Three basic checks to avoid a defaulting tenant
With increased financial pressure on everyone, landlords need to vigilantly vet and process potential tenants so as to avoid the risk of future defaults. Managing tenant risk has become crucial, says Hayley Vann-Herbert, sales manager of Jawitz Properties Southern Suburbs. “As with all risks, tenant risk is best managed upfront.”
1 Do a thorough credit, reference and Fica check
This includes a reference check with their previous landlords. “A credit check gives you insight into how they manage their financial affairs and a reference check with their previous landlords help you find out if they maintained the property in good condition, respected any house rules and paid their rent on time.”
Landlords and tenants might not be aware that estate agents are legally obliged to obtain proof of their identity and proof of address according to the Financial Intelligence Centre Act, commonly referred to as Fica. Your agent will require sight of all original documents or, alternatively, certified copies. Original identity documents will need to be seen in the presence of the document holder.
2 Confirm income earning with employer
“It is important to confirm the prospective tenant’s employment status as well as their income. As a general rule, the monthly rental should be more or less 30% of the tenant’s gross income,” says Vann-Herbert.
Unfortunately, in the current economic environment, many people have wound up with black marks on their credit records sometimes through no real fault of their own. “When people lose their jobs, it’s difficult to pay the bills, so finding tenants with perfect credit records may not always be that easy. But there are ways to limit your risk if you find you need to accept a tenant with a questionable credit history.”
Firstly, take a larger deposit if the tenant has any marks against his name on his credit record. Secondly, ask for more than one month’s rent in advance and, thirdly, negotiate a shorter lease, preferably an initial period of six months, with an option to extend. “That way you can assess the tenant yourself and determine whether you’d like to extend the lease or not.”
Of course, not everyone can afford a large deposit and more rent upfront but holding out for a tenant whose references check out is often the right strategy, says Vann-Herbert.
3 Pre and Post-Site Inspection
Prior to the tenant moving in, landlords should have a full site inspection done, which would consist of a full report on the status of the property as well as photos. It is also recommended that a follow-up site inspection is done when the tenant leaves at the end of the lease, prior to refunding the deposit. Site inspections can also be done midway through the lease if the landlord has concerns about the tenant’s status.
“Remember that eviction is a lengthy and costly process. You could lose months of rental income, not to mention thousands of rands in legal fees, if it comes to having to effect an eviction,” says Vann-Herbert.