You're a landlord who is letting out your investment property. Who is your ideal tenant?
Here are the qualities you should be looking for in the ideal tenant. They should:
But the most important quality in a tenant is that they are HONEST. Landlords who have honest tenants can manage their investment property effectively and simply, as an honest tenant usually pays their rent on time, communicates well, and resolves any problems concerning the tenancy efficiently.
But how can landlords spot an honest tenant? You may think that you can trust your instincts when you meet a tenant for the first time, but there are some very plausible tenants who make a profession from 'scamming' landlords. These tenants are usually polite, well presented and have good jobs, but once they've signed the tenancy agreement, they can make a landlord's life hell!
If you're thinking of trusting an "honest face", note that research undertaken by the Residential Landlords Association has shown that where no tenant checks are undertaken; landlords are seven times as likely to end up taking court proceedings.
Make sure that you're not duped by these tenants, by following our five essential steps to tenant checking:
1. Credit referencing
A tenant referencing agency carries out checks on a prospective tenant's credit worthiness and verifies the tenant's personal details. These agencies offer various levels of service, but landlords should at least opt for the basic package which will check the following:
The most important information a tenant referencing agency gathers is whether the tenant has a County Court Judgement (CCJ). If the tenant has a County Court Judgement (CCJ), this isn't good news as it means that a creditor has previously taken the prospective tenant to court because of their non-payment of debts. If you find out, during the tenant checks, that the tenant has a number of County Court Judgements (CCJs) against them, DON'T let them sign a tenancy agreement.
Often the tenant reference agency will provide the landlord with a score of the tenants' suitability as a tenant and it may suggest to the landlord a course of action. If the tenant gets a really low score, it may be due to the fact that the tenant has:
The tenant referencing agency's scores should be used as guidance, but landlords shouldn't read them too literally. For example, students will have a bad record as they move around frequently and they have a limited credit history. If this is the case, you can use a guarantor if you want to let out your investment property to students.
The tenant verification process should also involve an identification check to prevent ID fraud. Ask your prospective tenant to show you their passport to prove their identity.
Tenant referencing - Find out how our Tenant Checking Service can help.
2. An employer's reference
With tenant referencing landlords can find out whether a prospective tenant is in permanent or temporary employment. If the tenant's contract is about to expire, can they pay rent in the future?
What is the tenant's salary? Landlords can use an employment reference to find out if the tenant can afford to pay the rent and, as a guide, you can calculate the tenants' affordability of the rent in respect to their income by multiplying the monthly rent by 30. This will give you a rough indication of what the tenant's minimum salary should be to be able to pay the rent. For example, a landlord wants to charge a monthly rent of £1,000. Multiply this by 30 and it equals £30,000. If the prospective tenant's salary is £20,000, how is the tenant going to afford the rent without receiving benefits or sub-letting the investment property?
3. A bank reference
Landlords will find these tenant references to be the most difficult and time consuming to obtain, as they need written authorisation from the prospective tenant to allow the bank to respond. The bank will then charge a fee for their services and, even then, the bank will probably respond with a non-committal answer (e.g. "we see no reason why the tenant will not be able the meet the rent". As the tenant could easily delve into their huge overdraft to pay the rent, a bank reference is probably not worth the bother.
If you can and the tenant is willing to give them to you, it may be wise to ask the tenant to provide you with copies of their last six months' bank statements. These will show you the tenant's monthly outgoings and they will flag up any worrying habits, such as a gambling addiction.
4. A landlord’s reference
If your prospective tenant is currently in rented accommodation, obtain a reference from their current landlord. Ask the following questions:
To prevent a prospective tenant from falsifying their landlord's reference, you could always check it by ringing the current landlord up to verify the details.
Also, remember that a current landlord may give a glowing reference just to get rid of a bad tenant, so it may be wise to check with the tenant's landlord before the current landlord as they will have nothing to hide. Also, you can check the tenant's bank statements to make sure that the rent is being paid each month.
Bear in mind, too, that letting agents are on a "finder's fee", so they may not be as thorough in their reference checks.
If your prospective tenant has not rented before and is a homeowner who has decided to sell their property and rent, you obviously won't be able to get a landlord's reference. In this case a landlord should ask for copies of the tenant's last six months' mortgage statements to check that they were not behind with their mortgage payment. If the tenant refuses, has the tenant got something to hide?
5. The tenants' personal reference
As with the landlord's reference, a personal reference is very subjective. So, again, don't worry too much about it.
Published on: July 1, 2008