Five things you need to know about tenant background checks
By and large, tenants are going to be honest, straightforward and trustworthy individuals – however, it pays to be aware of the warning signs of a bad tenant and the areas that are not always as straightforward as you’d imagine.
Property Observer regularly discusses the significant importance of selecting a good tenant (afterall, they're an important part of the investing process and a neat, tidy and careful tenant will add years onto the life of your home), as well as how bad it can get when damage and worse occurs (warning: wince worthy material within).
Here are five things that every self-managing investor, and property manager, should know about tenant background checks:
1) The previous, or current, landlord for the tenant might not always be honest
If a tenant is particularly bad, or a landlord is in a hurry, it’s likely they might not tell you the complete truth on the phone. This is particularly true for if the tenant is currently in situ and hasn’t been fantastic – they might want to move them on as quickly as possible.
You’ll also want to be aware that, just as with employment references, there is an increasing fear of being liable should the wrong thing be said. For this reason, landlords, investors and property managers have been known to sugar coat a previous tenants’ behaviour.
Avoid this by asking pointed questions and looking for areas of hesitation. Ask about whether the full bond is, or will be, returned, as well as the longest period of rental arrears from that specific tenant. These are factual details that would be outright lies to get wrong, rather than a case of personal judgement.
2) You need signed permission to undertake a credit check
Credit checks can be particularly useful in getting an understanding of a tenants likelihood to pay on time and to be good with their finances. While not all black marks of credit history results in the making of a nightmare tenant, it can be powerful information in conjunction with the rest of their application.
Remember, though, you need signed permission from the tenant to undertake this test. This may be particularly useful for landlords with commercial tenants.
3) Verifying information, including contact details, is important
Has your prospective tenant provided you with mobile numbers for their employers? Ask for a landline. Then try to double check this against public records, such as the website of the company that they work with, or some sort of online classified.
Double check the position of the contact you have been given by calling the company ahead of time, particularly if the phone numbers do not correlate.
You will also want to confirm their salary, employment term and the other points of note they provide. Calling their previous employer is also a worthwhile activity, and quickly Googling the tenant is always useful.
4) Unchecked written references are barely worth the paper they’re written on
If you are going to accept written references, then you’ll need to call and confirm that they are accurate in the first place. The written references have already been vetted by the tenant, who are not likely to provide you with anything that alerts you to the red flags you’re looking for, and so a simple phone call is far more likely to be worth your while.
If you do want written references, ask for these to be sent to you via official email accounts from the company and ensure you reply back thanking the sender.
5) Discrepancies are clear warning signs
Repetitious discrepancies should be an alarm bell. In particular, look for incorrect phone numbers of contacts provided for references. If a tenant lies to you during this part of the process, then it may just be a sign of worse things to come.
Find a tenant who is upfront where their application may not match up – perhaps their name is different on their ID and their previous lease due to marriage or any other straightforward name change – this isn’t necessarily a sign they’re trouble.
However, if they avoid the conversation and there are other suggestions they are not being truthful, then stand clear. For instance, if their current length of employment has been just three months according to their boss, however they have put down 13 months, it may just be a case of an accident. If you call them and they repeat the “over a year” line, then you know something isn’t quite right. Ask them straight out before writing them off.
How do you go about double checking a tenant’s application?