5 Ways to protect your property investment from rental defaults
The success of any property investment is based on its ability to provide a consistent rental return. Defaults in rent are not going to ruin your investment plans, as long as they are managed well.
Here are 5 ways we manage rental defaults, to ensure our owners property remains a good investment.
1. Direct Debit
All of our long-term tenants are required to pay rent by direct debit from their bank account. All of our short-term tenants pay for accommodation in advance. These are two of the best strategies for keeping defaults to a minimum. Not only does the bank charge fees for defaults, but these days we are so busy that we forget to do important things if we don’t set reminders. Direct debit takes the hassle away from both parties, as long as there is money in the account.
In our experience defaults are only temporary, which means the rent is paid as soon as the tenant becomes aware of the default, either through a text from their bank or reminders from our software system.
2. PMS and Trust Accounting
Our property management system (PMS) has built-in reminders for all kinds of things, including sending the tenant a reminder email when funds don’t hit the trust account at a specific time. Technology has definitely made our lives easier in this respect.
Ongoing defaults are rents that have not been paid by the following rent period. This is when the property manager will step in to chase rental payment, because we don’t want to go too long without payment. This can get costly for tenants, who may not be able to pay a large lump-sum. Also, costly for our owners who rely on timely rental payments for mortgage loan payments.
3. Tenant Selection
Quality tenant selection at the beginning of the tenancy is the best way to ensure rental payments will not default. Not intentionally anyway.
The best tenants have their finances sorted, meaning the same account is used for both rent and wages or there is a dedicated account for rent payments. We do not know this level of information about our tenants finances in the beginning, so we rely on references, tenancy records and the national tenancy database for background financial checks.
As long as the tenant has regular income and a low rent to earning ratio, they can regarded as low risk for defaults.
4. Routine Inspections
Our property managers never miss a routine inspection for several reasons. The most important being to manage maintenance, but also it is a great opportunity to re-establish accountability.
When a tenant knows the manager is proactive, approachable and competent they will have a greater sense of responsibility for their rental property. Particularly if the manager is always respectful of their privacy and operates according to law, i.e. send entry notices well ahead of time for routine inspections.
We have experienced less issues with default rental payments where managers have a good relationship with tenants and are proactive about maintenance and other issues.
5. Leasing
The formal leasing process works well to manage defaults. Lease terms remind both tenants and managers of dates for lease renewal and rental payment. This way the manager can enter the correct reminder dates into our PMS and the tenant can setup the correct dates for funds transfer.
When the property manager knows the lease is nearing renewal date, they are able to remind tenants ahead of schedule, should they need to budget for both rent and removalist costs if they are not renewing their lease.
Keeping rental defaults to a minimum is a major focus for our property managers at Airtrip. Contact us for more information on how we can maximise your rental income and protect your property investment.