New landlord. Tenant Self employed. Help needed.

Sunny2good

Hi Everyone,

We have decided to put our house on Rent and become new landlords while we move away to live near my Parents house. I have been through the posts on these forums, landlord zone amongst other sources to get as much information as we can. I have:

* got consent from lender
* got the EPC certificate
* got gas safety certificate
* got Landlord Insurance
* identfied an inventory clerk
* Joining NLA soon

I was about to put my property up with an agent, when I found a tenant privately. T runs a small business in my area. On paper, they are my ideal tenant, small family, nice friendly people.

I was toying with the idea to do all the checks on T myself instead of paying an agent 2 weeks rent + VAT. I wanted to know if anyone has successfully vetted a self employed person themselves ?

T is happy to get a credit check/background check done and is even willing to pay for it. My rent is £400 more than their current rent


I have a few questions and would really appreciate your help.

1) Is TenantVerify comprehensive check enough for a self employed T?
2) T is not British. Does not have a drivers license. Is a copy of passport and last 3 months bank statements enough as proof of ID?
3) Tenant showed me their bank statements. They have 3 accounts with 3 different Banks. Enough money coming in but also majority going out. Bank Balance was in hundreds at the end of every month. T tells me that they have savings accounts plus lots of dealings are in cash which do not go in bank. Does this sound OK ?
4) Anything else i need to do to verify T ? Like account statements or tax returns (i do not know how it works)
5) A few friends also suggested to take more rent in advance upfront. How many months in advance is reasonable ?
6) If i do this myself, can i charge T some admin fees? Whats a reasonable amount ?

If i have also missed anything with regards to Tenant Check or being a new landlord, then please let me know. Also if doing this myself is a crazy idea, then please tell me off too

Many Thanks

AlexMac

Having mostly used agents to find and check and issue ASTs (assured shorthold tenancy agreements), then managing the property and monitoring rent collection by DDs myself, but having also taken a DIY approach once or twice, I'd say that what you've done or plan to do sounds reasonable, with the one addition that most agents would also ask for and take up a written landlord reference. I assume you are already comfortable about issuing the tenant with an AST and registering the deposit under the TDP scheme; in which case you're right to pay a few quid for an inventory inspection and report; I've been amazed how detailed these are.

Its quite normal to ask for 3 or even 6 months rent in advance, if any of the above (bank ref or sight of statements/credit check/landlord ref/ID check) are patchy, but if you think the tenent''s reliable you don't want to scare them off with unreasonable demands. I've tended to try to look em in the eye to get a personal impression, but also to get the relationship on to a professional footing as early as poss by being quick but businesslike about references and making it plain what I'm responsible for; E.g assuring an immediate repair if they play their part and report any serious problems like leaks or broken appliances while spelling out that they will do the obvious (like changing light bulbs).

In consequence

Owain_Moneysaver

Sunny2good wrote: »

2) T is not British. Does not have a drivers license. Is a copy of passport and last 3 months bank statements enough as proof of ID?

Is T likely to move out of Britain taking your furniture with him - it will be very difficult to pursue him abroad for damages.

Sunny2good wrote: »

3) Tenant showed me their bank statements. They have 3 accounts with 3 different Banks. Enough money coming in but also majority going out. Bank Balance was in hundreds at the end of every month. T tells me that they have savings accounts plus lots of dealings are in cash which do not go in bank. Does this sound OK ?

No. It sounds like T is operating cash-in-hand and committing tax fraud.

Sunny2good wrote: »

4) Anything else i need to do to verify T ? Like account statements or tax returns (i do not know how it works)

Ask for copies of his last 3 years accounts and tax returns. He won't want you to see them because he will have minimised his income to avoid paying tax.

If he's willing to avoid paying tax what makes him willing to meet his other obligations?

If you do rent I woudln't do less than 3 months rent as deposit and rent paid quarterly in advance. If he doesn't pay the rent for 2 months then you can initiate eviction proceedings and you still have 1 month rent in the deposit. This does not fully protect you as it will take more than 1 month to evict and leaves you with nothing against dilapidation.

tbs624

Owain_Moneysaver wrote: »

Ask for copies of his last 3 years accounts and tax returns. He won't want you to see them because he will have minimised his income to avoid paying tax.

If you apply for a mortgage as SE, you are asked for 2 years accounts.Ts tax returns are [edit: none] of LLs business.

Owain_Moneysaver wrote: »

If you do rent I woudln't do less than 3 months rent as deposit and rent paid quarterly in advance. If he doesn't pay the rent for 2 months then you can initiate eviction proceedings and you still have 1 month rent in the deposit. This does not fully protect you as it will take more than 1 month to evict and leaves you with nothing against dilapidation.

My bolding. Misguided suggestions above because

(a) paying a tenancy deposit of more than 2 months rent equivalent is likely to be viewed as a premium.

(b) if rent is paid quarterly in advance then this alters the notice period for the tenancy. In the case of rent not being paid there would need to be at least one quarter's rent in arrears ( not two months unpaid) , both at the time of G8 application and at the time of any subsequent court hearing

OP - a SE potential T who refers to unrecorded "cash payments" is likely to be on the fiddle and quite simply if the cash payments are unrecorded you absolutely can't take them in to the equation.

Where is this potential T currently living - you say that he is "not British" but don't give any [edit: further] details?

If he has been living in the UK for a while then decent third party referencing will be able to check whether he is on the electoral roll and he should be able to produce utility bills for his current address.

You may want to consider asking him to provide a suitable guarantor
( on whom you would also need to pursue a third party referencing check)

Kynthia

I think the NLA can give you advice and a discount with reference/credit checking companies.

Some people say that the rent shouldn't be more than a third of their take home income, are you able to tell what this is. How long has he been trading as the linger the better. Check he's on the electoral roll and that his current LL is happy with him (by phone and in writing as you'll be more confident they are telling the truth).

Sunny2good

AlexMac wrote: »

Having mostly used agents to find and check and issue ASTs (assured shorthold tenancy agreements), then managing the property and monitoring rent collection by DDs myself, but having also taken a DIY approach once or twice, I'd say that what you've done or plan to do sounds reasonable, with the one addition that most agents would also ask for and take up a written landlord reference. I assume you are already comfortable about issuing the tenant with an AST and registering the deposit under the TDP scheme; in which case you're right to pay a few quid for an inventory inspection and report; I've been amazed how detailed these are.

Its quite normal to ask for 3 or even 6 months rent in advance, if any of the above (bank ref or sight of statements/credit check/landlord ref/ID check) are patchy, but if you think the tenent''s reliable you don't want to scare them off with unreasonable demands. I've tended to try to look em in the eye to get a personal impression, but also to get the relationship on to a professional footing as early as poss by being quick but businesslike about references and making it plain what I'm responsible for; E.g assuring an immediate repair if they play their part and report any serious problems like leaks or broken appliances while spelling out that they will do the obvious (like changing light bulbs).

In consequence

Thanks. Some good points there. My personal impression of T is very good so far but then again I want to use my head over my heart when deciding and don't want to overlook something which might end up becoming a big problem later. But yes, it will be an AST and also sorted out the TDP scheme.

Sunny2good

Owain_Moneysaver wrote: »

Is T likely to move out of Britain taking your furniture with him - it will be very difficult to pursue him abroad for damages.

T has been in UK for the last 8 years and business established for 4 years, so it look unlikely to me. But then again it could happen but i think the risk is less. And thats where the deposit comes in to protect me

Owain_Moneysaver wrote:

No. It sounds like T is operating cash-in-hand and committing tax fraud.

If he's willing to avoid paying tax what makes him willing to meet his other obligations?

Exactly, thats what I thought too. If they are cheating on Tax returns, it makes me think as to what else they might cheat on.

Sunny2good

tbs624 wrote: »

If you apply for a mortgage as SE, you are asked for 2 years accounts.Ts tax returns are non of LLs business.

Thanks for that tbs624. Thats what i wanted to clarify as I don't to make unreasonable demands.

tbs624 wrote:

(a) paying a tenancy deposit of more than 2 months rent equivalent is likely to be viewed as a premium..

Thanks for pointing that out. I am asking for 6 weeks rent as deposit. So should be fine i think.

tbs624 wrote:

(b) if rent is paid quarterly in advance then this alters the notice period for the tenancy. In the case of rent not being paid there would need to be at least one quarter's rent in arrears ( not two months unpaid) , both at the time of G8 application and at the time of any subsequent court hearing

I did not know this. Does this also apply if i take 2 months rents in advance when T moves in and then take advance rent every month. In that case i am holding onto 1 month's rent as additional security? Or is there a better way that you can suggest.

tbs624 wrote:

OP - a SE potential T who refers to unrecorded "cash payments" is likely to be on the fiddle and quite simply if the cash payments are unrecorded you absolutely can't take them in to the equation.

Yes,Owain Moneysaver made a similar comment above. Can looking at their accounts tell me that this is being recorded ?

tbs624 wrote:

Where is this potential T currentrly living - you say that he is "not British" but don't give any firther details?

If he has been living in the UK for a while then decent third party referencing will be able check whether he is on the electoral roll and he should be able to produce utility bills for his current address.

T has had two previous addresses in last 8 years. been in the current one for 4 years. I am thinking of doing a check using tenantverify (is this sufficient, what do you normally recommend?) which checks landlord references, character references amongst other things. I may also check with their accountant if need be.

jjlandlord

Sunny2good wrote: »

I did not know this. Does this also apply if i take 2 months rents in advance when T moves in and then take advance rent every month. In that case i am holding onto 1 month's rent as additional security?

This would be an additional deposit and would have to be treated as such (ie. protected in scheme). If you had already taken 6 weeks rent as deposit this would also put the total deposit beyond the 2 months threshold.

tbs624

Sunny2good wrote: »

I did not know this. Does this also apply if i take 2 months rents in advance when T moves in and then take advance rent every month. In that case i am holding onto 1 month's rent as additional security? Or is there a better way that you can suggest.

As jj says, you are likely to muddy the waters and fall foul of the tenancy deposit regs - see Nearly Legal link

Sunny2good wrote: »

Yes,Owain Moneysaver made a similar comment above. Can looking at their accounts tell me that this is being recorded ?

OM went further by siggesting tax fraudi. Much depends on what the potential T actually means by his comment. His business accounts may well have full record of all cash payments received separately to other receipts that have gone through his business banking account. (HMRC tend to pay more attention to scrutinising the records those who have a fair proportion of non-banked cash receipts) Alternatively he may not be declaring the cash receipts at all........

T has had two previous addresses in last 8 years. been in the current one for 4 years. I am thinking of doing a check using tenantverify (is this sufficient, what do you normally recommend?) which checks landlord references, character references amongst other things. I may also check with their accountant if need be.

Can't recommend one over the other ( forum rules) but TV is just one of many third party referencing cos. out there. Google "tenant referencing" and pick a level of referencing that suits your own needs

theartfullodger

I'd simply ask to see tax returns: watch his eyes when you ask.

Yes, his tax affairs are none of your business but it is a simple check on his attitude to paying
whàt is due & what his real income is.

Did a guarantor check some time ago. Guarantor filled form in saying income was £x. The reference from his accountant quoted a figure £20k+ less than that. Funny that eh?