Landlords – basic tips on collecting rent arrears

Historically, December and January are known as months where landlords face a greater risk of tenants falling into arrears. And if a landlord has leveraged a mortgage against their investment properties, then the monthly mortgage commitment must be paid even if the tenant fails to pay the landlord.

How does one minimise the risk of their tenants falling into rent arrears?

Firstly, reference your tenants carefully before allowing them to move into your property. In many circumstances when a tenant is looking to move, their current landlord may want to give a reference that increases the chance they will be able to move on rather than an accurate reflection of the tenant to landlord relationship. When referencing therefore, it is good practice to contact the previous landlord to the current one. As they are much more likely to give a true reference. It may also be useful to seek references verbally. A sensible landlord will protect their own interests and may not put something in writing they would otherwise like to say.

Make a credit check part of the referencing process, although historical poor credit may not be a true picture of how a potential tenant is currently handling their income and expenditure. If therefore the score comes back low, ask the prospective tenant to provide you with an Experian or Equifax report. Once you see this, have a look at how endebted the tenant is. And look for rows of ‘zeros’ on the credit profile for each account. If you see a number ‘1’ this means the account is one month down. Likewise you may see a ‘2’ or frankly even ‘6’. The last 24 months are normally shown.

It is always wise to obtain an employment reference as well. Check the tenant is employed by who they say they are. Don’t just take a payslip as proof. You can ask the tenant to sign a letter of authority and then contact the company. Make sure you ask if they are currently on probation or if the company has anyone on notice of potential redundancy. On its own, this information does not tell you the potential tenant will be trouble, but it does help to build a picture so that you can make an informed decision.

Bank statements, usually the last 6 months are being asked for as part of referencing. Again, does the current rent get paid on time each month. Is it collected by direct debit, standing order etc or is it sent adhock? You can also see if the tenant defaults on other commitments, incurs bank charges due to poor management or goes over their overdraft limits.

Just recently, I vetted a tenant to find they had regular transfers to Gibralter along with the same reference each month. This looked like a standard business transaction, but upon googling the reference, I found it to be a online gambling company. Sometimes up to £6,000 in a month was being transferred, and the amount coming back was far, far less. This highlighted a compulsive habit to gamble – and losing at it too. That put the whole application into a different light. Having openly discussed with the tenant, they offered me the security of six months rent up front on a six month AST.

What about rent arrears for tenants in situ?

The first contact should really be the day rent is due to arrive. If it has not made it into your account, contact the letting agent or tenant if directly managing. Put them at ease in the first instance and don’t assume they have not paid. It could be a genuine mistake and if it is because they have not paid, you allow them to ‘save face’ in the first instance. Let them know its likely to be a problem with their bank and ask them to contact the bank to sort it out. From experience, this usually limits the problem happening in future months, as the tenant knows the benefit of doubt fell on their side the first time; but late payments again are less likely to be viewed in the same way.

If rent is not forth coming, then start a formal process. Writing letters in the correct way. Do not be threatening. You can also write to any guarantor at this point, notifying them they have signed as guarantor and notifying them that payment is required. Be very careful about contacting a tenant at their place of work. And if you do contact them that way, don’t leave a message with a colleague about the nature of your call. This could be viewed as harassment.

Shouldn’t your letting agent be doing all of this?

If you employ a letting agent, they should most certainly be managing this process. The worrying fact is how many letting agents do not. What’s more, from my personal experience I have found that what is often considered as a rent arrear from the tenant is actually not. The letting agent are being paid on time, they are just not paying the landlord.

Investigate exactly how a letting agent references prospective tenants before appointing them. And test their process. You should also find out how they organise and manage their regulatory requirements in respect of sending section 21 notices etc.

When all is said and done

I have had tenants for over 15 years. The odd tenant may have a blip in paying. But experience tells me that if they are late with rent more then once in a tenancy term, it won’t just be the twice. From my own experience it becomes continual. And every time the tenant is late or falls into arrears, it becomes easier not to pay the next month. And it is often best to let these tenants move on and find good reliable payers moving forwards.

Howard Bowes, MD, Harvey Bowes Limited.

10 tips before you let your property – by Sally Lawson

Sally Lawson, CEO Concentric Lettings, shares 10 tips before you let your property in the UK. With over 23 years experience in the property lettings industry, Sally has extensive knowledge and offers advice for prospective landlords. For more information about Sally and Concentric Lettings, please click the link below.

www.concentriclettings.co.uk

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Cardiff pin – property investors network – meeting 13th January 2015

Cardiff pin is a property investors network and business meeting. The meeting is attended by those new to property investing as well as seasoned investors. We also welcome those who work in services related to property, such as the Trades, Solicitors and Brokers. This meeting is a great place to meet new contacts and rub shoulders with like minded people. The meeting starts around 6:15pm, with informal networking until 6:55 when we sit down to listen to expert speakers. Firstly we have a mortgage update on the latest developments in the market place, followed by a visiting speaker who will present their specialist subject. We then have the opportunity for attendees to present a 20 second introduction to themselves (which is optional) followed by a 15 minute comfort and networking break before the main speaker presents their expertise. This part of the meeting finishes at 9:00pm and although some stay and network at the bar, we understand that those who have arranged baby sitters etc may need to dash off. We are a friendly and welcoming group of people and new visitors come along every month. To come along to the meeting for the first time as our complimentary guest, just go to http://www.cardiffpin.co.uk and reserve your place by registering. This will save you the £20.00 entrance fee for your first visit. If you have any questions, please contact me, Howard Bowes, Host of Cardiff pin on 029 2175 4150.

Take a look at our video above and listen to some of the recent guests to Cardiff pin tell you what they think of the meeting.

You can book your place now by going to www.cardiffpin.co.uk – and if it is your first time, use the voucher code “BOWES” to get in as our guest.