With so many landlords getting royally screwed over by rogue tenants, particularly in this tough economic climate, I’m still surprised by the amount of landlords that are so cavalier about their tenant referencing methods, or more worryingly, the complete lack of. It’s almost like they want to get screwed (not in the good way).
Needless to say, EVERY LANDLORD should be thoroughly referencing their prospective tenants. Yes, that means before creating a tenancy.
By following a screening process, which takes no time at all, landlords can almost immediately avoid disastrous tenants- the kind that notoriously and effortlessly drain profits, most commonly by falling into arrears. But apparently that’s not a good enough reason for many. I hope it’s a good enough reason for YOU though.
Avoid bad tenants by referencing!
While finding tenants quickly is key to reducing void periods, it shouldn’t be a reason to compromise the ‘quality assurance’ process. We should ALL be trying to find “quality” tenants quickly, and that’s not possible without efficient tenant referencing.
Unfortunately, many landlords make the following two unforgivable mistakes:
- Accept the first tenants that come along because they just want the rent to start rolling in.
- Don’t bother referencing their applicants (for whatever reason).
AVOID. At all costs.
Those mistakes can easily end up costing a small fortune, and they often do, because they’re honey-traps for dangerous tenants. Needless to say, rushing to find less than adequate tenant’s is far more expensive than prolonging the void period for the purpose of finding good tenants. From my experience, it’s mostly new landlords that get tunnel vision and only focuses on “just finding a tenant ASAP”
I’m guilty, and that’s how I ended up with dogshit tenants in the past.
Admittedly, there’s no silver-bullet solution for finding reliable and genuinely good tenants. However, there are steps that can be taken to significantly increase you’re chances of bagging good’ens, and consequently avoiding the rotten samples…
Methods of Referencing Tenants
I’m sure many landlords have their own methods of referencing tenants that differ from mine, but below are a few of the precautions I take as part of my “tenant referencing” protocol.
1) Gut instinct
Always meet your prospective tenants, even if you’re using a letting agent.
I personally believe that one of the greatest tools to identity a rogue tenant is by relying on gut instinct. That’s why I’ve thrown it first in the list.
I’m sure a lot of landlords have shown prospective tenants around their property and thought, “Hmm I’m not sure I want these people living here”, I know I’ve thought that on many occasions. From my experience, if it looks like a chav, smells like a chav and walks like a chav, it’s probably a chav.
Unless I’m completely comfortable with my prospective tenants, I don’t bother wasting time on trying to convince myself they’ll result in being good tenants, even if a letting agent tries to convince me otherwise. I firmly believe that a landlord (with common sense) will be more effective at finding good tenants compared to the average letting agent, simply because no one will care about our investment as much as we do. We inherently rely on our gut instinct, while most letting agents have no emotional attachment, so they’ll purely rely on the numbers. There are arguments for both sides, but I can unequivocally say, through my own experience, that gut instinct provides a clearer picture than most other referencing methods.
If your prospective tenants make you feel uneasy, it’s probably for a good reason.
2) Ask for I.D
Before you even start the process of deciding whether someone is a potential tenant or not, make sure they’re actually who they say they are.
Due to a newly introduced landlord legislation, Under section 22 of the Immigration Act 2014, Landlords in England are actually legal obligated to check their tenant’s proof of ID and citizenship to help control illegal immigration. Failing to comply could result in penalties to the tune of £3,000.
However, while the legislation DOESN’T currently apply to every landlord in the UK, you’d have to be crazy not do it, whether it’s required or not.
3) Use a Tenant Referencing / Credit Check Service
Most landlords will find tenants through a letting agent, whether it be an online or highstreet agent, and pretty much all of them will provide a referencing service which includes a credit-check, so most landlords don’t directly use a referencing service.
However, I have two trains of thoughts here:
- Finding tenants via an agent isn’t the only solution; word-of-mouth, friend-of-a-friend, and using classified websites like Gumtree are a couple of alternative methods popular among landlords when looking for tenants. In those circumstances, landlords will need to find their own means of conducting thorough referencing.
- Many agents charge a premium for using their referencing services, especially since the Tenant Fee Act 2019 was enforced on the 1st June 2019, because that stopped letting agents from being able to pass on the referencing costs to tenants (which many used to do!).
What was the result? Agents redirected the cost onto landlords to recoup their losses, so the cost of referencing suddenly rocketed for landlords (when going through an agent).
In many cases, particularly in the case of online letting agents, a “tenant referencing service” is an optional add-on, so you can decline their generous offer *cough* and directly use a referencing service. There are a buttload of options out there (many of which letting agents use themselves, so you ultimately get the same result), and using them directly is definitely much more cost-effective than going through an agent.
Referencing companies typically offer a variety of packages, ranging in different depths of interrogation, but they all generally provide a report which includes:
- Identity Check– confirms whether or not your prospective tenant is who they say they are.
- Financial Check– this will highlight any red flags in a tenant’s financial background (e.g. CCJs and other adverse data) that can provide crucial for determining a tenant’s ability to make rental payments.
- Tenant Risk Score– this will provide you with a score on the level of risk of letting a property to the tenant/li>
- Income Reference– this will verify the tenant’s employment and income status, by confirming job title, employment start date, length of employment and salary
- Previous Landlord Reference– feedback from previous landlords, which will provide good indication of their reliability
When choosing a tenant referencing service and package, make sure you’re clear on what will be checked. Obviously, the more thorough the referencing, the better.
Important note: I wouldn’t rely solely on a 3rd party tenant referencing services (like many landlords do), but more so, a contributing factor to help determine the overall suitability of your prospective tenant. You should always do your own due diligence!
Tenant referencing services
In case you’re in the market for a couple of suggestions, I’ve listed a couple of referencing services I’ve used in the past and have been satisfied with,
| Supplier | Notes | Price | |
|---|---|---|---|
Supplier |
Notes / IncludesFast Credit CheckA fast credit check that will provide essential information about your tenants:
*subject to tenants response times |
Price £5 Inc VAT Normal price: £9.99 |
More Info 50% Discount Code: PIPBASICTR18 |
|
Supplier |
Notes / IncludesFull Tenant ReferencingA comprehensive check giving you a detailed picture of your tenants’ suitability:
|
Price £12.50 Inc VAT Normal price: £24.99 |
More Info 50% Discount Code: PIPFULLTR18 |
Supplier |
Notes / IncludesSpeedy Reference
|
Price £20 Inc VAT | More Info |
|
Supplier |
Notes / IncludesComprehensive Reference
|
Price £20 Inc VAT | More Info |
Please note, I try my best to keep the information of each service up-to-date, but you should read the T&C’s from their website for the most up-to-date information.
4) Tenancy Application Form
I always make prospective tenants fill in a Tenancy Application Form before or during a viewing. It requires the tenant to provide the following:
- Tenancy details: property address, rental period, number of applicants, proposed tenancy start date.
- Tenant’s personal details: tenant’s name, contact details, and time at current address.
- Current Landlord: details about current landlord.
- Referee / Guarantor Details: details about guarantor
- Employment details: current and past employment details, and details regarding salary
- Details about occupiers: details about all the people that will occupy the property
- Other details: details such as smoking status, pet status
The form is useful because it provides details of employment and previous/current landlords. That will allow me to follow up their references and make sure they’re legitimate and have a good track record. Additionally, if I have a vacant property which is receiving interest from several prospective tenants, I will have a neat list of all applicants with all their details. It makes it much easier to manage the applicants details, and determine which applicant is most desirable, which will effectively help me choose the better tenant. For example, I can easily see which applicant has a greater salary and stronger rental history.
You can download and/or find out more details about a Tenancy Application Form.
I can’t stress the follow enough: it’s important to actually follow up the references, particularly previous landlords and employers, and not just allow them to be names on a piece of paper. Tenant’s notoriously provide duff information knowing that many landlords don’t follow up references.
If you’re using a referencing service, they may verify the references on your behalf. Either way, between yourself and the hired help, ensure everyone gets contacted for proper verification.
5) Visit your prospective tenant’s current home
This is a bit of a hassle, but many landlords do it because it’s extremely effective.
Arrange a visit to the prospective tenant’s current residency, allowing you to assess their standard of living and how they take care of their home. Needless to say, they will most likely make an extra effort to clean the property before your arrival. However, some people generally don’t know the difference between clean and darn right filthy, so they’ll be restricted to their own standards. What they find clean, may not actually be clean. So this method is still a good indicator.
I’ll give you a specific example of when this happened to me (although the example is kind of backwards).
I recently had a tenant vacate, and while we were going through the final property inspection my O.C.D radar went ballistic as I was detecting congealed grime and grease left behind, roaming around in the kitchen. There was also a lot of dirt and cobwebs all over the place.
The funny thing was, during the inspection, my tenants were gloating about how thorough and regimented they are in regards to hygiene, and that’s why the property was left so clean. The husband said, I quote “Tracey (his wife) is so fussy, she’s an obsessive cleaner. You know what they’re (women) are like!”
Yeah, I don’t think so, son.
All I really discovered is that they have terribly low standards and have no actual idea what clean actually means. But that’s just how some people are.
Just to clarify, I don’t think it’s necessary to infiltrate the home of EVERY applicant, only the prospective tenants.
6) Tenant Guarantor
While requiring a Tenant Guarantor isn’t a direct means of referencing your prospective tenant, it should be a prerequisite of all applicants. If a prospective tenant can’t provide a guarantor, you may want to carefully consider whether or not they’re eligible to pass the screening process.
Personally, I don’t accept tenants that cannot provide suitable guarantors.
7) Assessing Affordability
Regardless of whether your tenant is in receivership of Housing Benefit or a salary from full-time employment it’s important to assess whether your prospective tenant can actually afford your property. Essentially, create a ‘risk profile’ for your prospective tenant.
Based on your tenants total monthly income (remember to check recent pay slips), assess whether or not you think they can realistically afford your property, including the running costs, and the cost of ‘living life’. Everyone’s got a live, right?
I’ve seen it happen many times before, where a tenant gets totally excited by the prospect of renting a house which they’ve fallen in love with, and not realising that they can’t realistically afford it. Some times as a landlord, you need to do the maths for the tenant and make a calculated decision. Tenants are often ruled by their heart, neglecting their head. I guess it’s the same when it comes to women and shoes.
If after crunching the numbers, it seems unlikely your tenant will be able to pay the rent for the long haul, it maybe something to seriously think about.
8) Job status, Income & payslips
It’s common practise for landlords to request the previous 3 payslips and bank statements to verify income (i.e. you can cross reference to ensure their wages go into their account), which will allow the landlord to assess the tenant’s risk profile. Obviously this ties in with obtaining references from the employer and assessing affordability, both of which has already been discussed.
Of course, it’s also important to determine whether your prospective tenant is in full-time employment, part-time, temporary contract, or on a zero hours contract. Don’t just rely on the previous 3 months income, clarify their employment status.
9) Facebook
Ahh the wonder that is Facebook; probably one of my favourite and potentially most entertaining methods of referencing tenants.
Basically, when someone applies to be my tenant I always look for their Facebook profile, by searching for their name and/or email address, and then narrowing down by location (usually required if I’m searching for a common name). 7 times out of 10 (I pulled those odds out of my arse, but they seem realistic enough), the applicant has a Facebook profile, giving me the opportunity to get a snapshot into their life. If lady luck is on my side, the profile will be somewhat public, allowing me to view the entire visual catalogue of the applicant’s life.
I’ve actually refused a tenant in the past based on what I saw on their Facebook profile. You can read about that delightful story here, The Results Of Referencing Prospective Tenants On Facebook.
Perhaps not the most orthodox or reliable of methods, but it can provide some insight, albeit marginal. That said, over the years this method has actually been very useful, and becoming increasingly effective. Most people seem to be leaving digital footprints behind, and most of those grubby prints are smeared across Facebook.
Seriously, look up your applicants on Facebook, what you see on their profile might cut through the staged shit they bought with them during the viewing.
Avoiding bad tenants
Besides from thorough tenant referencing, there are other tell-tale signs which can expose a potentially awful tenant, and those signs should NOT be ignored. Don’t just rely on the referencing methods above, I also recommend reading through the guide on how to avoid bad tenants!
Other points to consider
Landlords in England: You CANNOT pass on the costs of referencing/credit checks to tenants
On 1st June 2019 the “Tenant Fees Act 2019” came into force, which is a legislation that focuses on banning and restricting letting agents and private landlords (in England only) from charging tenants with certain fees, which includes referencing fees and credit check fees.
So if you’re a landlord in England, from the 1st of June 2019 you will not be able to charge your tenants for any form of referencing. If you do, the charge will be deemed unlawful, and you could face a hefty financial penalty.
Should you reference every applicant?
I wouldn’t recommend referencing every Tom, Dick & Harry that shows interest, not only will that be an expensive process, but it will also be a complete waste of time (in most cases).
You’ll probably have a pool of applicants, so I would short-list the most appealing down to about 2-3, and then analyse the data. If you only have one man/woman left standing, then the future should be clear. However, if you still have a few potential contenders, I would whittle the list down to 2, and then splash out on a credit check on them. May the best applicant win!
That’s just a generic blueprint, which may not work in ALL cases. But hopefully you get the general jist of my point, which is to whittle down the applicants and invest time and money on only the most appealing. Use your own common sense and due diligence when deciding which applicants warrant in-depth referencing!
Don’t stop looking for tenants until the deal is signed!
I urge you with all my might not to fall for this devastating trap.
Even if you think you’ve found the perfect tenant(s), do NOT burn all your bridges with all your other applicants or kill the process of finding tenants until contracts have been signed, and the first months’ rent and deposit has been paid.
Many landlords make the naive mistake of trusting the enthusiasm of applicants, and take their verbal commitment to the tenancy as bond. The reality is, consequences change, and many applicants show enthusiasm and interest so you reserve the property for them while they’re simultaneously looking at other prospects! You can bet your left nutsack on the fact that they’ll jump ship and break your flimsy bond in a heartbeat if they discover a more suitable proposition.
My point is, deals fall through all the f’ing time (for whatever reason), so until a tenancy is signed and sealed, take their word as no more than a pinch of salt. So keep on searching, keep on referencing.
You’ve been warned, friend!
Do you plan on getting RGI (Rent Guarantor Insurance)?
RGI has become extremely popular among landlords over the last few years, particularly because of the tough economic climate, which is causing spikes in rent arrears.
If you don’t know what it is, it’s essentially an insurance policy which covers landlords against loss of rent in the event of non-paying tenants. Very useful.
If you plan on getting RGI, one thing to be wary of is that RGI companies will have specific requirements before they will offer you coverage. For example, they may require you to run specific checks, or use specific referencing services.
Check with your preferred RGI company or insurance broker for any specific requirements before referencing any applicants.
For more information on RGI and recommended suppliers.
Conclusion
As said, doing all of the above doesn’t take long at all, and it’s well worth the minimal effort it requires. Moreover, you can do all of the above for FREE. There really are no excuses.
Out of curiosity, does anyone else have any other weird and wonderful methods of referencing? I’m always looking to develop the ways of how I can harass prospective tenants.
Disclaimer: I'm just a simple landlord blogger; I'm not qualified to give legal or financial advice. Any information I share is my opinion based on my personal experiences as an active landlord, and should never be contrued as legal or professional advice. For more information, please read my full disclaimer.
LinkedIn is another source of social networking that you can use to ascertain a little background information. Of course someone could totally create a fake account however if they are connected to other professionals it's unlikely they'd lie about their employment history etc.
I know that it is common practice overseas for prespective tenants to create a 'tenant profile' statement and accompany it with a ledger of their current/past rent payments. This is something I find a little OTT and frankly sort of no-one else's business however it does 'impress' if someone has taken the trouble to try and show their financial viability and background.
I still believe that nothing is foolproof, all a landlord can do is try and mitigate as much risk as possible.