Locating and carefully screening potential tenants
Finding the right tenant is one of the most important steps in being a successful landlord and whilst even good tenants can lose their jobs, a good tenant understands the importance of maintaining open communication and being transparent with their landlord, especially during times of financial hardship. They will keep their landlord informed about any potential issues and work with them to find a mutually beneficial solution.
Additionally, a good tenant will continue to abide by the terms of the lease and conduct themselves responsibly, even in difficult circumstances.
By doing so, they demonstrate their commitment to being a responsible tenant and building a positive rental relationship with their landlord. Ultimately, finding a good tenant who is reliable, communicative, and respectful can greatly contribute to a successful and stress-free rental experience for both parties involved.
What is the ideal tenant profile?
The ideal tenant profile may vary depending on the landlord’s specific preferences and the type of property being rented out. However, some common characteristics of an ideal tenant will include:
- Financially stable: An ideal tenant should have a reliable source of income and a good credit score, indicating that they are able to pay rent on time and consistently meet their financial obligations.
- Positive rental history: An ideal tenant should have a good track record of renting which give an indication of their ability to maintain a tenancy.
- Capable of meeting the financial obligations of the property: The general rule of thumb for determining a tenant’s income requirement is to ensure that their annual income is at least 30 times the monthly rent. So, for example, if the monthly rent is £600, the tenant’s annual income should be at least £600 x 30 = £18,000. This helps to ensure that the tenant has the financial stability to afford the rent and meet their other financial obligations, reducing the risk of late or missed rent payments.
Finding a tenant
As a self-professed DIY property manager and property investor, I always find ways to reduce my outgoings and what a better place to do it than getting rid of the agent, right!
I have come to realize that there are certain tasks that I need to delegate to agents, and one of them happens to be finding tenants.
Using an agent
The advertising prowess on platforms such as Rightmove and Zoopla is unrivalled and using an agent that has access to them will give you access the largest pool of potential tenants and increase the likelihood of finding a suitable and reliable tenant for your property.
Traditional Agent
Many traditional letting agents offer a tenant finding service and will generally charge you a fee for this. Most will also charge a renewal fee. These are charges made by the letting agent to the landlord when they renew a fixed term tenancy agreement with the tenant.
If you choose to work with an agent to find a tenant, it’s important to carefully review the terms of your agreement with them to ensure that you’re not being charged unnecessary fees. One fee that you may want to negotiate is the renewal fee, which is a fee that some agents charge when a tenant chooses to renew their tenancy agreement.
You may want to negotiate with the agent to waive the renewal fee. Agents are more willing to negotiate this before being instructed as they want the business.
This can save you money in the long run and may be a reasonable request if you’re taking on more responsibilities as a landlord.
If you are already signed up for the renewal fee, you can avoid paying this by not renewing the tenancy i.e. allowing it to go into a periodic (or rolling) tenancy as agents can only charge a renewal commission if the tenancy is actually ‘renewed’
Online Agent
Online letting agents are companies that provide a range of property management services to landlords and property owners over the internet. They typically offer services such as marketing and advertising of properties, tenant referencing, rent collection and tenancy agreement drafting.
Online letting agents often charge lower fees than traditional high street agents, as they do not have the same overheads associated with maintaining a physical office.
Online agents such as open rent and purple bricks allow you to advertise your property for a fixed fee. They will list your property with the major portals such as Rightmove, Zoopla and Prime Location. For the basic packages, you will need to conduct your own viewings but many offer additional paid services such as accompanied viewings, tenancy creation, referencing and more.
Vetting a tenant
Using an agent
Most traditional and online agencies will offer this as part of their tenant finding services and I strongly advice and new landlords to go for this option. This can provide peace of mind and help ensure that you’re selecting a reliable and responsible tenant.
I have sometimes been able to negotiate a good rate with traditional agents where they find and screen the tenants and I do the referencing. I will only go for this option if it makes financial sense otherwise, I will leave the agent to do all the work. This can be quite beneficial if you have multiple properties as you can end up saving a lot over time.
The DIY route
Taking the DIY approach doesn’t necessarily require you to handle every aspect of the vetting process yourself. In some cases, it simply involves eliminating the intermediary i.e. the agent and using the same resources they use.
If you want to dip your toe into DIY tenant vetting, then are a few pointers below to get you started.
Use referencing companies
Most traditional agents use reference agencies to do their tenant referencing. By signing up with a reference agency directly, you may be able to save some money by cutting out the middleman.
Some reference agencies may require a minimum number of checks per year or may charge a setup fee, which could make it less cost-effective for landlords with only a few properties.
I use a company called FLS which offers a range of tenant referencing services, including full tenant referencing and credit check only services. Depending on your needs and preferences, you can choose to use their full tenant referencing service or just their credit check only service.
Conduct the referencing process yourself
Financially stability
To ascertain the financial stability of an applicant, you will need to obtain a work reference to verify their employment status, duration of employment and the nature of their job, such as whether it is permanent or temporary. Additionally, it is crucial to inquire about the likelihood of any changes to their employment or wages during the tenancy period. Newly started employments without a prior job history and expected to end soon are indicators to be cautious about.
When requesting a reference via email, it is important to verify that the email address is an official one that matches the name of the company. If the organisation is not a familiar one, it is recommended to request a copy of the tenant’s payslip and/or bank statement to confirm their income. This can provide additional assurance and help to ensure that the information provided is accurate and reliable, mitigate the risk of fraud and make informed decisions when selecting tenants.
In cases where the applicant is self-employed, copies of their bank statements should be requested to demonstrate a consistent history of income. This can help to verify their financial stability and ensure that they have the means to meet their financial obligations throughout the tenancy.
Finally , a credit check should also be conducted to ensure there are no County Court Judgement (CCJ’s) registered against them and that they have an acceptable credit score. You can use the credit check only service with FLS to do this.
Positive rental history
To determine whether an applicant has a positive rental history, you will need references from previous landlords who can confirm a history of paying rent on time, looking after the property, being considerate of neighbours, communicating clearly and promptly with the landlord or property management, keeping the landlord informed of any issues or concerns and generally complying with the terms of the tenancy.
Affordability
This can easily be calculated using the declared income of the applicant.
Guarantor
If an applicant does not meet one or more of the above criteria, a guarantor be should requested.
A guarantor is a person or entity who agrees to be responsible for paying the rent and any other financial obligations of a tenant in the event that the tenant is unable to do so.
The guarantor must:
- Be able to demonstrate that they can cover the rent payments if the tenant defaults.
- Be over 21 years old and a UK resident with a permanent address.
- Be aware of and willing to take on the obligation to pay the rent in the event that the tenant cannot.
- Have a steady income that is sufficient to cover their own expenses as well as the rent payments if needed.
- Have a good rental history with no evictions or late rent payments.
- Have a close relationship with the tenant. It’s important that there is a level of trust and communication between them.
Whilst it is not necessary, the guarantor should ideally be a homeowner as they are more financially secure and have a valuable asset that they can use as security if they are faced with unexpected expenses.
The above vetting process are the minimum a landlord must conduct to ascertain the suitability of an applicant. There are however some subjective ways that I sometimes include in the process.
Gutt Feel
“Gut feel” refers to a person’s intuition or instinctive feeling about a situation, rather than relying on logic or evidence. It is often used to describe a decision that is based on a person’s subjective feelings or emotions rather than objective facts or data.
Is there a place for this subjective feeling in choosing a tenant? Can it be relied upon?
I have tenants who had great jobs for years but then suddenly lose their job. This is something that a landlord can’t pre-empt and its usually the character of the tenant that makes a difference in a situation like that.
How does the tenant communicate this with the landlord? What will they do in the meantime, or do they just think “tough luck”?
What if a tenant has no previous landlords and has been living with a friend or family? How do you assess them for suitability?
Sometimes you just want to give someone a chance but there are no criteria for that.
“Gut feel” should not ordinarily be relied upon in choosing a tenant. However, there may be cases where a tenant looks good on paper, but as a landlord you have a negative feeling about them, or vice versa. In such cases, it may be worth considering other factors that may be influencing the intuition, such as personal biases or past experiences.
Ultimately, while gut feel may have a role in decision-making, it should not be relied upon as the sole criteria for selecting a tenant and should definitely not be used as an excuse to discriminate.
If you’re a new landlord or unsure about any aspect of tenant vetting, it’s always best to use a professional such as a letting agent.
In summary
Finding the right tenant typically involves a vetting process that includes reviewing their rental history, credit score, employment status and references.
It’s important to ensure that the tenant is reliable, financially stable and has a good track record of taking care of rental properties. Additionally, landlords may consider conducting background checks and interviews to further assess a prospective tenant’s suitability for their rental property.
Tenant screening is an important part of being a landlord. While it may be tempting to take shortcuts or skip some steps in the vetting process, doing so could lead to problems down the line.
Ultimately, finding the right tenant requires careful evaluation and due diligence to minimize the risk of future problems or conflicts.
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