A step-by-step guide to securing tenants for your investment property: Leah Calnan

All your marketing has been a hit and you have received applications from prospective tenants. Depending on your personality this can be the fun part of property management, if you are a “people person”, or it can bring a great deal of angst as you try to select tenants you feel 100% certain will do the right thing throughout their tenancy.

My approach is to keep it simple but always be thorough.

Nowadays teenancy applications come through in one of the following formats. They are either on the agency’s tenancy application form or submitted electronically via a 1Form application.

1Form allows for tenants never to have to complete a paper tenancy application form again as it stores the tenant’s personal information, including proof of identification, for a small fee. This is a small step towards a property manager working in a paperless office (well, I can dream, can’t I?).

If you are employing the services of a property manager or agency, they will process the tenancy applications and check all the references and come to you with a shortlist of suitable applicants.

You need not be involved until it’s time to approve the tenant applications.

However, it’s important to have an understanding of this process.

The first thing you need to do is review the application forms and ensure that they have been 100% completed. Time and time again I see applications submitted for properties that are not complete. They are missing vital parts of the applicant’s personal or employment information or the identification paperwork has been forgotten.

Before you can start on anything you need to ensure the applicants have signed a privacy statement. Tenants should be aware that they have a right to their private information being kept confidential, and should expect to be asked to sign a privacy statement.

Proceeding with tenancy applications

The key to processing any tenancy application form is to find out what the story is. You need to confirm current employment and previous employment (if the current employment is less than two to three years). This includes confirming not only the salary package for your applicant, but the length of their employment and the terms of employment, i.e. are they employed on a full-time, part-time or casual basis? Are they currently on a probationary period because they have just commenced with that company? If so, how long is that period? How would the person providing the reference describe them? And finally, who is providing the reference? Employment should only be confirmed by a direct manager, HR department or team leader (not a workmate). You may be surprised to read that sometimes people are not totally honest on their application forms, so it’s up to you to piece together the story. Yes, it may take a little longer than you like, however it could save you time, expense and heartache in the long run.

The applicant’s current tenancy history and previous tenancy history must also be confirmed. It’s not sufficient to simply receive a copy of the tenant’s recent payment ledger. Nor is it enough to make a call to the agency and have the person answering the telephone say, “yeah they are great tenants, you won’t have a problem.” Again you need to have a thorough understanding of the applicant’s story.

Character references, while they generally only say nice things about a person, are useful in building all parts of your story. I would always ask a character referee, “If you had a rental property would you rent your property to the person?” If there is a pause or stumble, then maybe this applicant isn’t the most suitable tenant for your property.

It’s imperative you have an understanding of why the applicants are moving out of the current property.

• Do they own it and have they sold it?
• If so, did you speak to the selling agent?
• What were they like to deal with?
• How was the property presented?

In Western Australia, at the time of submitting the application form, some owners/property managers will ask a prospective tenant to pay an option fee. This shows that the tenant’s intentions are genuine. On the application form it will detail if all or part of the fee can be kept if the tenants decide not to go ahead with the tenancy. If the owner decides not to proceed with the tenancy, then they must return the fee to the tenant in full. If the tenant takes up the tenancy, then the fee is usually credited towards the first month’s rental payment.

Approving tenants 

If you have a property manager or agent managing your property, when they are satisfied with the processing of the tenancy applications they will present the applications to you (the owner) for consideration. If you’re managing your own property this is the time to review and compare the most promising applicants. Now, with everything, everyone likes things done differently.

Some agents will call you, or perhaps SMS or email a summary of the processed applications.

The summary may look a little like this:

Move in date/commencement date of tenancy:

Length of lease:

Rent per week:

Who/relationship (couple, friends, family, etc.):

Age(s):

Occupation(s):

Net weekly (combined) income:

Summary of rental history:

• Rent amount paid

• Length of occupancy

• Breach notices for late rent or damages

This is really a simple yet effective way of summarising an application. It’s also useful to keep, to refer back to if anyone suffers any memory loss after the tenants move into the property and no one can remember providing permission for the approved applicant to keep a pet at the property!

There are two popular databases used by property managers to completely put a landlord’s mind at rest. They are the National Tenancy Database (NTD) and TICA. The NTD is a tenant database exclusively for the use of estate agents. The system provides the searcher with access to over 1.5 million individual tenant records, both residential and commercial, provided by over 7,000 real estate agents throughout Australia.

The database also provides access for commercial agents to full Australian Commission records, company credit reference association files, court judgements, bankruptcies, etc. The National Tenancy Database also offers full debt recovery at no costs unless funds are recovered. Note: It does not include legal expenses.

Information available by checking prospective applicants on the database includes:

• Whether there are any unpaid orders from Victorian Civil and Administrative Tribunal (VCAT) (or similar state body), i.e. for unpaid rent, unpaid damages
• Records of tenants who have vacated properties and referrals back to previous managing agents where they still have an interest in the tenant
• Tenancy agreements broken by the tenant
• Dollar value of any damages to properties
• Current tenant notification, giving agent name and contact telephone number

TICA provides similar information. Often these databases are portrayed as tenant "black lists", however this is certainly not the case. The databases are used exclusively by agents with fees payable according to how many checks are carried out.

You should complete the tenancy database check at the final stage of processing the application, when all the previous checks have come up clean. If you find out earlier on in the process that the tenant has been consistently late with rent, there’s no need to pay to check these databases, as you will have already rejected this applicant.

So providing the tenancy database check is all clear, then it’s all systems go to congratulate the tenant.

Bond

In Victoria the approved tenant is required to pay the bond and first month’s rent to secure the property in their name. Payment may be made via EFT, dropping off cheques to the property manager’s/landlord’s office, depositing the monies directly into the agent’s trust account. The Bond Lodgement form must be completed and forwarded to the Residential Tenancies Bond Authority (RTBA) for lodging within 10 business days of receiving payment for the bond.

Ingoing condition report

Now before you go ahead and hand over the keys of the property to your winning applicant, you need to go through the property and complete the ingoing condition report. The condition report is a room-by-room document that should detail the condition of the property throughout – both inside and outside – and the overall presentation/cleanliness of the property.

The condition report should be thorough and include as much detail as possible. This is because not only will you use the same report at the conclusion of the tenancy agreement (to enable you to compare the property at the beginning of the tenancy and again at the end of the tenancy) but it may be required to be used as evidence at any tribunal hearing should a dispute arise.

Please take the time and prepare a detailed report. It should never be a five-minute inspection and ultimately it will save you in the long run and reduce the possibilities of unnecessary disputes.

A colleague recently told me it took her six hours to complete an ingoing teport on a property in Brighton where the rent was $3,000 per week.

Tenant sign up

I believe the tenant sign up is extremely important and it should be treated as such. It’s where the expectations are set as to how the tenancy is to run. Throughout my career I have seen many different methods of conducting the tenant sign up.

A tenant sign up needs to be an experience! It’s so important to take the time to thoroughly explain all the terms, conditions and clauses throughout the lease/tenancy agreement. While you as the property manager or owner may have been through this process many times before, has the person sitting across the table? Is this their first experience of renting? If you don’t take the time to explain to them and outline your expectations of them, then how are they ever going to know if they can or cannot do something?

It’s also not just about highlighting a few areas where the tenants need to sign. You have a duty to explain to them things such as:

• Even though they have signed a bond lodgement form, do they know where the monies are held or what happens at the end of their tenancy? Don’t forget to explain how they receive their bond monies back at the conclusion of their tenancy.
• Utilities – are the services included? If not, who has to arrange for their connection? The property manager/agent, the owner or tenant?
• What are the tenant’s responsibilities? Each state has an information booklet which must be provided to all tenants at the time of signing their initial Tenancy Agreement. The information booklet/flyer is called something different in each state:

Victoria: Renting Rights & Responsibilities

New South Wales: Fair Trading Fact Sheet – New Tenant Checklist

Queensland: Renting a house or unit in Queensland (Form 17a)

Western Australia: Renting a home in Western Australia – a tenant’s guide

South Australia: Consumer and Business Services – Information Brochure

Northern Territory: A Guide to Renting in the Northern Territory

Tasmania: The Rental Guide

ACT: The renting book

• Have they seen a condition report before? Perhaps not, particularly if they have never rented before, so take the time to walk them through the document. Explain to them that a condition rReport is a room-by-room document that details the condition and presentation of the property. The condition report is completed prior to the commencement of the tenancy agreement by the property manager/agent/ owner. It’s imperative that you outline what they are required to do with that document and what is the expected timeframe for the return of that document? What happens if that document is not returned? Are there consequences at the end of the tenancy agreement?
• Keys, remotes, swipe passes – how many are being handed over? Is there a key for all door locks, window locks, letterbox, side gates, etc? I would recommend making a photocopy of all the keys, remotes, etc. that you hand over to your tenant. This ensures you receive them all back at the end of the tenancy and it may reduce any additional costs between tenancies and avoid the outgoing tenant saying, “I never received a letterbox key,” or, “I only received one garage door remote”.
• Urgent maintenance –  what happens if the kitchen tap won’t turn off and it’s 9.30 on a Saturday night? Under most legislation, an after-hours contact number MUST be provided to tenants to ensure they can have matters such as these addressed. That contact number could be the owner’s, the property manager’s or the agent’s preferred registered and qualified tradesperson.
• Is the property within an owners’ corporation/body corporate/strata management set up? If so, you are required to provide tenants with a copy of the rules and regulations specific to that group of properties.
• If the property forms part of a high-rise apartment building, what is the process of moving in and out of the building? Often there are allocated times and days and they must be strictly adhered to. The lift may need to be booked specifically for your tenant’s move in or out and often this may include a heavy duty wall covering being installed to prevent any damage to the inside of the lift.

As you can see from the list above, there are many aspects that need to be covered in a tenant sign up so allow somewhere between 30 to 60 minutes to sit down with your tenant to run through everything. While signing all the paperwork probably won’t be one of the most exciting things they do in their life, it’s really up to you to make it a great experience.

Summary

One of the main challenges for self-managing property owners is the relationship with the tenants. You don’t need to be a friend to your tenants. In fact there’s no need to get to know them too well. Your rental property is there to provide you with the best financial return possible. That means you need to put the rent up sometimes, make sure you recoup for any damages and sadly even end tenancies that are not going smoothly. Putting a property manager in place to deal with all this can really make a difference to how well you sleep at night and how successful the return on your investment can be.

Many times I have spoken to property owners who have been quite upset that, despite being comfortable managing staff in their own business and dealing efficiently with people on a day-to-day basis, they had failed to manage their tenants successfully.

Leah Calnan is the director of Metro Property Management in Victoria and is the chairwoman of the REIV Property Management Chapter.

Leah is the author of Simple and Successful Property Management, published by Major Street. This is an excerpt.