Selecting the right tenant & collecting your rent

As an experienced property manager the most frustrating part of the job is chasing the continuously late paying tenants. If you’re a property manager of a large portfolio of property like our selves, a landlord with a portfolio or even a landlord of just one you will have surely had to deal with this problem.

The continuous calls which get unanswered, texts that don’t get replied, emails with send receipt not accepted or letters not getting a response the majority of us will have experienced this.

There is just nothing more frustrating, but can we as property managers eliminate this?

Well in most cases we can try our best to eliminate this stress as much as possible.

Trying to prevent this:

In what ever lease you are using if not already in it place a late penalty clause in your lease. When going through the lease prior to signing with your tenant (s) make it clear that this will be enforced.

Stick a clause that for every day late the penalty will be 20euro. This way at least if it’s late you’re getting compensated and in today’s climate late rent could cause you to have bank charges with unpaid direct debits or standing orders.

Reference check your tenants; make sure you get legitimate references. If the reference is from an agency don’t just take it as gospel call up the agency and confirm it if it’s from a private landlord and only has a mobile ask the referee is it possible to call them on a landline. Any tenant can give you a reference written from a friend with a mobile number on it but they won’t be as quick to give a landline on it. Most landlords will gladly back up the reference with a landline after all they are in the same position as you.

But what if they won’t? It can happen. Why not goggle there mobile number, more than likely if it’s a mobile number on the reference it will be the same mobile number they use to advertise the property. This way you can confirm at least that he is a landlord.

Ask for a bank statement as part of your referencing process to see if the tenant is able to afford the rent in line with salary or bank balance.

Insist on a standing order being set up, you can get pretty much find all blank banks standing orders on the banks website in PDF format which you can print and bring along to a tenancy sign up.

Fill it out and drop it too the bank personally or post it in (a standing order for a particular bank can be dropped into any branch which will set it up on the banking system)

Now just watch the money coming into your account.

Beware that a standing order may not reach you on the same day as it is due. If your tenant banks with a different bank then yourself fit may take up to 3 working days to reach you. To solve this problem insist that the payment date on the standing order is set accordingly if it needs to reach you on its due date.

What happens if your tenant(s) have not rented before?

Well is it worth the risk? Are they the only interested party? Why is that?

Well these are the questions you need to ask yourself, don’t just assume because they come across as nice people that they will be nice tenants. If the only tenants interested in your property don’t have a previous landlord reference is it worth the risk? Why are they the only interested party? Well it could be a couple of things.

The property could be overpriced and the only tenants that are interested are interested because they can’t find anybody else to take a risk on them. Look at the market in your area, view photos online and be honest with yourself is your property to the same spec? If not stop wasting time and money and adjust the price to what the market will pay.

If your property is something that needs refurbishment DO IT.

It will pay off in the long run you would be amazed what a couple of months rent can do to a property and could save you all the hassle in the long run by placing bad tenants into a property that good tenants wouldn’t touch.

If you go with a tenant with no previous references look for a guarantor letter to give more protection if something goes wrong. Or try getting a higher deposit as a way of good faith.

The standard one months deposit and rent upfront would normally cover any damage if a tenant were to leave the property. Another rule of thumb would be getting a deposit that at least matches the same amount of rent as that needed to evict a tenant legally.

Example of this in Ireland would be 6 weeks deposit, thus way if you need to give a tenant 14 days rent arrears followed by 28 days eviction notice the deposit would cover the rent anyway. (See below for more details on this)

Tenant chosen

Hopefully your reference checking and selection of tenants will ensure all you have to do is watch the rent coming in.

Keeping a eye on due rents

This is the most important part of being a landlord insuring the rent is coming in on time every month. Just because a tenant pays the rent on time every month for 9 months straight it doesn’t mean month 10 is going to be on time or paid at all. I only this week got a call form a landlord whom I placed a tenant in over 18 months ago informing me he hasn’t gotten rent in over 5 months. (we only let this property not managed it).  This landlord got complacent and too comfortable with his tenant and rent coming on time. I mean come on even though the landlord only has one property being a landlord is a business. I mean if he was a shopkeeper he wouldn’t leave the store unmanned with the day’s takings in the till. Being a landlord is the same thing taking your eye off the ball can have terrible results. Luckily for this landlord the tenant I had placed in the property was a well referenced tenant whose standing order ran out of payments. He paid in full the following week. :-)

The best way for an agency and even single property landlords to oversee due rental payments is too use software that does the hard work for you. (Remembering it and tracking it) We use http://www.rentcollectors.ie/

So what to do if a tenant doesn’t pay his rent on time.

What to do when it starts.

Know your local law and your rights as a landlord.

In most countries laws covering rented property give the advantage to a tenant. So don’t make any rash decisions, don’t go in all guns blazing putting all the tenants belongings on the street and changing the locks. This will most likely put you in a worst position than where you first started.

Illegal evictions at the time might seem right but in the end can lead it large fines and even being forced by court order to allow your tenant re occupy the property.

No one wants a tenant with a chip on there shoulder.

Check up on your local law and act accordingly

In Ireland for example you first must issue a 14 days rent arrears notice and deliver in person to the tenant or by registered post. From my experience this will show the tenants you wont be taking any messing and normally cough up or give notice to quit the property before it goes further,

If the tenant fails to pay the rent after 14 days you must issue an eviction notice (the amount of time varies from 28 days if a tenant is occupying the house less than 6 months to 100+ days if they are tenants are occupying the house for years+

Note that these letters act as legal papers and as such need to be written in a correct format. One error on the document can set you back and you must start over with a new notice period to your tenants. So make sure if sending these yourself and not taking on the expense of a professional that you do it correctly.

Listening to a tenant’s promise that the rent will be paid in full at the end of the week and taking the tenant’s word is not good enough. Back yourself up by sticking to the law and insuring you act upon late rent immediately.

You may not want to act to harshly on the first late rent payment as you may feel you will damage your relationship. This is a business so treat it like one.

My tenant wants a rent reduction.

My tenant wants a rent decrease!!!

So your tenant (s) have called you and asked for a rent reduction or they can no longer afford living in the property.  It’s a call as a landlord in today’s difficult climate that you could really do with out. With the budget just announced landlords through out the country are felling the pinch, interest rates to increase they say, 2^nd property, PRTB registration rates increasing, water charges around the corner and now your tenants want a rent reduction!

Are they mad I hear you say? But before telling them they can go to hell its worth looking at the facts and figures.

Is the tenant just jumping on the band wagon and looking for a lower rent with all that’s in the media about property prices or is the tenant in genuine financial difficulties. It’s a hard question to answer and if you question it the tenant will give you all the answers you didn’t want to hear.

Typical case

1 bedroom apartment – 850 rent.

You signed the tenants up 6 months ago on a fixed term lease of 12 months at a rent of 850. The tenants request a rent reduction based on market value in the area and look for a reduction of 100 euro’s per month. 

What do you do?

Evaluate the cost of a rent reduction on the remainder of the contract.

What it will cost you to reduce the rent.

So in the above case its 100 x 6 months (remaining time on lease) = 600 euro.

If you choice not to give the tenants a rent reduction

If you are renting your property through a property manager are there re letting fees involved?

Most property managers (ones that value you as a customer) should give you a discount on the fee they charged you.  The fee should only be half of the original fee as you have paid for a year’s service and the tenant is leaving after half the year.

Re letting fee (average fee 5% of annual rent) 290 euros

Down time on property.

Even though the tenants have agreed to let you show the property to potential tenants while they are still living there it can be difficult to find a new tenant with current tenants in place.

Even if you have clean tenants, potential tenants may think it looks too cluttered with personal belongings the current tenants cooking in the air could even turn them off it.

On average it would mean downtime on your property of approx 2 weeks.

Cost of downtime 400 euro.

You may not secure your current rental value with a new tenant and even a 25 euro deduction on your asking price could reduce it by another 300 euro.

On average the price a property is advertised at and let agreed at is 7% lower than the asking price.

Re- registration with PRTB

This currently costs you 70 euro to register a tenant with the PRTB (private residential tenancy board) which is to increase to 90 euro.

A new PRTB registration is required with every new letting regardless of the amount of time the tenant lived at the property.

So the cost of not agreeing to the tenant’s request of a rent reduction has affected your end of year accounts by over a 1000 euro.

This can be avoided the key to do this is in negotiation.

When you speak with your tenant listen to them and understand why they are requesting a rent reduction. Inform the tenant of your own situation with the rental property and extra costs incurred by you as a landlord. Let them see that you are making an effort and could meet them half way so instead of the full amount. Remember negotiation is the key to your bottom line.

If they won’t agree to a part reduction and will only stay at the full reduction agree but only on the signing of a new 12 month fixed term lease.

So you have agreed to a new 12 month lease and its cost you 600 euro on your bottom line. But you have secured a new 12 month lease and also saved on re letting fees in 6 months if your tenant’s were to move out at the end of the lease.

It’s always best to evaluate the situation before making rash decisions.