How Do I Find the Right Tenant?
You’ve invested in your Buy-to-Let property and you’re on your way to becoming a landlord. Now comes the important part – letting your property and generating passive income. Tenant demand is at the root of a successful property investment, delivering a vital income stream that property investment simply won’t work without.
Finding the right tenant for your Buy-to-Let property is key, but with so much to consider, what should you look for when searching for the ideal tenant?
One of the easiest ways to screen potential tenants is by income. Most agents (and by extension, most landlords) will look for tenants that have a yearly income 30x the rent – so if the rent is £1,000, the tenant would need £30,000.
For self-employed workers, proof of past earnings over a sustained period is usually required – this could be through tax returns or bank statements.
If their monthly income covers the rent with ease, it’s likely that you’ll have less issues with payments. However, if you come across prospective tenants with a lower income, or are looking to rent to students, asking for guarantors can also minimise the chances of any rental issues.
While having landlord insurance means you can receive your rental income if your tenant defaults on payments, considering a tenant’s job can make the process of renting out your Buy-to-Let property much simpler.
One of the most important things to establish early on is good communication with your tenant. Interviews can serve a dual purpose – they provide you with a first impression and also allow you to open a dialogue.
By talking to the tenant and getting to know them, you’ll be able to gauge an idea of whether or not they’re trustworthy, and ultimately, if they’d maintain the property while they’re renting it. If you’re an overseas investor, this is even more important. As you might not be able to carry out regular in-person checks, having a reliable tenant who will care for your Buy-to-Let property is key, which can often be achieved through Skype or Zoom interviews or by working with a letting agent.
At this point you can also encourage your tenant to get in touch if anything goes wrong. By finding people that are open to raising issues, you can quickly highlight the positive tenants that are looking to maintain their living space and thus, your investment assets.
References go hand-in-hand with income and tenant interviews, and are equally as important for landlords. While prospective tenants can tell you they’re trustworthy, and can have more than enough to cover the monthly rent, references can either solidify these or expose the tenant as being unreliable.
If the tenant has rented previously, you can ask for references from a previous landlord, or even from an employer. Of course, a previous landlord is preferable as it can determine whether or not they’re the right tenant, but a reference from an employer can signify a lot of things – their organisation skills, their attitude and how they treat others around them. This can then be translated into your rental property – will they remember to pay rent on time? And, will they treat the property with respect?
Consider Using an Agency
Being a landlord comes with a lot of responsibilities, so it’s no surprise that more and more investors are choosing to be hands-off landlords. For those who don’t want to source tenants, or maintain the property themselves, they’ll often use a letting agent or property management service.
These services are typically pretty comprehensive, helping with sourcing tenants to organising contracts and conducting regular property visits. This means that you’ll be receiving a passive income without having to monitor and maintain your Buy-to-Let property, but this does come at a cost. While these costs vary between companies, this will ultimately be eating into your returns, so researching whether it’s necessary and shopping around is crucial.
While contracts come later in the tenant process, they are arguably the most important part. By this point, you will have found a tenant and will be signing on the dotted line, but knowing what’s typically included in a tenancy and deciding what you want in your specific contract is paramount.
Knowing what type of tenancy you need is the first step, and while there are various different sorts, you’ll probably need an Assured Shorthold tenancy. If you are offering a private property you don’t live in and are searching for a full-time tenant, your property will likely be rented on an Assured Shorthold tenancy.
The tenant is the cornerstone of any property investment and finding the right one can help you mitigate issues further down the line. Void periods can have massively detrimental effects when multiplied across a portfolio, so it’s important that when you find a tenant, you keep them happy to encourage long-term renting. Despite there being many considerations that come with finding the ideal tenant, such as tenant interviews, references and contracts, the potential that a happy, long-term renter offers far outweighs these responsibilities.