Yes,
there are many trusting souls in society who, for
whatever reason, feel that leaving their £150,000
commodity to someone for a period of time is OK and
that in all likelihood, they would be very unlucky
for something to go wrong.
Well,
what’s the worst that could happen? Surely the
tenant wouldn’t lie, withhold their rent for
months, knock-down walls without permission and cause
the landlords so much stress that they become directly
responsible for the landlords’ divorce? Well,
yes, that actually happened to a very good friend
of mine who failed to perform the correct level of
due diligence on their tenant because he was ‘such
a nice person’ and could clearly be trusted.
Ouch.
Let’s
explore the situation: why use the words ‘due-diligence’?
Doesn’t that mainly apply to business? Yes,
it does and as my good friend Gavin Williamson points
out to the landlords and letting agents he works with,
each property should be managed with the same skill,
respect, level of standards and due-diligence as one
would operating a business. In fact, would you purchase
a business without checking the accounts, ask for
references, request all sorts of other evidence, etc?
If
you don’t have the experience of running a business,
a good question is to ask yourself how one of your
business idols would act in similar, appropriate circumstances.
For example, you are about to let a property and you
could ask ‘How would Duncan Bannatyne act when
looking for a tenant?’ (obviously pick your
own role-model!).
I
think we’d all agree that society would be a
much better place if everyone was trusting and everyone
was trust-worthy, but none of us should be naïve,
especially when handing over a property to a stranger.
Are you aware that many of your rights as an owner
diminish whilst a tenant is in possession of your
property? It’s almost like tenants own the property
for the term of the tenancy.
The
implications of that become clear when things go wrong.
What happens when a tenant decides to withhold their
rent? Can we enter the property and take it back?
Of course we can, but only once the due process of
court takes place. Serving a Section 8 notice for
rent arrears is a little complex but once the procedure
is running, it’s a matter of waiting for a court
date for a judge to hear the evidence for eviction.
So,
we’ve waited for two months since the start
of the arrears before we can serve a Section 8, Ground
8 for arrears and ultimately mandatory eviction, we
wait a week more before we can present the notice
at court and then we discover that average waiting
time at our local court is three months!
Well,
we justify to ourselves, my evidence is in order so
at least I’ll get the property back in three
months time, but hang on…that’s five months
since the tenant stopped paying and with the property
just washing it’s face at £500 a month,
with an average salary at my job and with a few debts,
how can I pay my mortgage? Am I going to be repossessed
by the time the tenant is evicted?
That
is a grim reality and a major dilemma for many landlords.
Rent
arrears is one of the major hassles of letting property
and in fact, an occupational hazard, but not the only
one. There are many areas of breach during a tenancy,
including major damage to a property, unauthorised
sub-letting, turning it into a cannabis farm (surprisingly
common for various types of property), running it
as a brothel (it happens!) and other less sinister
problems.
Obviously
not all tenants cause these sorts of issues, and I’d
like to think the majority are decent, honest people.
However, even some of those decent people fall on
hard times through no fault of their own and that
can directly impact their landlords.
So,
how do we mitigate these sorts of issues and protect
our assets as much as we possibly can? Well, firstly,
we need to set our expectations from the outset and
consider how we’d like our property to be treated
for at least the following six months, how necessary
a regular income of rent is to us and how much money
we would like to spend rectifying someone else’s
damage. I think the answers are obvious.
Next,
we need to set the prospective tenant’s expectations
(from the outset) by advising them we are going to
be checking references, checking their finances and
where necessary, requesting guarantors. Most tenants
would expect that level of diligence, but there are
those who would hope to avoid it and you may be lucky
that they run a mile when they realise how professional
you are acting.
OK,
what do we need to check? To ensure the affordability
of the rent is sound, checking at least three months’
worth of bank statements is a good idea. Unless doctored,
the bank statement will show all the tenant’s
outgoings and you can clearly see where the rent is
going to come from (or not, as the case may be).
Next,
we need to arrange a professional credit-check and
referencing of last landlord and employer. Many people
overlook this basic part of the equation, maybe because
they feel it’s too time-consuming, too expensive
or because they are unsure where to go for these type
of reference services.
This
is misguided. For less than £35, a credit check
and reference is an absolute must, can potentially
save £1000’s and also save many hour’s
worth of stress. Professional referencing takes minutes,
is done online and is incredibly cheap, compared to
the alternative. It will uncover any adverse credit
situations, verify employment and past residence and
will also provide you with the answer to one of the
most important decisions of your ‘business’;
do you accept the tenant, accept with a guarantor
or reject without question?
It won’t filter all those tenants who are going
to go bad, but isn’t it comforting to know that
it will filter the majority and therefore the odds
of you having a stress-free let are greatly improved?
RapidCreditChecking.com
is our new online Credit Checking and Referencing
Service, with it’s simple and quick application
form and a fixed cost of only £19.97 it is destined
to become industry leading.
In
Total Support,
Phil
Martin
About
Phil Martin, Mortgage Rescue Network and Rapid Property
Group
Phil and Wendy Martin are blessed with 5 daughters
aged 3 - 14 & enjoy being full-time parents. Phil’s
focus in property has been to support and help distressed
vendors as well as to consistently grow his own portfolio.
His brand Mortgage Rescue Network featured in The
Telegraph as an example of a sustainable sale and
rent back provider. www.IntroduceRentBacks.com. Phil
recently bought and relaunched the well known sourcing
company www.RapidPropertyInvestment.com and is currently
focussed on expanding Rapid’s range of quality
services and providing quality deals for portfolio
clients. If you would like to introduce deals or ideas,
please email details to team@rapidpropertygroup.com
