bout de papier, Vol. 7, No. 2 (1989), pp. 34–35
by Carol N. Markham
The major trouble with renting your property is that you have to have a tenant. The major problem with tenants is that they are unpredictable. You can have the worst dump in the world, or the most palatial establishment imaginable. For the right price, you will never lack a tenant. But will it be the “right” tenant? The question is, how do you define the “right” tenant, how do you find him, and how do you keep him?
There are probably as many books about real estate being the fastest way to personal wealth as losing weight being the fastest way to personal success and everlasting happiness. The success rate is probably about the same for each. In fact, it is a difficult job to do well and remain relaxed and carefree, secure in the knowledge that your property is increasing in value, that the rental income is adding up quickly, and that you are laughing all the way to the bank. It is even more difficult when you are an absentee landlord located half-way round the world.
To be successful in renting your property, it is necessary to be well-prepared. Answers must be found to such questions as: how much rent should be charged; what improvements should be made (to make the house rentable, to increase the rent you can obtain, and to increase the eventual selling price of the property; what types of insurance will be required (for the property and its contents, against loss of rental income, for personal liability; and what preparations should be made before showing the house to tenants. It seems there are more questions than answers, and the most elusive issue of all is: how to select the tenant.
Tenants come in three varieties: students, adult singles, and families. Your success in renting to any one particular group will depend on the location of the property, the amount of parking space available, and the time of year at which the property becomes available. The type of tenant you want is largely determined by the profile of your property. To find the tenant you will need to deal with telephone inquiries, show the property, review the tenant application form, check references and prepare the lease.
The lease is a binding contract. It must inform the tenant clearly of his rights and your responsibilities, and must protect your interest in your property. You will find out that the lease really does not afford you much protection at all against the majority of tenant infractions. Indeed, in most matters you must rely on your tenant’s good will to safeguard your property. That is why the tenant is the most important factor of all in renting property: the most unpredictable, and the most uncontrollable. The lease is an attempt to put some semblance of controllability into the equation, and in some ways it does. Leases typically cover items such as: use of premises, term, rent, prepaid rent, utility charges, defects and repairs, and liability.
Two other items which may help control the tenant, after a fashion, are the welcoming letter you present to an incoming tenant and the condition-of-property statement. The welcoming letter typically confirms such things as rent, responsibilities for maintenance and repair, payment of utilities, information about condominium rules, parking, insurance, health and safety hazards, and miscellaneous matters particular to your specific property. The condition-of-property statement is prepared jointly by you and the tenant on first taking over the property after the lease is signed.
The primary question is of course, whether you are going to try to rent the property yourself, or are going to hire an agent to do it? There are as many considerations to take into account and as many opinions about this as there are individuals and property. What works on one occasion, may not work the same way a second time, even with the same property. Even if you plan to hire an agency, you would be wise to think about these questions because the agency will need answers before finding you a tenant. It is possible to rent your property without the assistance of a rental agency, but it takes careful planning, preparation, and all-out effort. It is not often easy, and may well be the most frustrating experience of your life.
There are answers to these complex questions and sound advice can be found in an interesting new Canadian book which is chock-full of useful, helpful, and relevant information. In fact, the book covers more than the issue of property rental. It is written primarily for the individual investor as a way to become wealthy through property acquisition and disposal. Several chapters contain some useful guidance on the matter of renting one’s property and finding appropriate tenants oneself.
The book is called, BUY, RENT, SELL: A Step-by-Step Guide to Making a Fortune in Canadian Real Estate, researched by a husband and wife team, Richard and Diane Needleman. It is published by Collins Publishers (Toronto, 1989), retails for $27.95, and can be obtained at most bookstores. Even if you are not intending to get into the business of buying, renting, and selling multiple properties, the section in the book on the rental of property is well worth studying in detail.
Take the issue of what rent to charge. This is always a critical issue, whether one is the rentor or the rentee. The Needlemans point out clearly the pitfalls involved. Suppose that units similar to yours are being offered at rents in the range of $700 to $725 a month. You may be tempted to ask for $750, on the grounds that at a rent of $725 the demand will be greater than the supply, and that would-be tenants who can not obtain accommodation at the going rent will be willing to pay more. But charging more than the market rent could be a mistake. You may indeed be able to rent your unit for $750, but only alter some delay. Because most tenancies begin on the first of the month, any significant delay is likely to lose you a whole month’s rent. This loss can wipe out the total gain from the marginally higher rent you are charging, unless your new tenant stays with you for several years. But that is unlikely to happen. Your new tenant, aware and resentful of paying too much rent, will be looking for cheaper accommodation, and will probably leave at the first opportunity that presents itself.
It is wiser to charge at the lower end of the market range, $700 in this case. By charging a rent that most tenants consider a bargain, you will rent the property quickly, your tenant will regard you as a reasonable landlord, and will probably wish to stay for a longer time. But what is more important is that you will have a wide choice of applicants from which to select the most suitable.
Concerning the three types of tenants (student, adult singles, and families), the book advocates renting to families. Although students and singles will generate higher rental income, they generally represent extra problems and work. Families pay lower rents because they usually have less disposable income. Nevertheless, if chosen carefully, they will pay their rent on time, keep their accommodation clean and in good condition, act responsibly towards you as their landlord, and remain your tenant for years. Keeping tenant turnover as low as you can is a key point. When a tenant moves out, the house will often need redecoration and repairs. Such refurbishing is rarely expensive in itself, but you may not be able to show the property until it has been done. As your new tenants will not normally be able to move in for several weeks, you will lose rent in the meantime. In addition to the possible loss of income, you will certainly have to spend time finding tenants to replace those who have left. The reason you do not particularly want to rent to students and singles, even though they may generate more income, is that student groups are only profitable as long as they stay together and experience shows that they have a tendancy to split up. Singles tend to be mobile and are likely to change their living status.
As you can see from these two examples of the Needlemans’ analysis on property rental, the book is a valuable reference, and one worth acquiring for your personal (or the mission’s) library.
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Originally published in bout de papier, Vol. 7, No. 2 (1989), pp. 34–35. Read the rest of this issue →
