Finding good quality tenants is often considered one of the biggest hurdles to property investors. To avoid being locked into an unpleasant rental agreement, it pays to perform a tenant background check before choosing who you allow to live in your investment property.
Here are some ways to increase your chances of securing good quality tenants who are likely to take care of your property and pay their rent on time.
Tenant background checks
Landlords and property managers often use tenant screening services to conduct background checks. Tenant screening services contain historical tenancy information and are a good way to determine if a tenant is a sensible prospect to rent an apartment or house.
Examples of screening services used to commonly access ‘enquiries’ databases and generate reports include:
- National Tenancy Database
- Tenancy Information Centre Australia (Tica)
- Trading Reference Australia
Screening services run background checks to determine a tenant’s previous rental history, verify their income and employment and obtain a credit report to determine the ability of the tenant to meet rental obligations.
What information is needed from the tenant to conduct a check?
For a check to be conducted and a report obtained by the landlord or real estate agent, a tenant needs to provide the following:
- Full name
- Date of birth
- Photo identification (driver’s licence or passport)
- Email address
- Previous address
- Tenant signature authorising a credit report to be obtained
Landlords or property managers should also contact previous landlords, ideally covering the past two years to verify dates of tenancy, monthly rent paid, reliability of payments as well as identify any issues the landlord experienced with the tenants, which may include any property damage.
What information is referenced when performing a check?
Former president of the Real Estate Institute of Australia (REIA), Malcolm Gunning identified that landlords and agents aim to obtain two results when conducting a tenant screening. They want to know if the tenant can make their rental repayments and if they have a history of looking after properties they have rented.
To obtain this information, landlords and property managers will look at sources including:
- Screening services
- Past rental ledgers
- References from previous agents and tenancy database reports
- Social media sites including Facebook
- Credit reports
What information is obtained following a check?
Generally, the information found when conducting a tenancy search and obtaining a report includes:
- Tenant identity validation (to avoid identity fraud)
- Rental history details
- Blacklist information
- Bankruptcy issues via Australian Financial Security Authority bankruptcy register
- Court judgments, court writs and summonses
- Australian Securities and Investments Commission (ASIC) search results
- Previous searches on the tenant, who conducted them and when
- Visa status (where applicable)
- Search results from ASIC’s directorship databases
Who can access database reports?
Tenancy databases with annual turnovers of over $3 million dollars are governed by the Australian Privacy Act 1988. This law regulates the handling of personal information about individuals.
Tenancy database reports can be accessed by landlords and property managers when consent is provided by the prospective tenant.
The Office of the Australian Information Commissioner (OAIC) advises that under Australian Privacy Principles, individuals are also entitled to access database data about themselves to know what information is held about their rental history. An administration fee is often charged to cover the costs associated in locating and delivering this information from a database to the individual.
What are the costs involved in obtaining a report?
Australian leading consumer advocacy group, CHOICE conducted research to determine the process and costs involved in obtaining access to tenancy database information. They found that the National Tenancy Database (owned by Equifax) provides free copies of tenancy files within two weeks of request when emailing firstname.lastname@example.org.
They also offer a $38.50 fee to access files instantly through their partner tenancycheck.com.au, but this method does not contain the additional information found in the former mentioned National Tenancy Database when searching the ‘enquiries’ database.
Tica provides access to ten tenancy files online for an annual administration fee of $55. The report includes a search of both the tenancy database and its ’enquiries’ database. Additional charges apply for additional searches.
Trading Reference Australia provides free copies of tenancy files within three weeks, or you can obtain it instantly for $22. Their online report only contains information from the tenancy database. Additional information was also requested including a phone number and employer information.
Any fees associated in obtaining a tenancy report completed by a screening service, undertaking a credit check or sourcing information from relevant websites can be requested from prospective tenants.
How else can I protect my investment?
While undertaking background checks and screening potential tenants will go a long way towards protecting your financial interests and your investment property and minimising risks, it is also wise to obtain comprehensive landlord insurance that covers you against:
- Loss of rent
- Tenant damage (malicious and accidental)
- Theft by tenants
- Flood, storm and water damage
- Pet damage
Standard building and contents insurance may not protect in the above-mentioned instances.
It is estimated that up to 83 percent of properties are underinsured. BMT Insurance works with some of Australia’s most experienced providers and can assist you to find the appropriate level of insurance cover to meet your needs.
Points to remember when screening tenants
- Be informed – Know what to look for, as past behaviour is a key indicator of future behaviour. People and the circumstances that affect them can change but be wary of those with an unreliable rent repayment history as you may want to investigate further.
- Obtain landlord Insurance – Obtain landlord insurance as standard building and contents insurance may not be enough to cover your property in the event of tenant damage or theft.
- Applicants that are blacklisted – It is important to note that three years is the maximum length of time personal information can be held on a tenancy database. After this time, the listing is then removed.
For more information on the responsibilities of landlords and tenants, read our article Landlords and tenants rights and responsibilities explained.
BMT staff can assist you in reviewing your current circumstances and provide a tax depreciation schedule that meets your needs, with forecast eligible claims. To learn more speak with one of our expert team on 1300 728 726 or Request a Quote online.