent). Paying more upfront is usually a
good sign that they are serious.

Finally, I have to feel comfortable about the people. If I can
get along with them when the property is viewed and when we talk
on the telephone and if I don't have any intuitive alarm bells
going off then I trust my own judgement.

At this point you might be wondering about a credit check? Yes
this is a great tool depending on the affluence of your
potential tenants. Some of my properties are let to people on
social security benefits, many of whom I've had to help set up a
bank account even. In these cases a credit check would not be
beneficial but for better off tenants it can be a worth while
exercise.

Once we know how to approach the subject of finding great
tenants we can consider why people make poor letting decisions.
In my experience the worst decisions about tenants are made in
pressure situations. An empty property is very damaging to the
bottom line of a landlord. If a property is unoccupied it's very
tempting to let the first person who comes along have the
tenancy. I know, I've made the mistake myself (several times I'm
reluctant to admit). This situation is exacerbated if you find
your property is not in demand. If you only get one phone call
from your advert in the local paper then you're putting pressure
on yourself and your business. 

Therefore, the best way to make a good decision is to have a lot
of people to choose from. Creating a big list of possible
tenants comes from good advertising with good descriptions of
you property and its selling points, realistic pricing (even
undercutting competition in a renter market) and building a
solid reputation as a landlord.

About the author:
Steve Norton is a landlord with 9 years of experience and owns
properties in the UK and Australia. With a clear focus on making
the landlord's life as easy as possible while maximising profit
more of Steve's insider tips on landlording can be found at <a
href="http://www.property-management-secrets.co.uk/">
http://www.property-management-secrets.co.uk/</a> 

 

 

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