Tenant Selection – Finding the Perfect Fit

Securing the right tenant for your property is now more important than ever.

Legislation and Tenancy Tribunal decisions are increasingly giving greater rights to tenants – including the upcoming removal of 90 day no-cause terminations.

It all means that once you have got an unsuitable tenant – you can be stuck with them.  The solution is in the prevention:  choosing the right tenant from the start.

For it to be an ongoing healthy relationship, it has to be a win-win.

Landlords win with a stable tenant who’s prepared to pay the maximum rent on time and cares for the property – and tenants wins with a well maintained, up to standard property which suits their needs and is managed responsibly and responsively.

It’s all about finding the right fit for you both – and often an external party (such as a professional property manager) has the best vantage point to establish the perfect fit.

Here’s the Point Property Tenant Selection Guide

1. Advertising – it all starts with the advertising of your property
   • Act quickly to promote the upcoming vacancy – so you have the time to select the right tenant and not feel forced to choose last-minute.
   • Use photos and the right selling points to attract the desired tenants (for example, for families highlight the schools & playgrounds in the area; for working couples focus on the transport routes nearby and the low maintenance of property).
   • Be clear about the responsibilities & terms of tenancy (such as whether you’ll allow pets, or whether garden maintenance is a requirement).

2. Pre-Tenancy Applications
   • Ask all those interested to fill in a pre-tenancy application (Point Property uses the recommended Tenancy Services form as standard).
   • This is an important pre-screening process, to eliminate obvious unsuitable candidates and highlight potential tenants.

3. Potential Tenant Interviews
   • While nothing beats a face to face meeting, it’s often more convenient to screen prospective tenants over the phone first, and then meet up with the preferred tenants in person.
   • Background information – think about what questions to ask. You should not have more than 5 or so questions (this is not an interrogation!) – so you need to choose carefully what you’d like to know.  The aim of these questions is to establish a renting behavioural profile – as the best predictor of future behaviour is to examine past behaviour.
   • It's important you are fully up to date with what questions can and cannot be asked in a tenancy interview.  For a full guide refer to the Office of the Privacy Commission website here

4. Preferred Tenant Screening
   • Once you have narrowed the list down to some preferred tenants, it’s time to meet with them (usually at the property so they can also have a good look around).
   • Meeting potential tenants in person gives you the opportunity to gauge whether you feel you could establish a good rapport or tenant-landlord relationship with this person. Instinct garnered from years of experience in this industry is what gives a good property manager an invaluable edge here.
   • Ensure at this meeting you do verify the identity & age of the tenant.
   • Carry out the appropriate background checks – including references, credit previous Tenancy Tribunal & criminal checks.

5. Tenant Selection
   • In making your final selection, remember you are looking for what is the right fit for both you and the tenant.
   • Consider what will make a good fit for property & surrounding area – for example if the area is mostly retired couples, renting to a flat full of students may present fit issues.
   • Consider also whether the property is realistically affordable for the tenant – especially if you are planning to increase capital value and return on the property in the near future (see our note below on income-to-rent ratios).
   • Note: While you need to be conscious to avoid any form of discrimination in your tenant selection, you do not have to give a reason for not selecting a tenant.  If you would prefer not to select a particular tenant – it’s your property and you have the right to make that decision.

Here’s Some Extra Tips on Tenant Selection:

• Be aware of the legalities – what you can/can’t ask. Using a good Property Manager for your tenant selection ensures this is covered and acts as a shield against discrimination claims.
• Insurance implications – your insurance policy may be affected if your tenant selection has not been thorough.
• Don’t rush into choosing the most convenient choice – take the time to make the best long term overall choice – even if it means having a small vacancy period (which can be used beneficially anyway to tidy the property, make improvements, and conduct standard meth tests).
• Ensure you have a well-structured tenancy agreement – this can make the difference in a Tenancy Tribunal decision.
• Be aware verbal agreements and/or an exchange of money constitutes a legal tenancy agreement – so don’t make a verbal commitment to a prospective tenant until you are sure of your decision.
• While you are not legally able to ask the employment status of a potential tenant, don’t be too quick to discredit any who advise you that they are beneficiaries. People on a benefit have a regular fixed income, and often make great tenants.  In fact, sometimes it is more those who are self-employed – and whose income is not so stable – who may present issues.

Income-to-rent ratios:  How much rent is affordable?

Finding the ideal place to rent is increasingly difficult in New Zealand – and so prospective tenants are often tempted to commit to rents which they will ultimately find unaffordable.  While this is their issue – when it results in rent arrears and increased tenant-turnover, it becomes your issue as a landlord as well.

While you are not legally able to ask what income your prospective tenant is earning, it’s good for you as a landlord to also be aware of income-to-rent ratios, and what is considered appropriate.

In general, the ideal income-to-rent ratio is 30% of the household annual income.  At this level, rent is affordable in the long term, allowing for all other expenses.

Finding the 30% income-to-rent ratio is easily calculated by adding up all the household income, taking 30% from this, and dividing by 52 weeks ( or for an easy monthly calculation, simply divide the household income by 40).

A great website for tenants in Auckland, Wellington & Christchurch is www.affordability.org.nz – this helps to factor in income-to-rent ratios with transport costs for each suburb.