Best tenants for your investment property

Firstly, if you are building a portfolio of properties, just like you would diversify your portfolio, you also want to diversify your tenant pool. Imagine for example you had students during the pandemic or short-term let tenants in a holiday home, your income would have been destroyed if you had multiple properties all with the same kind of tenants. Equally if you had working professionals during 2008, you could have seen a major drop in occupancy or rent payment.

Families

Pros

• Long term tenants - Settled long term tenants, that will give you years of 100% occupancy (perhaps 10 years or more if your lucky)

• Property improvements - With long term tenants such as a family they may decorate and even improve the property over their long tenancy.

Cons

• Lower income - Families could have a lower income otherwise they would likely want to buy a property, therefore rent may not be as high, they could even fall behind in rent payment if they fell on hard times. This may not be the case but is a possibility

Tip

If you have a family, let them feel like its their home and that they can make changes. This way you are increasing your chance of having a long-term tenant.

Students

Pros

• Parents will be guarantor, - If the student cannot pay then parents will step in and pay on their behalf. Often parents are working professionals giving you more security on your rent.

• Term Payments – Often with student tenants they pay a lump sum in advance, which is fantastic for your cashflow

• Higher than residential payment – Your weekly rate on student property will typically be much higher than if you are renting it as a residential property, this is particularly true if you own a HMO.

Cons

• Property damage – Students can be notorious for holding parties, damaging furniture etc… this can lead to high management and maintenance cost. You may get a good student tenant, but eventually over years you are more than likely to have a bad tenant, if not more often than not.

• Only pay 48 weeks of year – Students may only pay for the term period of the year, meaning you only get 48 weeks rent. In between that time there really is no opportunity to rent the property to anyone else, meaning a void period of no rent.

Tip: students may pay more for good amenities such as tv, broadband, digital tv subscription etc… and anything that makes their life as easy as possible, so investigate these options to beat your competition in the rental market.

Council tenants

Pros

• Long term tenants – Similar to a family tenant, council tenants (who may be a family themselves) can settle for a long time, giving no void periods for potentially years. Unfortunately, as they are low income it is less likely they will be able to purchase their own property thus increasing the chances of them staying in the property for a long time.

• Can get payment direct from council – This is not as common anymore but can still be achieved, whereby the council can pay you directly instead of the tenant. This creates a very reliable rental payment structure, as the council is far less likely to not pay the rent.

Cons

• Lower end of market = low rent – These tenants may pay you directly, but as they are paying you through a minimal housing allowance then rent will have to be lower, in addition you will not be able to raise rent easily or without risk of losing tenant due to them being unable to afford it.

• Property damage - In some cases, council and social tenants can attract the wrong type of tenants in terms of taking care of the property, this can create higher maintenance costs. In Fabrik’s experience many of their own tenants are council and are some of their best.

Tip: Try to avoid having the tenant pay you directly and if you can agree with the council for them to pay you directly.

Working Professionals

Pros

• High rents – Many developments we offer are aimed at working professionals due to the higher rent payments achievable, simply as they have more money to spend.

 

• Take care of property – This is not a given, but typically speaking working professionals will take care and respect their living space.

• Reliable payments – Payments won’t just be higher, but as they are working, typically on a good salary, you can rely on the on-time rent.

Cons

• Only couple of years stay – Working professional are often in a period of their life where they are working towards saving for a deposit or just starting a new career. This often means that inevitably they will move on, so you may have these tenants no more than a couple of years.

 

• Higher expectations – With a busy life and paying high rent these tenants will expect a better standard of living. This is why many new developments come with a wide range of amenities such as Gyms, lounges etc…

 

Short-term tenants / Holiday Makers

Pros

• High rent payments – You are charging tenants a nightly rate, potentially like similar to hotel pricing or more depending on your property, giving significant returns

 

• Pay in advance – Tenants will need to pay in advance when they book their stay

 

Cons

• Quick turnaround – tenants may not be there for any longer than a few weeks, maybe just a long weekend or a single night, so the property will need constant management, cleaning and advertising to keep it occupied.

• Low vacancy – This can depend largely on the location, but some areas may be seasonal, so you may not be able to rent to any tenant for a period of the year.

• Any tenant possible – every new tenant you run the risk with who they are and how they will treat your property, eventually it is going to be practically impossible to avoid a bad tenant damages the property.

 

Tip: Research your area. Tenants will likely expect a higher standard of amenities, furniture and luxury, make sure your property is better than your competitors to increase your occupancy rate.