First Lets – Checking that a prospective tenant’s background checks out
Property management services at Ezytrac are designed to find, sign and maintain the best tenants in your property. So far in this series discussing how to get the best tenants, you’ve learned:
- how tenants can make or break your investment property profits;
- the questions you need to ask on the rental application; and
- how not to fall foul of the right to rent scheme and discrimination laws.
In this article, you’ll learn more about tenant background checks carried out by our investment property management services. It’s these checks that are the final step in the process of getting the best tenants, as you work towards maximising your rental income profit. After this, all that’s needed is to confirm the lease with a watertight tenancy agreement.
Why background checks are necessary
Most people tell the truth unless they have something to hide. Even the most genuine-sounding tenants can tell lies, and it’s the serial tenants from hell who are best at it. You’ll only discover if your applicant has been truthful by carrying out the background checks that you will have told them you’d make. These background checks should cover employment history, residential history, and credit score checks. You should also consider carrying out a DBS (Disclosure and Barring Service) check.
Always get permission from the tenant
As you’ve seen in our previous articles, the rental application should include sections for the tenant to give information about:
- Current and previous employers
- Current and previous landlords
It should request permission for you to confirm what the tenant has told you. The tenant does this by signing an agreement for you to do so. Make sure you also include a request to check credit scores and carry out a DBS check.
· Employment history checks
You should ask for several years’ employment history. If the tenant has had a new job every year, it could be a sign that there will be trouble ahead. They might not be able to hold a position, and that could lead to periods with no income. If this happens, you’ll be last in the list of people to pay.
You’ll have asked for contact information for current and previous employers. Always double-check this. It’s not unknown for a rogue tenant to ask a friend to pose as their employer.
When you get in touch with the employer, you may find that the only information they’ll confirm is that the tenant works for them. They’re not obliged to say anymore. It is why it’s so important to obtain payslips to verify the tenant’s salary.
As a rule of thumb, a tenant’s gross income should be around three times the rent. It is the principle behind Brett Alegre-Wood’s award-winning buy-to-let investment strategy and book, ‘The 3+1 Plan’ – people pay around a third of their income on rent or mortgage, a third on living, and a third on taxes.)
· Residential history check
The residential history check is one of the most important, and telling. You’ll be able to spot a lot from the pattern of residential history. If the tenant has lived in a single location for several years, it could be a sign that they’ll be a long-term tenant. They clearly don’t like to move around. A history of moving from one landlord to another, however, could be a red flag.
Don’t rely on speaking to only the current landlord. Even if the tenant has lived in their current property for a long period, it could be that the landlord wants to see the back of them. Previous landlords are likely to be much more forthcoming with genuine information.
When you call a fellow landlord, always explain who you are and why you are calling. Ask how they know the tenant. The answer could tell if you’re speaking to a bogus landlord.
Ask about the period of tenancy, when it was, and what type of tenant your applicant is. You want to know:
- if there was any damage caused;
- if the rent was paid on time;
- about the tenant’s relationship with neighbours and other tenants; and
- about the landlord/tenant relationship.
· Credit score check
A credit agency like Experian will be able to tell you a lot about your tenant’s financial ability to pay your rent on time every month. Miss this important check, and you’ll be missing vital information. In a way, a buy-to-let investment is like a loan. You’re the creditor, and the tenant is the debtor. You’ve provided an asset up front (the property), and the tenant pays you back over time through rental payments.
It’s imperative to know that the tenant is good at money management.
The credit report will tell you about the tenants:
- Current debt
- Monthly payments the tenant makes
- Missed payments
- Overdue balances
- County Court Judgements; and so on.
I don’t understand why DIY landlord so regularly misses the credit score check. But they do. And they’re usually the ones that discover they have a tenant from hell a few months down the line.
· The criminal record check
This check, which is now called the DBS check, gives extra peace of mind to the landlord. It cannot be made without prior consent from the tenant. The basic check evidences any unspent convictions.
These background checks are vital. You’ll be breaking the law if you reject a tenant application on the grounds of race, age, religion, and so on. But if the background checks lead you to believe that the tenant can’t afford the rent, or might cause damage to your property, or pose a risk to others, you are perfectly within your rights to reject.
In my next article, I’ll discuss the how to weave your way through the applicant interview. In the meantime, it’s time for me to sign off. Feel free to contact one of the team on +44 1522 503 717 to chat about getting the best tenants for your property. You’ll quickly start to discover why we’re one of the fastest-growing investment property management companies in the UK today.
Yours in effortless property management,
Brett Alegre-Wood MARLA MNAEA