How I choose my tenants

by Mark Alexander

11:12 AM, 4th February 2011
About 9 years ago

How I choose my tenants

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How I choose my tenants

Please remember that my properties are all mid range to upper end of the market.  My typical tenant profile is professionals and retired couples.  Some of the strategies outlined may be transferrable to other market sectors but not all of them.

Visit their current home

References can tell you a lot about a persons financial position but as we all know this can change very quickly.  Seeing how people live and respect their current home is very important to me, especially if they have pets.  I usually find an excuse to visit the prospective tenants in their own home.  The best method I’ve found is to explain that they need to complete an application form and then arrange to pop around and help them complete it.  I always explain that I’m not interested whether they have threadbare carpets or dodgy wallpaper.  I am, however, looking for general cleanliness, the state of the garden, the windows, whether they have a damp problem and how they are dealing with it etc.

Tenant checks

We use http://www.letalliance.co.uk/ to reference our tenants.  They are competitively priced, commercially minded, quick and efficient.  If you are not set up as an agent you could also use http://www.rentchecks.com

Guarantors

Where tenants earn less than £30,000 or are under the age of 30 years old I usually advise them that I will need a guarantor.  I don’t always get one but I do usually ask.  I’ve only ever had three tenants that became a complete nightmare with unpaid rents, eviction proceedings and trashed properties and in every case it was due to severe changes in circumstances.  No level of referencing could have helped but a guarantor might have stepped in earlier if there had been one on the basis they would want to reduce their own liabilities.  My nightmare scenarios include subletting as an HMO without my knowledge, and another tenant of six years who became an alcoholic.  That was the worst of all.  She was an accountant.  Hubbie left her for another woman and as she had been a good tenant I gave her a new tenancy in her name only. She turned to drink, lost her job and social services took the kids off her.  Then she turned to drugs and eventually prostitution.  In the end, lost rent, eviction costs and damage to the property amounted to £18,000.

Accepting Pets

It always makes me smile when my competitors advertise “No Pets”.  We are a nation of animal lovers and many people would go without food to make sure their pets are well cared for.  Why, therefore, do landlords discriminate against them?  The answer is usually worry about damage.  That’s why we take damage deposits though isn’t it?  My personal experience is that people with pets move less often, perhaps because it’s so hard for them to find another landlord who accepts pets.  Wherever possible, my adverts state ‘pets considered’.  People with pets know how hard it is to find a landlord who will accept them so they are generally far more open minded to me poking my nose into their business and asking a few more direct questions.  Remember, I like to visit people in their own homes to see how they live.  If I get there and the pets and running wild, wrecking the property and snarling at me whilst I’m filling in the application forms it’s an easy decision to make.

Level of damage deposit

There seems to be an unwritten rule that the amount of deposit you take must be one months rent?  Why?  How many tenants have you had who fail to pay the last months rent and then say, “oh I thought it would be ok because you are holding a months rent as deposit”?  It’s important to differentiate damage deposit from rent in advance.  For this reason I always take a minimum of 5 or 6 weeks rent.  If I’m dealing with a pet owner my starting point is seven weeks rent plus a guarantor.  Occasionally, I have purchased properties for a specific tenant.  Sometimes the numbers haven’t quite stacked up for me and they have made up the difference in the form of a much larger deposit.  A five figure deposit and a five year AST is not uncommon for me to take if I’m buying a property to fit a specific tenants requirements.  Remember, buy to let mortgage providers don’t like AST’s to be longer than 12 months so if you are looking at long term AST’s you need to get permission from your lender.  Commercial lenders are far more open minded to this. A further cautionary note about large deposits – taking more than seven weeks rent up front creates a Premium Tanancy which legally entitles your tenants to sublet.

Last but one landlords reference

Financial referencing and even visiting a tenants existing home will not tell you whether they are party animals or whether their son’s heavy metal band rehearses until 2am every night of the week.  If their existing landlord has had complaints and can’t wait to get rid of them he’s hardly going to tell you about the problems is he?  That’s why it’s important to take a reference from the previous landlord.  A quick phone call will tell you everything you need to know. Also see this article I’ve written about a new form of tenant referencing.

Making the above worthwhile

Property Managers usually charge £100 to £200 per tenant for referencing.  Private landlords rarely charge anything.  I tend to pitch this in the middle by charging £100 for a single tenant, £150 for a couple and £40 for each subsequent tenant.  I have to price in my time and pay for the financial referencing so I charge for it.  Some people back out and that’s fine so far as I’m concerned.  I always take the view that they’ve got something to hide.  I never take the money unless I’ve met them in their home and I’m happy to proceed subject to satisfactory financial and previous landlords references.  I explain the costs before I go to see them though, usually during the telephone call the day after the viewing.  If they fail the financial referencing I don’t refund the money and I make sure they know that before they pay.  This usually flushes out any potential problems before I spend too much time with them.

To learn more about my property investment strategy please read the following posts in this order:

  1. The Roots of my Property Investment Strategy
  2. What you shouldn’t do with your buy to let mortgage
  3. How I maximise the returns on my liquidity fund (cash in the bank)
  4. Sell or hold after completing a refurbishment?
  5. Buy to let strategy – in this article Mark Alexander explains the 20% liquidity reserve rule of thumb
  6. What’s more important, cashflow or liquidity? Mark Alexander reports
  7. Is your property portfolio ownership structure optimised to enable you to pay the minimum amount of CGT, income tax and IHT?
  8. The history of No Money Down and Instant Remortgages since 1992
  9. How I minimise rental voids
  10. (You are Here) |  How I choose my tenants
  11. How I minimise property management issues
  12. Are YOUR tenants YOUR best ambassadors
  13. Due Diligence
  14. My 1000th post on my favourite property forum
  15. Property management advice
  16. Property investment advice


Comments

Gary Nock

11:42 AM, 8th May 2011
About 8 years ago

Mark, these articles of yours are a godsend. I have just arranged everything myself instead of using a letting agent as I have done for the last nine years. Advertising, referencing ( Rentchex),viewings, inventory's, tenancy deposit ( my deposits) Rent Insurance etc. I have saved myself £350. It has caused me to reconsider my business model. And guess what - other landlords who I know want me to do the same (for a fee of course) Thanks very much.

Colin McNulty

7:50 AM, 28th August 2013
About 6 years ago

Loving these articles Mark!  

Just a quick note: the link to step 11 is broken on every page in this series.  

There are 2 erroneous spaces in the url (they appear as %20 in the url when you click it).

Mark Alexander

8:21 AM, 28th August 2013
About 6 years ago

Reply to the comment left by "Colin McNulty" at "28/08/2013 - 07:50":

Thanks Colin

This blog series is becoming a bit dated now and I plan to re-write it. I've fixed the link on this page for now but I'm hoping to have an ebook available to download very shortly. So far I have written one chapter - please see >>> http://www.property118.com/common-sense-tenant-referencing-and-letting/42570/


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