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The Perils of Selecting your own tenants

July 26th 2017

Tenancy Case Study #1

Can you imagine taking thousands of your hard-earned dollars and giving them to a stranger in the street? Or advertising a rental property with the title “free rent, no credit check, no reference checks, no inspections, no consequences”.
Does that sound what a reasonable person would do? No, not to me either, yet this is what many, many property investors do when they manage their rental property themselves without sound, clear processes for finding and assessing good quality tenants, or knowing what to do when something goes wrong (like the first time the tenant misses a rental payment).

A property investor called into our office one day recently with a sorry but not unfamiliar tale, of a tenancy gone wrong.

This owner, let’s call him Bob, took on a tenant to his property, and like so many he wanted to give someone with a sad tale a chance to start again. This story does have a better outcome than many, but not without much grief and stress and time for the owner.

We’ve all been there, a nicely presented person shows up at an open home, he or she needs to move home quickly due to relationship break-up/job loss/family illness or.............(fill in the blanks). Nicely spoken, they look you in the eye, polite, good car, not too flashy or too run-down. In other words, they look like your neighbour, your daughter’s friends, or even you not too long ago.

All they need to turn things around is a home to be settled again. Maybe they ask for a rent reduction but not too much, but even better they can pay up-front! Cash today to secure the place! What could be better? No more viewings taking up your time, someone who’ll move in on a hand-shake, and cash this week to help cover the mortgage. Now, you’ve done this before, so you have a blank copy of a tenancy agreement from 2010 to fill in, but it seems pedantic to worry about a credit check, photo id, landlord or employer references. Maybe you’ll take a week or so bond but it's such a lot of money to take from someone who you know is already struggling, and besides everyone says you’re a good judge of character.

Unfortunately your prospective tenant is an even better judge of character then you, and they can tell a sucker when they see one. Chances are a private landlord won’t have such robust practices as a property management company, and if it’s not a requirement to fill out a tenancy application form with photo id and references (which will be followed up), and notice of a credit check as mandatory, then by the time your lovely tenant has moved in and missed a few weeks of rent, caused damage to the carpets and doors, and sub-let to some dodgy bloke you don’t even know, there is easily $4000-$5000 down the drain. Let alone the time and cost to get the tenant out, clean up rubbish left behind and file for loss of rent and damages with Tenancy Tribunal. Oh, that’s right, no pre-inspection report so no proof that the flat wasn’t in this state when you rented it out, so the Tribunal isn’t too favourably inclined towards your hard-luck story.
At which point you call a property management company for help, which is where we step in.......
And while we have resolved this situation for Bob as much as possible, and got an agreement from the tenant to leave the house and pay a large portion of the back rent, the cost in time and dollars is much higher than it needed to be.
An expensive lesson to learn, and one that we would have prevented for Bob, giving him more money in his hand each month, less stress, and better care of his investment.
Don’t make the same mistake, contact us today +6 3 379-5033, or email to office@rubyhousing.co.nz and arrange an appointment to discuss our robust tenant selection and property management processes.