A good reference isn’t an expense. It’s an investment.
In business, success requires a close eye to be kept on income and expenditure. It’s no different in property rental, and in a climate of tax changes, increasing regulation and the knock-on effects of the agency fees ban, cutting unnecessary expenditure makes sense. It is easy, therefore, to see why some landlords are choosing a bargain basement tenant reference, but it’s a move that could be a huge mistake.
A cheap reference will give you an answer, but it’s not based on all the facts. It’s possible, if the fates are on your side, that you’ll get away with it, but It could be an economy that ends up costing you a fortune. If you miss just one month’s rent, you could be, say, £750 out of pocket and in the face of that, the few pounds you saved on the reference start to look a little sick. If you end up with serious arrears, the cost of an eviction, property damage and a lengthy void period until you manage to secure another tenant, that’s more than nasty.
Recent figures from The English Housing Survey show that on average tenants stay in a property for 4.1 years. Using that assumed £750 per month rental figure again, the income over the lifetime of the tenant’s stay is £36,900. What percentage of that is the cost of a reference? It’s a tiny figure. If you pay £18 for a quality reference, you’re talking 0.05%.
A less detailed reference is a false economy
The percentage may be tiny but the potential impact of it is huge. Yes, you may be able to squeeze that percentage smaller with a less-detailed reference but if that’s at the cost of your income stream it’s a false economy. Saving a few pounds could easily cost you hundreds or even thousands. The landlord considering the application of a potential new tenant has only a certain amount of information on which to base his judgement. But it makes little sense to restrict the information available when the savings from a basic reference in no way compensate for the increased risk.
There are substantial differences between tenant referencing providers. Some offer little more than rudimentary checks while others, ourselves included, offer a more comprehensive range of checks and balances. At LegalforLandlords, we also make a point of ensuring that we offer referencing for all types of tenant, and we’ve introduced a RentalPassport – the tenant’s own personal reference. Our service is thorough, but because we understand that speed is of the essence, we’ve developed systems and software that ensure we can provide swift answers and visibility of progress. Some providers make a big deal of offering ‘traditional’ referencing, but we combine the best traditions of diligence and customer service alongside advanced and effective technology.
Relationship based on trust
The ideal for many landlords is a tenant that stays long term, pays every month on the due date, looks after the property and reports niggles before they grow into expensive problems. Although there are calls for longer tenancies to become the norm, the average shows that many tenants are in effect already enjoying something like that. There is a relationship between landlord and tenant that is based on trust which builds over time. A reference shouldn’t be seen as an expense. It should be seen as an investment – an investment in finding the tenant who will respect your property and ensure your income is regular and sustained.
Of course, even the very best references cannot predict the future, and the initially perfect tenant could get into difficulties, but there are other modest investments landlords could make to protect their interests. Again, like the costs of a reference, the upfront costs of Rent Protection insurance are tiny in the scheme of things. What’s more they can give landlords peace of mind and that isn’t something you can put a price on.
Whenever you are trying to control costs, look beyond the immediate effect. The bigger picture – just like a more detailed tenant reference – is far more revealing, and it’s and well worth the investment.