In today's economic climate, finding a stable, long-term tenant for your investment property is key to achieving a positive return over time. So how do you choose the right tenant for your property?
We asked property expert Chris Mulcahy of Mulcahy & Co to discuss what to look for in a long-term tenant, along with some tips on vetting potential tenants and monitoring their solvency going forward.
Mulcahy advises considering the viability of any tenant on their own merits. For instance, if you were looking to rent your commercial property to a retail tenant, he says you would want to consider a range of factors such as the tenant's financial history, their image and viability in the marketplace, the presentation of their other stores and what customers are saying about them online.
“While blue-chip tenants such as public companies, government tenants and strong multinational companies are usually safe bets, the fundamentals of choosing a good tenant, regardless of the size or industry, remain the same,” Mulcahy says.
Do your due diligence
When selecting a tenant, Mulcahy recommends doing your due diligence, including:
-Reviewing a copy of the tenant's certified assets and liability statement. -Evaluating the potential tenant's business plan for long-term viability. -Checking the references provided for evidence of a stable rental and payment history. -Understanding the tenant's proposed fit-out of the premises and how the tenant proposes to pay for it.
In addition, he says it's important to keep in touch with your tenant on a regular basis. If payments are starting to fall behind, it's better to identify the issue early and assist them in assigning the property or business to another tenant.
Take a cautious approach
While some landlords may feel pressure from a vacancy, Mulcahy advises taking a cautious approach and “not simply accepting the first potential tenant that expresses interest in the premises, regardless of how viable you believe the proposed business is”.
It's also important to make sure the lease matches your investment objectives and to consider other factors, such as how well the proposed tenant fits the business profile of the property. The best tenants will bring something of value and integrate well with the existing tenant mix.
Be willing to negotiate for the right tenant
Depending on how difficult it would be to re-lease a commercial property should it become vacant, Mulcahy says a landlord may need to offer incentives to the right tenant to make the property more attractive for ongoing occupancy.
While finding the right tenant may take more time, it's important to negotiate a lease that both satisfies the tenant and meets your overall investment goals. Ready to start looking for a tenant? Find an agent today.