Rental history is important for how your house investment does. You could face issues with late rent payments, damage to your home, or even evict them if you don't thoroughly screen the people you rent to. That is a bit costly. It even makes you lose money and becomes stressful.
However, a solid rental history shows that the tenant will likely pay on schedule, maintain your property, and extend their term, allowing you to profit without much difficulty.
This blog will explain how rental history influences real estate investments.
Rental History and Its Impact on Investors
Here’s the rental history impact on investors.
Reduced Risk
At all costs, as a landlord, you want to stay away from problematic renters. We speak about the renters that damage your property, pay rent beyond the due date, or even make you go through the eviction procedure regularly. These kinds of situations can be quite expensive as well as distressing.
A tenant's rental history can help you avoid these headaches. Here's what it can tell you.
- Payment History: It's a cause for concern if a renter has a history of missing or paying rent after the deadline. You want renters who value making their rent payments on time and who are fiscally prudent.
- Property Care: An excellent rental history shows that a renter maintained their previous lease. It means that they did not relocate out of the property with undue damage and that it was left in good shape, says Richard McKay, CEO & Managing Director of Sprung Gym Flooring.
- Eviction History: A tenant's history of removals is a huge red flag. When at all possible, try to prevent evictions as they are expensive and time-consuming.
Predicting ROI
Investing in properties to rent them out requires careful decision-making to maximize returns. What is a reliable way to estimate your earnings, though? Relying on a renter's previous rental history could serve as an asset in estimating how much you make.
Here's how:
- Regular Rent Payments: It's a pleasure to have a tenant who regularly pays rent payments on schedule. This indicates that you receive money regularly, which facilitates budgeting and allows you to pay for necessities for the home. You won't have to worry about running out of money because someone didn't pay, or about hounding people for late rent.
- Fewer Empty Houses: Maintaining your property is just as important as finding quality tenants. Rent must be paid on time. Tenants that have a strong rental history typically remain in their homes longer. This can assist you save money because it means your house won't be unoccupied for too long. Finding tenants that will stay is crucial to make the maximum money since every month that you have empty hands is money lost, says Andrew Smith, Co-Founder of PropFusion.
- Less Fixing Up: It takes money to prepare a residence for a new tenant once someone moves out. It can be necessary to paint, clean the carpets, or make repairs. These expenses can mount up quickly. Good tenants typically take better care of the property, so you end up making more money overall and spending less money on repairs.
Property Value
When investing in real estate, consider the property and the people who live there. It could amaze you to learn that the quality of your tenants can boost the value of your home.
As you can see in the image above, 22% of homeowners used internet estimators to find out how much their house was worth. It follows that monitoring property value is crucial. Here’s why.
- Higher Rental Income: You can often charge higher rental rates when you bring in excellent tenants. These renters are a great asset since they are more likely to take good care of the property and pay the rent on time. The total value of your investment is increased by this higher rental revenue, says Andy Wu, CEO of Backyard Oasis.
- Reduced Wear and Tear: Honest tenants know how important it is to maintain a property's condition. It is less likely that they will damage things, forget to maintain them or produce issues that need expensive fixes. That means your property will sustain its value over time with less wear and tear.
- Improved Curb Appeal: Tenants who care for their apartments frequently make aesthetic improvements to the building. You can increase the curb appeal of your house and draw in purchasers or tenants by keeping the yard well-kept, keeping the outside tidy, and creating a pleasant atmosphere.
Financing and Insurance
Financing and insurance are two critical components. You might be surprised to learn that your property's rental history can influence your options and terms in these areas. First, let’s discuss financing.
Financing:
- Secure Loans: Lenders want to minimize their risk when providing loans for investment properties. Dan Close, Founder and CEO of We Buy Houses in Kentucky, mentions, “A property with a strong rental history, consistent income, and responsible tenants, is seen as a more secure investment. This can make it easier to qualify for loans and secure more favourable terms, such as lower interest rates or higher loan amounts.”
- Refinance: If you're looking to refinance your property, a positive rental history can work in your favour. Lenders will see that your property is generating income and is less likely to be vacant — making it a more attractive investment for them.
- Attract Investors: If you're seeking investors for your property, a strong rental history is a powerful selling point. It shows the property's income-generating potential and reduces the perceived risk for investors.
Insurance
- Lower Premiums: Insurance companies also assess risk when determining premiums for property insurance. A property with a history of responsible tenants and minimal claims is seen as less risky to insure. This results in lower insurance premiums, saving you money in the long run.
- Improved Coverage: In some cases, a positive rental history even gives you access to better insurance coverage options. Insurance companies may be more willing to offer coverage or lower deductibles for properties with a proven track record of responsible tenants and good property management, says Erick Recors, Founder & CEO of Full Bloom Green House.
- Reduced Claims: Tenants who take good care of a property are less likely to cause damage or accidents that lead to insurance claims. This further reduces your insurance costs and minimizes disruptions to your rental income.
Rental History and Its Impact on Tenants
Secure Desired Properties
Landlords often have their pick of applicants, and it's easy to get lost in the shuffle. But a positive rental history can be your golden ticket to securing that dream apartment or house.
Here's how it can help you.
- Show Responsibility: A history of paying rent on time and taking care of your previous rentals shows landlords that you're a trustworthy tenant. It tells them you'll likely treat their property with respect and fulfil your lease obligations. Landlords want to avoid problems, and a good rental history gives them confidence that you won't be one.
- Stand Out: A positive rental history can give you an edge over other applicants. Landlords often receive multiple applications for a single property. When they see a consistent record of responsible renting, it makes you a more attractive candidate, shares Odierno Injury and Accident Lawyers.
- Expand Your Options: A good rental history can open doors to a range of housing options. Some landlords can have strict requirements for tenants, and a positive rental history can help you meet those requirements and qualify for more desirable properties.
According to a recent survey, over 80% of landlords say they always or often check an applicant's rental history before making a decision.
Negotiate Power
When you're looking for a new place to rent, it's not just about finding a place you like — it's also about getting the best possible deal. And your rental history can give you more negotiating power with landlords.
Here's how.
- A Strong Track Record: A positive rental history shows landlords that you're a responsible and reliable tenant. This gives them confidence that you'll pay rent on time, take care of the property, and be a good neighbor, says Aaron Dewit, Owner of Commercial Cleaning Depot. When landlords see this, they're more likely to be flexible and willing to negotiate with you.
- Lower Security Deposit: A good rental history can help you negotiate a lower security deposit. Landlords often ask for a security deposit to cover potential damages or unpaid rent. If you have a history of taking good care of your rentals and paying rent on time, the landlord may be willing to reduce the deposit amount.
- More Favorable Lease Terms: You might be able to negotiate more favourable lease terms, such as a longer lease, the option to renew, or even a pet-friendly clause. Stephen Bowles from Rhino Roofing, shares, “Landlords are more likely to accommodate requests from tenants they believe will be responsible and respectful of their property.”
Build a Positive Reputation
Reputation is everything. Landlords want to know they can trust you, and a positive reputation can open doors to better rental opportunities. Here’s how you can build.
- Pay Rent on Time, Every Time: This is the most important factor in building a good rental history. Landlords want to know they can count on you to pay rent consistently. Set reminders, automate payments, or do whatever it takes to ensure you never miss a rent payment.
- Be a Good Neighbor: Being considerate of your neighbours is essential. Keep noise levels down, especially during quiet hours. Respect shared spaces and be mindful of others living around you. James Forsyth, ICAEW Chartered Accountant at Quality Contracts, mentions, “A good landlord will often ask your previous landlord about your behaviour, and a positive report from neighbours can go a long way.”
- Communicate Clearly: Open and honest communication with your landlord is key. If you have a question or concern, don't hesitate to reach out. If you need to request a repair or report an issue, do so promptly and clearly. Good communication helps build trust and prevents misunderstandings.
How to Build and Maintain a Positive Rental History
Rental history is like a credit score for renters. It tells landlords a lot about you, and a good one can open doors to better places and smoother rental experiences. Here’s how to build a rental history that makes you shine.
Pay Rent on Time
The golden rule of renting is this. When rent is due, landlords want to know that they can rely on you to pay it. To ensure you never forget a payment, use autopay, set reminders, or any other strategy that suits you, says Alex Borkin, Owner of Coastline Gutter Pros.
Talk to Your Landlord
Maintain a direct line of communication with your landlord. Inform them as soon as something in your place needs to be fixed. Do not hesitate to ask questions if you have any about your lease. Effective communication keeps issues from becoming worse and fosters trust.
Take Care of Your Place
Behave as though it were your own house when you are renting. This includes maintaining it neat and orderly, being mindful of the walls and flooring, and showing overall respect for the property.
Little maintenance tasks, such as changing air filters or maintaining a neat yard, and routine cleaning are perfect. Just in case you accidentally break something, be honest with your landlord and offer to either fix it or cover the cost of repairs. Honesty and accountability are valued by landlords.
Follow the Rules
Your rental agreement functions similarly to a manual. Beni Avni, Owner of New York Gates, adds, “Make sure you understand the instructions and stick with them. This covers topics like when you have to keep the noise down, how many people you can have over, and if you can have pets.” Being a responsible renter who takes pride in being a good neighbour can be seen by sticking to the regulations.
Fix Problems Quickly
As quickly as possible, notify your landlord if something breaks or needs to be fixed. Avoid waiting for a tiny leak to cause a flood or for a simple repair to become a significant cost. Resolving problems as soon as possible shows your responsibility and concern for the property. It also keeps your landlord satisfied and helps avoid more serious issues, says Eric Andrews, Owner of MI&T.
Wrapping Up
All in all, rental history is a key factor that directly impacts the success of real estate investments. A solid rental history shows dependable renters, regular payments, and fewer maintenance problems with the property. But failing to do so can result in monetary losses, harm to property, and a high rate of tenant churn.
You can reduce risks, guarantee regular cash flow, and safeguard your investment over time by giving rental history an important place in the tenant selection process. It's a small but effective step toward ensuring a more stable and successful real estate portfolio.
