Recently a friend of mine was seeking advice on dealing with the fallout of a badly placed tenant in his property and I found myself handling the situation and questioning how it had become in the first place.
There are many types of rental properties out there and by that I do not mean property type, I am referring to the landlord type. Given the current economic climate many people find themselves in the ‘landlord’ position without any intention of ever going down that path. More and more people are offering their homes for rent by necessity and not by choice so that they can complete the move that they wish to make, this means that the market has more landlords with just one rental property than ever before.
Landlords finding themselves in this market by accident means they have been unable to position themselves in the same way an investment landlord looking to develop a career in property or plan their long term financial future would have. When you enter this industry with the intention of developing a career or for your long term financial future you do your homework and try to make sound choices, there is also that the manner in which you have purchased your investment allows you to view it as just that and remain objective when it comes to placing the property on the market.
The ‘accidental landlord’ for want of a better name, will be in the market because they cannot afford to sell making the decision to rent all the more pressured, risky and important as in most cases they do not have any financial contingency for void periods or shortfalls in rent v mortgage commitments.
Regardless of how you have come to be a landlord there is a certain amount of protection that all landlords should seek when it comes to managing your investment and the first mode of defence is to check your tenants thoroughly before signing on that dotted line.
Why do it?
So here you are you have a property you need to get this rented and you need to do it quick, what do you do?
Well if we go back to my friends’ story they visited a reputable high street agent and went with the fully managed and tenant find package believing that this was all the protection they needed. Unfortunately that turned out to be anything but the case for as most experienced landlords know when things go wrong they have a tendency to go very wrong.
I was surprised to find that not only did he not understand the process of letting but also that he did not have any information about the tenant in his house that he was now stuck with and facing the not so pretty task of trying to regain possession of his own home. The shock that came with finally understanding what had happened and the hoops with which he would now have to jump was big, an even bigger one came when the managing agent confessed they had not conducted any reference checks despite collecting the information to do this. One phone call to the previous landlord and fears confirmed this was not a first time incident for the tenant in question.
Thankfully the situation has now been rectified and he has been fittingly compensated for his troubles. The silver lining in what was a very dark cloud is that he now has a step by step guide to letting which he follows religiously including checks on tenants.
Why does he follow this checklist? Because he now understands that the property is no longer his home but in fact a big financial investment and he has a duty to protect that investment.
What should be checked?
In my opinion all agents and landlords should be checking at least the following things;
- Credit History
- Employment/Income Verification
- Previous Landlord
Additional checks do sometimes cover financial checks in the form of bank statements and character references. Some do a further renting history check by going back to past landlords however this does not always prove beneficial.
The point is that making checks will in most cases flag any potential issues and protects not only you and your investment but also the tenant. In a lot of cases it helps the tenant/s realise if they can afford the property and also flags up any potential credit problems they are not aware of.
Should you come across anything that sets alarm bells off, listen to them and seek to gain that extra protection. Ask more questions, request more evidence, obtain a tenancy guarantor, increase your deposit or take out insurance such as rent guarantee insurance.
Ideally you would take out a policy which covers your property and that way if the tenant changes you still have protection, however do bear in mind that with rent guarantee insurance you will be required to obtain adequate references for the tenant and in most cases they would need to have a satisfactory credit history.