Renting out your property to a new tenant is exciting – it could be the beginning of a long and mutually-beneficial relationship. Before you enter into a legal contract with a potential tenant, you should carry out referencing checks to confirm your tenant is who they say they are, and ensure they can afford to keep up with monthly payments.
Referencing your tenants properly can be as important as finding the right landlord insurance. Many landlords leave it to a letting agency to complete referencing, but if you’re letting your property without an agency – or want to double check what the agent is doing – it’s important that you know how to carry out tenant referencing yourself.
If you’ve decided to carry out tenant screening yourself, it’s essential to carry out a thorough background check. Taking a little extra time at this juncture can potentially save you a lot of pain and frustration down the line.
Bear in mind that the following tenant screening checklist will help you form a picture of the tenant’s reliability. However, you also need to use your own judgement. If any alarm bells ring during the process, it’s worth speaking to the tenant and asking for an explanation – if the person is up front and transparent with you, a mistake in their past shouldn’t necessarily stop you from letting to them.
An employer reference is important because it will confirm that the prospective tenant works for the company they say they do, as well as their stated salary. As guidance, a tenant’s after-tax salary should be at least 2.5 times the annual rent to guarantee they can keep up with monthly payments and have enough remaining to live on.
Get in touch with the prospective tenant’s previous landlord to find out if they kept the property in a good state and settled any payments before vacating the property. Ask if they were reasonable to deal with. Beware that some landlords will say anything to get rid of a bad tenant, so listen to your gut. If the landlord is negative about the tenant, you need to at least hear the tenant’s side of the argument – perhaps the landlord was also unreasonable.
There are many agencies that can provide an individual’s credit check for the past six years. A credit score of 600 or above is good enough in most cases – but bear in mind that younger tenants will likely have a lower rating as they have not have had the time to build up a good rating.
It’s straightforward to carry out a credit check yourself. You firstly need to get the tenant’s permission to run the report. You then have the option of using one of the main three credit bureaux – Experian, Transunion or Equifax – or you can use a company that amalgamates a score from all three. There’s a healthy market for credit checks, so shop around and find a good deal.
If you are renting to students or other groups who may be less financially stable than someone in full-time employment, you may need a guarantor who can stump up the cash should the tenant find themselves unable to pay. In this instance, you will need to complete a tenant guarantor check – which requires permission. The guarantor will typically be a relative, close friend or employer of the tenant. Ideally, they should be a home owner.
The process of letting to businesses isn’t hugely different to letting to private tenants. When letting out commercial property, you should also carry out a credit check, as well as a previous landlord check on the business owner. To check on the financial stability of a limited company, you can visit Companies House and gain access to reports and copies of accounts.
Letting out your property for the first time is very exciting. However, this shouldn’t mean you rush any step in the process. By putting in the time to complete thorough record checks now, you can sit back, safe in the knowledge that your new tenant will look after your property and provide you with dependable income.
In theory, the tenant referencing process shouldn’t take more than two or three days. However, there can be delays if the tenant, their employer or their previous landlord takes longer to provide the information you need in your rental reference check.
To start, you need to collect ID and other documents from the tenant, as well as their written permission for you to carry out a background check. As noted earlier, a letting agency can do the legwork for you or you can use tenant referencing services to complete the process.
Many private landlords choose to complete the tenant referencing process themselves, as it provides peace of mind that the checks have been carried out thoroughly – after all, it is you who must deal with the consequences of letting your property to an unscrupulous tenant. Plus, you can avoid any additional agent fees.
We provide landlord insurance for a wide range of properties and tenants including multi occupancy, students, local authority placements, unoccupied and much more. See our landlords insurance page or call 0344 346 0409 for more information about landlord insurance from Towergate.
Alison Wild BCom (Hons), MAAT, MATT, Taxation Technician is a highly respected industry professional who has been working with and advising SMEs in areas including tax, pensions, insurance and marketing for over 25 years. She is a member of the Association of Accounting Technicians (AAT) and Association of Tax Technicians (ATT) and also has over 20 years' experience as a residential landlord.
Date: February 14, 2018
Category: Commercial Property