Tenants - how to cope with the bad ones ?


I have just read one of Jan's books and am keen to look to residential property as an investment. Up til now I have only invested in my business or the sharemarket.
She does not give a lot of attention to the problem of bad tenants. Whenever I bring the subject up with friends they say "Steer clear of rental properties because of tenants wrecking houses etc." or "Tenants will never treat a property like its their own".
Obviously people do get around this problem. I'm keen for any feedback

I'm sure those who've been telling you this have watched the odd 'A Current Affair' type 'news' show where they regularly do a story on 'the tenants from hell'. Usually about every six months........oh I wish Frontline was back!

Story usually goes like this......nice battling couple purchase property with intentions of providing for their future........horrible tenants come along and trash the place........more film of cockroaches, broken walls and dead rats the better as it really makes the story.........and then at the end, the close up of the nice couple saying they have $60,000 worth of damages and it's just ruined their faith in people and providing for their own future......

Is this sounding familiar?

Dig a little deeper(rarely on the program) and you will often find:

1. No lease or 'proper' lease in place.
2. No proper screening of tenants.
3. No inspections.
4. .....and the REALLY big one.......no Landlord Protection Insurance.

Frankly, even given the worst tenant in the country, implementing the proper insurances etc. there is NEVER a reason why an owner should be out of pocket by $60,000.

Makes 'good' TV, but if a property is properly managed it doesn't need to be a risky process at all.

That's my experience anyway and I've had the good, bad and ugly.......

It's often easier to believe the negative than the positive but dig a little deeper and find out what the real situation is with 'bad tenants'.

Good luck.

Hear Hear

I heartily agree with Alan H's comments re toxic tenants. With four properties tenanted, I have not had a single bad tenant in years.

Perhaps this is blind luck, but I think it is more prudent tenant selection and careful documentation and maintenance.

I also query the figures quoted in the 'Current Affairs' type shows that illustrate the tenants from hell. Anybody who has had to clean up after a bad tenant knows that it is distasteful and irritating, but not necessarily expensive. A tenant woould have to do an incredible amount of damage to cost $60,000 in rectification.

Having said all this, Landlord's Insurance is still an essential component of property investment.

I'm reasonably new to the Property investment scene, but my attitude toward 'bad tenants' is that providing you have the correct insurance cover a bad tenant now and then is good! Replacement carpet stove curtains etc etc means all new dep items and non cash deductions. But like I said I am new to it all and haven't had this happen to me as of yet, so it's all theory. How ever it certainly takes the fear out of the bad tenant thing!
Yes you can have good and bad tenants. Partially why you pay to have a managing agent who has more resources for screening tenants. But even then the bad tenant can still get thru. I have 2 Ip side by side . 2 different agents. Yes have had the tenant from hell ( I did post some 6 weeks ago) but had Landlord Insurance. Whilst the insurance claim is still going thru we will get back the cost of most of the damage.

A pointer/s for any one who does make a claim.
1. thoroughly document your claim- ie photographs, (including video) written documentation even from past inspections. Remember that the agent who knows the property well may leave the firm so that history dies.
2. Back up your claim with evidence that leads towards malicious rather than wear and tear damage (which is excludes from the policy anyway)
3. If the insurer makes an offer for compensation and you feel it is too low you dont have to acceptit but make a counter offer. In our case the first offer was $2300 and the assessor did not come and inspect or seek photos evidence.
We have countered with $5000 and provided pages of documentation and they have come back with $5,500.
Most insurers will negotiate higher if you have a strong basis. An insurer has to consider the amount of time it will cost them to assess the claim, information overload. I know this from the experience of 25 years insurance claims experience. Too much time on one claim leaves less times for the other 300 claims current.

But be honest , diplomatic and not too greedy otherwise the insurer will get stubborn with their attitude. You must alwasy remember that , on renewal, the insurer has the right to not renew the policy which will mean that a potential insurer may not be willing to touch the risk

Gee I do like the new format.

Hi Simbal,

All the advice given above is excellent.

Make sure you have Landlord's Insurance, but when you organise your cover your tenant must be paid in advance to be able to claim rent default! Make sure your property manager keeps extremely good records.
Make sure you screen your appointed property manager well and advise him/her on what you expect from him/her and your tenants
Make sure you (or your property manager) screens the tenants well. Keep a watch over the property manager's shoulder. If you don't trust his/her opinion, get a copy of the tenant's application form and do your own reference checking.
BE PATIENT - don't go and put the first tenant that shows interest in your place into the property if they are not going to be the right tenant. Tenant selection is critical. There are no 100% guarantees, but you can certainly minimise your exposure. Make sure your tenant knows what is expected of them and what they can expect from you.

Do regular inspections - don't leave this up to the property manager. Make sure you go with the property manager to do the inspections. If there is anything wrong - make sure attention is drawn to it immediately.

Occassionally you may get a tenant that is not so good, but you can certainly reduce your exposure to it, and any problems associated with it.

Can anyone recommend an insurer for landlords insurance in Melbourne?
I have been told that I should be covered for both landlords insurance and building & contents insurance. Wouldn't contents insurance howver be covered by landlords insurance or am I being naive?
Equity Leasing

There is a product called an "equity lease'.

It is popular in Sydney and Melbourne. I have only heard of a couple of peope doing them in Brisbane - although I am sure there are more.

The basis is that the rental property is bought specifically to suit the type of tenants that you are wishing to attract. (ie: professional tenants like to live inner city in apartments or townhouses etc).

The tenant is then signed up on a year lease. Although they can leave with one months notice after the first year.

The terms of the lease are that you the landlord will supply incentives for the tenant to stay (ie: furniture packages, annual holidays overseas, car leases etc). The costs of these incentives are amortised over the term of the lease - so the landlord is never out of pocket.

In return the tenant must pay double the market price (ie: if the market is paying $300 pw then the tenant must pay $600.00 per week). The tenant must look after the property and always pay on time. It is also usually agreed that the tenant will return the premises to its original condition (barring normal wear and tear) on leaving the premises). The tenant also agrees to a % increase in the rent every year in accordance with the CPI.

If the tenant stays in the property and meets all the above conditions the first incentive package kicks in (ie: maybe they are given their first holiday or the furniture package is given to them to keep etc)

Mayby after 4 years the landlord will agree to lease them a car if they meet all the conditions.

Then on the fifth year the the landlord will have the property revalued and pay the tenant a % share (normally 25%) in the property after an agreed value. (ie: if the property cost $300,000.00 and the furniture package cost $30,000.00 then the agreed starting value may be $330,000.00. So after 5 years the tenant will receive 25% of the total capital growth in the property above $330,000.00. If the property hasn't grown then the tenant doesn't get anything.)

This is a good incentive to keep good tenants as they get to have access to equity in a property they do not own. In return the landlord has good longterm tenants who are good payers and look after the property.

There are different laws governing the implemenation of these leases in every state so it is advisable to check with a lawyer before entering into one of these agreements.

If you have any questions you are more than welcome to call me on 0415 149 849 and ask for Kate and I will help you as much as I can.

The only thing I would like to add to the above is that there are "good" tenants out there and sometimes they are even "great !".

I have a tenant of about 3 and a half years who does treat the property like their own. Although this is rare, I just wanted to point out that it does happen and if you're lucky enough to find someone like mine who gets out and fertilises the garden, trims trees and weeds then you will make sure they stick around as long as possible.

Other than this, if tenants are a real concern to you then something that you should consider is the area that you buy a property in. Sure you get bad tenants everywhere but you can certainly reduce the risk by buying something in a nice area where rents might be higher and generally this will keep alot of the baddies out.

Good Luck

Other than this, if tenants are a real concern to you then something that you should consider is the area that you buy a property in. Sure you get bad tenants everywhere but you can certainly reduce the risk by buying something in a nice area where rents might be higher and generally this will keep alot of the baddies out.
Good point Pippety. It may well be that the higher quality area reduces the yield. It may be much easier to get a higher cashflow (even a good positive cashflow) in a low class area- but the risk of getting trashed is higher.
Hi Shooting Star,

Could you please attach a simple spreadsheet that shows how your system works.

I am curious to see the numbers and, to save you the time of sending something to every single person that asks, it might be easier for you to just post it once. Im sure others agree?

A simple what if, using simple figures, just to see the pros and cons of the idea.

Also what public liability insurance would be required for the car lease?

Michael G
Re: Tenants

Originally posted by simbal
....."Tenants will never treat a property like its their own".

G'Day all,

Correct, most tenants will never treat a property like it's their own, why should they, it aint theirs.
There is no "pride of ownership", they do not enjoy the benefit of any capital gain and the money they pay in rent every week is gone forever once it's paid.
So whats in it for them? They have the right to occupy the property whilst paying rent.

Sorta doesn't really seem fair, does it?
All the tenant gets is the right of occupancy, and we have the "pride of ownership"....."Thats Our Investment Property",...we get the total benefit of any capital gain and the tenant pays us rent every week to service our loan and maybe if we are structured in a positive way, we have a little or maybe even a lot left over to help fund future property investment.

We, as landlords seem to get it all, so what is it the we contribute to this equation to balance the scales?


and one of the risks we take is the risk of allowing a stranger into our investment property that says they will pay the rent on time, that says they will look after our property and also agrees not to do any damage to the property.
And in most cases, everything runs smoothly, but sometimes, even though all the checks have been done, we end up with a problem tenant.
Remember, where there is no risk, there is usually "NO REWARD"

There will always be problem tenants, but armed with a good property manager and good selection process we can minimise the risk of us getting one.
We can never guarantee against it, so we deal with the situation in hand and move on.
In the long term, the good tenants will always outnumber the bad and thats where our rewards will multiply.

The other alternative is not to invest in rental property at all.

But to go down this track, we gain nothing.

YOUR MOVE.........

Hi Michael G

In answer to your public liability question - I have absolutely no idea - to be honest until you mentioned it I had never even considered that issue. Probably best to consult a solicitor in relation to that issue.

As far as the figures go I don't quite understand what you mean. Do you want a specific leasing example or the breakdown of the general costs involved etc?

Let me know and I will put something togethe for you.

Yep we get it all!!!

After taking the risks after doing up a property that after 3 years looks like it wasn't even touched or worse within the 1st years lease the kitchen bench top has been used as a chopping board with the appropriate cuts and scratches. etc etc

These are simply things that come with the territory no ifs or buts.

I have had my share of both good tenants and bad tenants but even here there is a matter for interpretation. An agent may consider a tenant good because they pay on time and don't complain (no hassles) but on exiting the property you find the place was simply left to run down there may have been leaks not reported etc.

So was this a good tenant because they paid and didnt cause a fuss or were they bad tenant because they didn't report serious problems?

In my 17 years as a landlord I have never had a tenant that malicously damaged a property nor caused $1000's of damage but to put a $ figure on any fix up is hard as we do a lot of the work ourselves. I have only recently started using landlords insurance and that is in leu of contents insurance.

I do think that most people do not proceed beyond one or two IPs as a result of disappointment with tenants or lousy managing agents who make it a lot harder than it should be.

Kate, in my quick calcs your collect 75k extra in rent over 5 years but the cost are some 50k and possibly more if the capital cost of a car needs to be included. So you must have worked out these figures including appropriate increases and depreciation which I believe most people would need to see on a 5 year spread sheet.

Hi All
I would like to add this two cents worth to the discussion on tenants.
Why do we need tenants? To pay for our property's holding costs while capital growth does its thing.
So how important is it to have a great relationship with your tenants? I'll let you answer that one.
My opinion is that after all the other things mentioned in the above posts are considered and applied it is also worth considering the people who are to become a fundamental part of your business team.
Kind regards
Ps read "how to win friends and influence people" Dale Carnegie.
Re: Re: Tenants

Originally posted by Jakk
G'Day all,

>There will always be problem tenants, but armed with a good >property manager and good selection process we can minimise >the risk of us getting one.

What about your trusty baseball bat Jakk :p
Re: Re: Re: Tenants

Originally posted by NigelW
Originally posted by Jakk
G'Day all,

>There will always be problem tenants, but armed with a good
>property manager and good selection process we can minimise
>the risk of us getting one.
What about your trusty baseball bat Jakk :p

In my experience with tenants, tread softly, but be prepared to carry (and wield) a big stick.

In other words:
Do the right thing by your tenants - make repairs where required and generally by a reasonable landlord, but if they mess with you (don't pay rent, deliberatly damage the property), get rid of them as quickly as possible.
PT Bear you are absolutely right. Treat your tenants fairly and respond promptly to their reasonable requests and in my experience they'll pay on time and treat the place right...

I remember one of my tenants commented that the old stove was very slow to heat up and had blown a fuse before (she is from an eastern european background and likes to bake a lot).

Imagine her tears of delight when we rock up the next day with a brand new convection stove and electrician in tow to install it. It was good PR, but it made financial sense too. Apart from all the tricky depreciation etc and the potential liability headaches if someone got zapped - I've increased the rent $25pw over the time I've owned this property and they continue to pay like clockwork...

The baseball bat reference is in metaphorical jest. (actually I prefer a sledgehammer handle) ;)
Re: Re: Re: Tenants

Originally posted by NigelW

What about your trusty baseball bat Jakk :p

G'Day Nigel,

you may jest, but the baseball bat is alive and well, although hasn't been used in quite a while.

Lets just say it allow me a greater sense of security when dealing with what one may call, the more delicate matter.

I remember reading in Donald Trumps book, "The Art of the Deal" or some similar title, that as a young boy growing up, he would accompany his father when touring the apartment complexes his father had built, collecting rents.
He wrote in this book of the dangers of doing this and one thing that sticks in my mind is the way the used to knock on doors.
They would stand beside the door, knock quickly and loudly, then move their arm/hand away.
He wrote that they never knew what would happen and he'd heard of people getting their hands blown off ny tenants firing bullets at the door.

Now that is "High Risk" investing