Establishing a tenant-landlord relationship with an individual is serious. If someone is going to be living in a property that you own, then you have the right to know who they are and what risks they pose. Unfortunately, many landlords – both inexperienced and veteran – often choose to forgo this critical aspect of the tenant acquisition process.
Unless you’re willing to assume large amounts of risk, you need to do your due diligence before signing a contract or lease agreement. And while there are many different ways to perform due diligence, the reference check is one of the strongest resources you have at your disposal.
Why References Matter
When analyzing a potential tenant, there are a variety of tools you can use. Credit checks, background checks, job history, paystubs, and intuition can all be used to quickly judge and assess an applicant’s worthiness. However, the numbers – and even your own instincts – often don’t tell the entire story. What you really need is to talk to the people who have, and still do, interact with the individual.
References can come in all shapes and sizes. Don’t be foolish enough to assume that they’re all the same. If you want obtain unbiased and information-rich references, then you need to be very clear with prospective tenants. Let them know who does and doesn’t count as a reference.
If you’re unsure of who should and shouldn’t count, keep the following hierarchy in mind. As you move down the ladder, references become less valuable and more biased.
- Previous landlords. The most unbiased and helpful reference you can get is a previous landlord. The reason is that previous landlords understand exactly where you’re coming from and have no reason to hide the facts. They’ll let you know exactly what kind of tenant your applicant is.
- Current employer. The next best reference is an employer. Most employers will shoot you straight and tell you exactly where the individual stands. There is a slight possibility of conflict of interest here, though, if the employer feels especially loyal to the employee.
- Personal references. Finally, there are personal references. These typically consist of friends and family members and are notoriously unreliable. After all, what individual is going to talk badly about their friend?
As you’ll learn, it’s imperative that you clearly outline what a valid reference is. If you simply ask applicants to provide three references, they’ll most likely give you the information of friends and family members. It’s best to say something like, “Please list one previous landlord and your current employer.” The more specific you can be, the better.
What Information You Really Need to Get
For the purpose of this article, we’ll forget about personal references and focus on previous landlords and current employers. Here’s the information you should attempt to glean from each type of reference:
- Previous Landlords
Reaching out to a previous landlord is usually pretty simple. As previously suggested, they understand who you are and what you do – so there’s little awkwardness or withholding of information. Sometimes they’ll even offer information you don’t ask for. With that being said, make sure you’re asking some of the following questions:
- Did the tenant have any other individuals on the lease? This question will let you know how responsible they may have been for paying rent on time, keeping the property intact, etc. If there was another name on the lease, it’s possible that this other individual actually paid the rent.
- How much did they pay in rent? This will tell you whether or not you can expect similar results in terms of ability to pay. For example, if the tenant’s previous rent was $500 per month and you’re charging $1,000 per month, their ability to satisfy rent requirements at their last apartment has little bearing on their ability to pay your rent (unless they received a substantial raise).
- Did they ever pay late or miss a payment altogether? While missing payments is certainly a huge issue, you also have to be aware of late payments. These are warning signs that could signal bigger issues in the future.
- Did they ever cause any disturbances or damage property? The answer to these questions will let you know how responsible they really are.
There are plenty of other things to ask about – but these four questions will tell you a lot about who you’re dealing with.
- Current Employer
Next, turn your attention towards their current employer. When speaking with them, touch on the following questions:
- When did the employee start working for you and what is their position? This will tell you how stable the position really is. There’s a big difference between working a job for two years and two weeks.
- What is the employee’s take-home pay? Often times, applicants will tell you their full salary on an application, not their after-tax salary. This can make a big difference in some cases.
- Does the employee always show up on time and work hard? An employee who doesn’t show up on time or shows very little motivation likely won’t have their job for very long. You can also tell a lot about an individual’s discipline and integrity from the answers to these questions.
Start by asking the employer these questions and then feel free to delve into other areas. In many cases, the information you discover here will make or break a prospective tenant’s application.
Contact Green Residential Today
When evaluating prospective tenants, few things are as meaningful as reference checks. These all-important checks can provide you with valuable inside information into who an individual really is. However, there’s no denying that collecting and following up on references is time consuming and draining. For busy landlords who understand the importance of reference checks but don’t have time to personally handle them, it’s important to align with a partner.
At Green Residential, we partner with some of Houston’s most successful landlords and real estate investors to handle property management tasks like tenant screening and reference checking. If you’re looking for a reliable partner to handle some of the burdens associated with being a landlord, you’ve come to the right place. Please contact us today for more information on our services!