One of the major issues we have come across when working with landlords is their willingness, or lack thereof, to check their tenant’s references before renting them an apartment. There is SO much important information that can be gleaned from making a couple simple calls that it is absolutely crucial that you follow up on the references they gave you.
Now, some landlords just don’t like to pick up the phone. Not because they are lazy necessarily, but because it can feel uncomfortable talking to random strangers, gathering personal information about them in an attempt to determine if they are worthy enough to rent a place at your apartments. They can also feel like it is a waste of time when in reality, it is anything but!
While it may feel this way, rest assured that other types of businesses do this all the time. Banks go through your personal and business information and contacts to make sure they are giving out the loan to a capable person and verify that the person isn’t lying about anything. Same thing with credit card company, car manufacturers, and mortgage companies. All these companies do the exact same thing. When we live in an imperfect world, checking someone’s identity and history is just a part of life, and a crucial way to protect your business.
We are going to walk you through the 3 types of references you need to check up on for every tenant before having them come in and sign a lease. We know you want them to just sit down and sign the lease and start paying rent, but as we have talked about in other articles, flipping a unit because of a bad tenant can cost a ton of money!
A much better practice is to simply head off the bad apples at the door. And checking on their references, along with background checks and credit checks, is a key tool in doing this.
There were over 2 million evictions this past year alone. And that number has been steadily rising. Following up on these references is crucial in making sure you aren’t adding your tenants to those statistics.
Why Are References Important?
Reference can give you information that other sources can’t give you. On your tenant’s application, it may list the last place or last two places they have stayed in recent years. That’s nice, but it tells you nothing about what their stay was like, how they were as tenants, and why they had to leave. Did they do it willingly for personal reasons or were they forced to leave?
These are Very Important Questions!
There is a huge difference between someone moving apartments twice because they were relocated by their business and a renter who is on his 3rd apartment complex this year for no apparent reason. Rest assured, there are reasons! You are going to want to know the details of both, and the only way you are going to get this critical information is by picking up the phone.
You are doing your due diligence with the applicant when you are making these inquiries. Realize that people tend to put their best foot forward when starting any new relationship, and this is no different. If something bad happened during their last rental experience, more than likely they are not going to tell you about it and they probably don’t want you finding out.
Therefore, it is so important that you call for these references. You are the only person that can do it, and a simple call could mean the difference between accepting an amazing tenant, or one that is going to cost you thousands of dollars in back rent, legal fees, complaints, and eviction notices.
Make the Call!
What should I be looking for?
There are three different types of references you should ask for when a tenant comes to apply at your complex.
The first is Employment History. This should include places they have worked in the past 3 years, including where they currently work now, who their supervisor is, and how much they make.
The second is Landlord References. Landlord references are where you are going to get your best information about what this applicant is going to be like living at your apartment. You can ask any question that is reasonable and pertains to the applicant’s time at the last apartment complex. In this way, you can get a small glimpse of what the person is going to be like staying at your place.
The third is Personal Reference. These can be important because it goes to show what kind of character the person has outside his professional and renting history. If people are willing to put their name down on paper saying they will vouch for them, that can have some weight when determining suitability.
1. Employment References
Being able to determine someone’s ability to pay for the apartment is not the only information you are looking for with this type of reference, although it is a key aspect of it.
On most applications, there is going to be a spot for the tenant to put down how much they make per month or per year. How do you know if that is true? Did they show you bank stubs or deposit receipts from their employer? Many times, it is easier just to call the employer up and ask directly.
The lease should have wording that gives the landlord permission to call their work and previous landlords in order to follow up on the references if they so choose. This gives the landlord the authority from the applicant to make those calls that are going to verify what they put down on their application.
When you call an employer to ask about a potential renter, make sure you get to someone in HR(Human Resources), or someone fairly high up in the company, not just the first person you talk to on the phone. If it is a small company, it has been known to happen that someone will simply cover for the person, telling them only good things about the employee and that they make a ton of money.
This isn’t helpful and not what you are looking for…
Ask to talk to someone who is going to be impartial, preferably someone in HR if the company has that department and ask them a couple of pointed questions. Such as:
– When did you hire the applicant?
– What position do they have in your company?
– What is their hourly pay or salary?
– If they are hourly, how many hours a week do they work?
– What is his relationship like with their co-workers?
Some companies will refuse to tell the landlord how much the applicant makes for their own internal privacy reasons. This is ok. You don’t have to push the issue with them on that, they are only doing their job. Simply tell the applicant that their employer refused to give you verification of their compensation to protect their privacy, and could they please bring in a couple of months of pay stubs or deposit receipts from their bank to verify income.
Remember, the rule of thumb for income is this: You want your tenant’s yearly income to be no less than 40x their monthly rent. So, if you charge $1,000 a month for an apartment, then you would want to see the tenant making no less than $40,000 to be able to safely cover the costs of renting. Make sure your applicant hits that mark.
Going below this level is simply inviting trouble and asking for a flip halfway through the first year of renting. Also, pay attention to when the person was hired at the company and what they say about how they interact with their fellow employees. If the company has great things to say about them, perfect! If they are hesitant to say very much, that may be a warning sign.
2. Landlord References
This is the call that is going to get you the best information out of all the references. You are quickly going to be able to determine what experience the previous landlord had with this particular tenant.
And don’t be scared about making this call. Yes, another landlord IS your direct competitor, but in a way, you are all in business for the same reason and trying to accomplish the same thing, providing for your family. Virtually ALL landlords are willing to talk to other landlords about a tenant they had or one that is coming in, and they appreciate the call on top of it! Out of all the calls, this should be your least concerning.
First and foremost, the very first question you should ask when calling their previous landlord is: Why Did They Leave?
Let them answer this question. It is not a “Yes” or “No” type question, it is open-ended, and allows for the landlord to tell you a lot about the applicant. If they give a simple answer like “They were relocated for work, we were sad to see them go.”, that gives you a huge amount of information just in that one sentence. The landlord appreciated them as a tenant, said they had to move for work and didn’t want them to go. This probably means they paid their rent on time and didn’t cause problems as well, but we will follow up on those questions anyways.
Next ask them: How Much Was Their Monthly Rent?
This is good to see if it is comparable to yours. If it is way less expensive than yours, can they afford the step up in price your complex is charging? If it is way more expensive than yours, did they potentially have money issues that caused them to make a step-down in price? In which case, the employment data and credit check is going to be very important to see.
Next, ask the landlord: Did They Pay Their Rent On Time?
Just paying the rent can sometimes not be enough if the landlord is constantly having to chase after them 12 months out of the year for their rent. This is a cost to the complex and burns the time of the landlord that they could be doing something else more productive with. Additionally, paying your rent on time is a sign of respect and stability, two things that a landlord is looking for when screening for new tenants. Ask how they paid, online or by cash or check, and how easy it was receiving payment from them.
Ask the landlord: What Were They Like As Tenants?
This is also an opened ended question that allows the landlord to tell you a bit more about who they are as people, renters, and neighbors. Remember, there are no laws against a landlord saying whatever they wish about a tenant as long as it pertains to their time renting at their complex.
Of course, you should absolutely refrain from saying things like, “I hated the person”, or “He or she was super attractive” or anything that is not on topic for the basic reason of decency. None of this information is going to help you rent to a good person or not, so keep it on point.
However, absolutely ask the landlord: Is There Anything Else I Should Know About Them As A Tenant?
This allows them to give you any final thoughts they have on the tenants you are screening. Remember, if they ever say phrases like, “We were sad to see them leave.” Or “They were great tenants.” more than likely they were, and you have a good applicant on your hands. But if the first words out of the landlord’s mouth are “Well…….” Then you know you are going to want to hear exactly what the experience was with them.
A final question you can leave them with is: Would You Rent To Them Again?
This is a great way to get a direct answer from the applicant. If their former landlord is willing to rent to them again, that is a good sign that they are above-average renters, caused little to no problems, and were probably good neighbors to those around them. This is exactly the type of renter you are looking for. If they say “No.”, well then, you have a decision to make and that is information as well.
Some landlords think that you should go back further than the last place they stayed, and there are absolutely cases for this, such as if the applicant only stayed in their last apartment 6 months or so, you may want to follow back to where they stayed before that too. More than likely, they are out and popping around from one place to another for a reason.
But for most instances, seeing what the people were like in the last place they lived is going to give you most of the information you need to make an informed decision. If the person has a track record that isn’t that stellar, then go back further and ask. But if the first landlord has great things to say about them, you can probably call your due diligence a success.
3. Personal References
Personal references are a great way to see what a tenant is like outside the sphere of work and apartment life. What are they like as a person? Why is this person giving them a reference?
When going through their personal references, you want to make sure that they aren’t all references from their mothers and aunts and uncles, no matter how good of a person they think they are. Discount all family references immediately for obvious reasons.
You are looking for people that know the tenant outside of work as well. And while a work reference is good, this could also just be a drinking buddy doing a favor for their friend. What you are really looking for is a pastor, a member of an organization, a supervisor at work potentially…….anyone who doesn’t have a motive to give someone a reference for personal reasons, and put their own name down on the reference as well. Because they are essentially vouching for the person, it’s their credibility on the line as well. The more formal the connection is between the person, the more likely the reference is going to be a good one.
Ask How Long Have You Known The Tenant? And How Did You Meet?
These are open-ended questions that allow the reference to talk a little bit about the person. If you allow the person to talk, they are going to say the first things that come to mind about that person. If it is shifty and vague, well then, you probably know that they talked them into a reference the person didn’t really want to give. And that says a lot.
However, if the person just won’t stop rambling on about how great of a person they are, that means that they have no problem vouching for them with their own name. What they are saying is probably true.
Obviously, these rules of thumb are just that, rules of thumb. They aren’t going to work in every single situation. Some situations are going to be more dynamic and even have conflicting information in which you are going to have to decide what to do. However, these little rules of thumb seem to give the correct indication most times.
Ask: What Does The Tenant Likes To Do In His Free Time?
This is a great way to see inside the tenant’s personal life. Are they a huge partier or do they crochet? Now, nobody is ever going to just come out and say one or the other, you are going to have to infer quite a bit for what they are saying. But in general, you should be able to tell kind of what the applicant is like in his personal life from this.
Looking for stability in their personal life is going to go toward showing safety in a renter, and not a problem causer with other tenants at the complex. Now, this doesn’t mean that the tenant can’t have a hobby that you don’t particularly approve of. This is not the nature that you are asking these questions. It is simply to see what they do and how people see the applicant in their spare time.
Remember, this is all about lowering the risk to your business, not playing detective. Only ask those things which will give you tools to make a better, more informed, business decision.
Calling references are a crucial part of the application process, and landlords simply must follow up with them. While it can seem scary and a waste of time, it’s not. Just putting a few minutes into doing this can save you literally thousands of dollars in headache in the future.
And remember, don’t simply turn a person down for having no character references or a bad character reference. This doesn’t mean that they are bad people. Base your decision on all the facts and data you have collected. From work and employment data to their previous rental experience to personal references.
The previous place the applicant stayed is going to provide the largest amount of actionable data for you to go on. You are going to be able to get a 1st hand account of what the tenant was like when they stayed there, did they pay their rent on-time, and did the previous landlord have any problems with them. Ask the landlord if they would rent to them again if given the chance.
Remember, you have one chance to collect and act on this information, and it is before the application is signed. So, don’t be shy, follow up on those references and go get a great tenant!
