Once you or your letting agent have identified a list of potential tenants, the next step is to decide on which one to take on, as you can only have one (in the case of HMOs you have multiple tenants, but also one tenant per room). Selecting the right tenant is crucial as it could make the difference between a smooth relationship, the rent being paid on time and the property returned in excellent condition, or a complete nightmare for you.
Doing due diligence is critical when buying your property. The same principle applies for selecting your tenant as well. Either you or your letting agent need to do due diligence on the short list of your candidates, which should include:
- Is the person in the country legally? (Citizen or permanent resident, work permit holder or such)
- If the person is a foreigner, is the permit to stay in the country longer than the proposed tenancy?
- What is the reason he or she wants to change residence now?
- How often has he or she changed residence in the last two years?
- What is the job situation (employed/own business unemployed) and current compensation level?
- Credit rating/has any bad credit?
- Other credit obligations (even if paid on time it affects the net monthly payment capability negatively)
- Does he or she own pets and/or smokes?
You can add to that list as per your own requirements. There is one additional point and that is your own gut feeling. I cannot say whether you should or should not listen to that, but from my own personal experience as a landlord of many years, I stay away from candidates whom I have a bad gut feeling about, even if they offer a slightly higher rent. You can make your own decision about that point.
The Highest Rent
As the rent you receive is your passive income, naturally you would want to obtain the highest rent possible, of course within reasonable expectations and without squeezing your tenant too much. I always found that charging reasonable rents on the upper side of what the market pays for comparable units, and maintaining both the property as well as the relationship with the tenant in good condition, has paid the best results over time.
To set your expectations for the rent that you are planning to charge for your property, you need to understand the market and your competition, so you should study those first before deciding on a number. Of course, the condition of your flat or house and whether it is bare, partially furnished, fully furnished, or very exclusive plays a role, too.
Start at the upper end of the scale for comparable units. You can always lower the price, but never increase it during a negotiation. How to become a good negotiator is not our focus, but
if you frequently have to negotiate with agents, tenants, contractors or other people, you could consider taking an appropriate course in negotiation techniques. Let me give you some tips from my personal experience on how you can achieve a higher rent for your unit than your next-door neighbor who is offering a similar property as yours:
- Keep it tidy and spotlessly clean
- Maintain it well (no fading paint or smelly carpets)
- Remove anything that could turn people off (like unwashed dishes or garden gnomes)
- Have some decoration, but don’t make it too personal as their taste might be different from yours
- Either add some scent before they enter or brew coffee
- Turn on some soft music
- Have them sit down at the dining table and discuss with them how it would feel to be dining here
- If it is a house, give it a name and put signage outside (“The Residence” sounds better than 123 Abc Street)
In short, appeal to their emotions. That’s usually what drives people to make decisions (but didn’t I teach you to switch off YOUR emotions when making decisions on property?). If you don’t conduct the viewing yourself, ask your letting agents to follow those guidelines. If the potential tenant likes your place, they likely won’t mind paying rent at the upper side of the market rent.
A common mistake many landlords make is not to increase their tenants’ rents over the years. The market rents move up, but your rent stays the same, as you do not wish to ask your tenant for an increase. What was an above-market rental initially has now become a below market rental and now it is difficult to increase quite significantly at one go, at least not with the same tenant. If you have long-term tenants do not forget to adjust the rent over time in accordance with the market increase and in agreement with you tenant. Most of them will understand.
The Property Apprentice Master, Jochen Siepmann, wants to share the wealth of his knowledge easily and effortlessly with you for FREE. Start your journey now to greater wealth through passive real estate income and capital appreciation with one, or all, of these FREE offers: