According to an article published by the PPIC, California has the second-lowest rate of homeownership in the United States. This is good news for prospective rental property investors.
Yet, renting your property to tenants can pose considerable risks. These include unpaid rent and property damages.
Asking for a tenant reference letter is one way to avoid these pitfalls. They help ensure a profitable and amicable relationship with your tenants.
Keep reading to find out what you should look for in this important aspect of tenant applications.
1. Reliable Tenant References
A tenant reference letter helps verify information provided in a prospective tenant's application. It can help landlords determine if they're likely to be good tenants based on their previous records.
In this light, you should look for consistency and truthfulness when compared to questions asked in the application process.
There are two types of tenant reference letters, i.e., an employer reference letter and a landlord reference letter.
2. What to Look for in Employer Reference Letters
All tenants must provide proof they can afford to pay their rent, for your sake and theirs. You should look for the following in an employer reference letter:
- Name of the applicant
- Their occupation
- Duration of employment
- Remuneration amount and frequency
These details will help you determine whether the prospective tenant has a steady income. It also proves they meet the affordability requirements for your property.
You can also look up the employer details provided to ensure it's a well-established, reputable institution. While you can't discriminate against a tenant based on this, it can give you additional peace of mind.
Under California law, tenants have the right to pay their rent from income gained from sources other than their employer. In this case, they must provide proof of this income.
3. What to Look For in a Landlord Tenant Reference Letter
A landlord reference letter highlights the following:
- How reliably the tenant paid their rent
- Whether they showed respect to neighbors
- If they took good care of the landlord's property
As far as possible, landlords should consider these issues in context. For example, many tenants struggled to pay rent during the 2020 pandemic.
While going through tenant references, there are two main things to look for. The first is late rental payments, and the second revolves around how the tenant behaved while staying in the property.
You must choose tenants who will follow the rules, respect other tenants in the building, and keep your investment property in good shape. A rowdy, messy, and disrespectful tenant can impact the surrounding renters and cause major problems for you.
Landlord Responsibilities Regarding Tenant Reference Letters
If you insist on a tenant reference letter for each new rental application, you greatly reduce your chances of experiencing unpaid rent, property damage, and high tenant turnover.
In many cases, declining a rental application based on these references can save the prospective tenant from ongoing financial distress due to affordability issues.
Are you wary of the potential pitfalls surrounding a tenant reference letter? Get in touch for expert assistance with all your real estate rental questions.