How to handle a bad tenant in your investment property

Taking out an investment home loan and purchasing a rental property is a goal for many individuals across the nation, but a dream investment can quickly turn into a nightmare if you don’t know how to handle a bad tenant.

Three in four Australians aren’t stressed when it comes to researching their first investment property, but are worried about getting stuck with a bad tenant, according to RAMS First Time Investor Survey 2014.

“Eight in ten of those surveyed said they most feared having a bad tenant who damages their property, followed by renters not paying on time, the property being unoccupied for an extended period of time and, finding a good tenant,” the report stated.

So while real estate investment has its pluses, it’s necessary to be aware of the bad apples.

You’ve got a bad tenant – what now?

If you’ve taken the unfortunate step of signing a tenancy agreement with someone who’s slack at paying rent in a timely fashion or a tenant who’s yet to learn how to keep a home tidy, you might be getting frustrated.

But it’s essential not to make any rash decisions. Before you jump in the deep end and give notice of cancelling the lease, you need to school yourself on the applicable tenancy laws in your state.

Often, issues can be resolved by talking with the tenant. For instance, are they having financial difficulties that are causing them difficulty in making their rental payments? Before you jump to conclusions, call your tenant or send them a letter saying you’d like to speak with them. Outline your concerns and suggest that there is a way forward.

Speak frankly

You’re not going to get anywhere if tempers flare between you and your tenant.

Be frank about the issues that are concerning you, and back up each concern with the applicable tenancy agreement clause. For instance, if a tenant is failing to clean up rubbish, point out that they are required to keep the property reasonably clean (or words to that effect, depending on which state you’re based in).

By being open and backing up each request with the legal rights and obligations, you’re more likely to make headway. Give the tenant the necessary time to comply with your demands, depending on your state’s tenancy laws.

Take action

If your requests have fallen on deaf ears, it’s time to take action before your investment property is trashed or you lose out on further rent, which could drastically derail your retirement or SMSF plans.

Tenancy laws vary between states, so you’ll need to seek advice about what your rights are if you plan to end a tenancy agreement.

For instance, in South Australia, rent must be outstanding for 14 days before you issue a termination notice on such grounds. Perhaps the tenant has breached a term of the tenancy agreement, in which case you need to give at least 7 days notice to the tenant to remedy the breach, pending termination. If you want to carry out repairs or renovations or have sold the property on vacant possession grounds, you need to give 60 days notice.

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