Property enthusiast Belinda Butler was dealt a double blow when the tenants of her property absconded and a sluggish property manager left it vacant for months. Fortunately, Belinda was prepared for such disasters – and she’s come out wiser and tougher on the other side
Source: Yourinvestmentpropertymag Feed
How landlords can avoid bad tenants
Landlords must carry out background checks on the people they let to, says Zoe Dare Hall. Nearly 60 per cent of buy-to-let owners had problems with bad tenants in 2012.
By Zoe Dare Hall
What’s your greatest fear in becoming a buy-to-let landlord? Last year, 59 per cent of landlords dealt with tenants not paying their rent, says Northwood, a guaranteed rent provider. And 99,000 tenants haven’t paid rent for two months, according to LSL Property Services, the highest number since 2008.
What about having to evict a tenant? Numbers are up for that too, with 8 per cent more landlords starting eviction proceedings last year compared with 2011.
Picking the right tenant can save a long, costly eviction process further down the line. Be thorough in conducting background checks and reference-gathering, including bank statements for the past three months, previous landlord references to check the tenant paid rent on time and credit checks incorporating fraud indicators and employer references.
Check identity and proof of current address – ideally tax or insurance documents – and talk at length to a prospective tenant. Patsy Day, owner of lettings agency Belvoir Bury St Edmunds, says she asks “lots of questions about their reason for moving. We spend time with them during the application process. Our motive is to strike a good relationship with them from the beginning.
“This approach also allows us to build up a picture of the person we are dealing with.”
Private landlords are often less rigorous in background checks than lettings agents. “Tenants with untoward motives for securing a rental property will often target private landlords who find tenants themselves,” says Wayne Mearns of Belvoir Southend-on-Sea.
To reduce possible disputes over damage to the property, take a thorough inventory, with photos, at the start of the tenancy and a deposit – typically six weeks’ rent.
This must legally be held in one of the Government’s three tenancy deposit protection schemes. That sum may not be enough to cover big problems, however, so landlord insurance can be the most reassuring way of safeguarding against accidental damage. Check the insurer covers the relevant type of tenant as students or recipients of housing benefit may be exempt.
Once the tenant is in situ, make inspections every couple of months to ensure the property is being used according to the agreement and to check the property’s condition. If the tenant can’t be pinned down on a time for you to visit, be wary. Sending in legitimate contractors for gas and electricity safety inspections is a way to assess what’s going on.
Rental properties being turned into cannabis factories is also more common than you may realise – police England and Wales find about 20 a day, resulting in tens of thousands of pounds of damage. Belvoir, one of the UK’s largest lettings franchises, says other troublesome tenants engage in benefit fraud and set up drugs rings and brothels.
“Don’t ever leave a tenancy to run itself. Keep informed of new tricks such as benefit fraud or subletting,” says Patsy Day.
Visit your property within a few weeks of the start of the tenancy, to confirm you have rented it to the tenants you think you have.
The potential hassle, risk and expense of dealing with errant tenants drives many landlords to guaranteed rent schemes, such as the one offered by Northwood. It represents 11,000 landlords and guarantees an agreed rent even if the property is empty or the tenant stops paying.
Northwood in effect becomes the tenant, guaranteeing the landlord a slightly lower-than-market rent – “about the same they’d otherwise receive using a traditional service, minus hidden costs that come with the latter, which work out at an average of £1,500 a year,” says Nick Cooper, Northwood’s managing director.
It then sub-lets your property, which means it deals with the tenant and any problems.
Lettings agents can also help, according to the Association of Residential Lettings Agents (Arla). When you start a tenancy, ask about cover to ensure you will avoid huge legal fees if you need to evict a tenant – or to protect you from losing out if the tenant sues for personal injury as a result of a badly-maintained house.
If your tenant does turn bad, lettings agents should be able to help evaluate the risks in the options available to you – though the outcome will probably be some form of legal action.
“Make sure you have at least a basic knowledge of the relevant law before you start letting any property,” advises solicitor Tessa Shepperson, who runs Landlordlaw.co.uk.
“It is your property and your investment, plus you will be responsible to the tenant for your agent’s mistakes if they get things wrong.”