Renting out your property is a major challenge for any investor. Finding the balance between responsible tenants and passive income can influence how your property is geared, how long you own it, and when you sell it. As a landlord, there are strict laws protecting your rights, as well as laws that protect the rights of the tenants. This makes the screening process for finding tenants paramount to your investment journey. So what can you ask applicants and how do you choose between them?
Jo Natoli, Principal and Licensee of Sydney-based property management firm The Rental Specialists told Your Investment Property Magazine that when assessing a tenancy application, there are two main criteria an application is assessed against:
- is the tenant capable of paying the rent (without any financial stress), and
- is the tenant capable of taking care of the property?
“Where these two criteria can't be properly established then the application would need to be seriously considered,” Ms Natoli said.
Who is an acceptable reference?
Ms Natoli said an acceptable reference is anyone who isn't related or personally connected to the applicant and anyone who can help the tenant establish their payment history, affordability, and ability to care for a property.
“Current and former property managers make excellent referees, and current and former employers also make excellent referees. Where an applicant is self-employed then their tax accountant and some of their creditors would make excellent referees,” she said.
“Most tenancy applications will request details of next of kin, or personal references, but they're less to do with obtaining references and more about being able to contact the applicant/tenant in the case of an emergency.
“Who doesn't make an acceptable referee is a friend of the applicants/tenants pretending to be the current or former landlord in a private rental situation giving a false stellar reference.”
CEO and Founder of The Room Xchange Ludwina Dautovic told Your Investment Property Magazine she always follows up on references of potential applicants.
“I follow up on all references provided,” Ms Dautovic said.
“I'm not satisfied if it's someone's parents or their best mate.
“I prefer employers, someone who has a standing reputation in their community who can vouch for the person's character and their previous landlord if they have one.”
When should you deny a rental applicant?
Ms Natoli says if an applicant is not capable of paying rent or looking after the property, then the application would need to be seriously reconsidered.
“We assess whether a tenant is capable of paying the rent or not by looking at their previous rental history assuming they have one - we want to see an established history of rental payments that are made on time, in full; and also by looking at their employment, ie: stability of employment, length of employment, annual salary, etc.
“If someone doesn't have a rental history, for example, someone's moving out of home for the first time, any evidence of them making regular payments toward something - e.g. Afterpay, phone account, etc. - will help and they should look to include that in their tenancy application.
“We assess whether a tenant is capable of taking care of the property or not by seeking references from current and previous landlords/agents. Where a previous agent supplies a rental ledger and no accompanying reference this could be an indicator that the tenancy wasn't so great, so it will most likely cause the property manager to dig further and ask more questions.”
If renters want to receive a good reference from their landlord when the time comes to move out, Ms Natoli said it’s up to them.
“It's really important for tenants to know that they are the ones who write their references. If the tenancy is great - i.e. rental payments on time, in full, every time and the property is taken care of - then that's what their reference will say,” she said.
“If the tenancy isn't so great - rent not on time, breach notices served, property uncared for, etc. - then that's what their reference will say, if there's a reference made at all.
“An application will also be denied where an owner has specific requirements - i.e. no pets and the tenancy application lists pets. In that circumstance, the application will most likely be denied if the owner doesn't change their position.”
When is it unacceptable to deny a rental applicant?
As you filter through tenant applications, be mindful of anti-discrimination laws. In Australia, there is legislation that protects the rights of tenants and landlords. Each state and territory also has its own laws.
According to the Equal Opportunity Act, you cannot discriminate against applicants based on their gender identity, age, race, religion, marital status, sexuality, mental illness or disability, pregnancy, or the fact they have children.
Ms Natoli said under no circumstances are landlords allowed to discriminate under these conditions when considering a tenancy application.
“When we submit tenancy applications to the owners for their consideration, we keep the information broad and non-descript to eliminate the opportunity for discrimination - i.e. we'll say it's a family of four, with a poodle, one parent works as a teacher, the other parent works as a nurse,” she said.
“We don't mention race, age, gender, family dynamic, or the like. We stick to facts about their current tenancy.
“In some circumstances, we may need to discuss disability, but only in so far as if the owner needs to make some minor modifications to enable the tenancy to proceed - e.g. if the tenant is elderly and required a pull bar in the bathroom or a handrail on the porch.”
Indirect discrimination is also unlawful. This means a landlord cannot apply a rule that adversely affects a group of people, such as offering a property on different terms such as a higher than necessary income, or having an across-the-board no pets policy that excludes disabled people with a guide dog.
However, it’s not against the law to choose not to rent out the property to smokers or drug users. Landlords do have the right to choose the most suitable tenant for their investment property, as long as no unfair direct or indirect discrimination occurs.
What questions can you ask a previous landlord?
- Is the applicant listed on the lease?
- Has the tenant given notice, or has your office terminated the tenancy?
- On what grounds was the tenancy terminated?
- Have you issued any breach notices to the tenant, and on what grounds?
- Was the tenant ever in arrears?
- Did you ever serve the tenant notice for rent arrears?
- How many notices were issued during the tenancy?
- Have periodic inspections been done?
- Was there damage noted during any of the inspections?
- Was the property clean and tidy during the inspections?
- When did the tenancy commence?
- When did the tenancy end (if ended)?
- How much rent does the tenant pay?
- Have you withheld any of the bond (do you intend to withhold any of the bond)?
- Were pets kept on the property (was permission granted?)?
- Have the gardens/yards been maintained?
- Do you intend to, or have you, listed the tenants on any database as a defaulter
- Are monies still owed by the tenant?
- Would you lease to this tenant again?
- Could you please provide a copy of the rental ledger?
How to avoid bad tenants
- Speak to at least two previous landlords for a thorough reference check
- If a previous or current landlord won’t respond to your reference requests, steer clear
- Google the rental applicant, you never know what you’ll find!
- Use a property manager to conduct detailed interviews with applicants
