Tenant arrears and potential problems with tenants - how often does it happen?

Halabala9

Hi Guys,

I have been thinking about BtL as I have got some cash that is only losing the value due to inflation sitting in my bank. BtL + Interest Only repayments + high enough deposit to sleep well sounds like a nice idea to me. At the moment I am looking for information about this business, eventual costs and problems and I can say that there is pretty much only one thing that concerns me, tenant arrears and what can be done with it. Few questions:

1) How often does it happen that a tenant is not paying and how long does it take to get rid of such person?
2) Is it possible to get the money back through court after such person got finally kicked out?
3) What about insurance that covers tenant arrears, is it worth it, does such insurance really work?

I fully understand that it is difficult to answer such questions as one landlord might be renting out for 10 years without a single problem when the other one might have a problem non stop, but I am just wondering what is the general % of such situations on the market and what to expect as a new landlord. Property damage and that sort of costs can be manageable but a tenant that is not paying and cannot be kicked out is not. That is the reason I want to make sure that I understand all the risks before making such decision.

Thanks in advance for the answer!

[Deleted User]

Mike997 said:

Hi Guys,

I have been thinking about BtL as I have got some cash that is only losing the value due to inflation sitting in my bank. BtL + Interest Only repayments + high enough deposit to sleep well sounds like a nice idea to me. At the moment I am looking for information about this business, eventual costs and problems and I can say that there is pretty much only one thing that concerns me, tenant arrears and what can be done with it. Few questions:

1) How often does it happen that a tenant is not paying and how long does it take to get rid of such person?
2) Is it possible to get the money back through court after such person got finally kicked out?
3) What about insurance that covers tenant arrears, is it worth it, does such insurance really work?

I fully understand that it is difficult to answer such questions as one landlord might be renting out for 10 years without a single problem when the other one might have a problem non stop, but I am just wondering what is the general % of such situations on the market and what to expect as a new landlord. Property damage and that sort of costs can be manageable but a tenant that is not paying and cannot be kicked out is not. That is the reason I want to make sure that I understand all the risks before making such decision.

Thanks in advance for the answer!

Why are the only two options cash in the bank or BTL?  What other investment vehicles have you considered?

There are already many. many threads on the forum already from people such as yourself thinking about getting into BTL, have a search and read the advice.  It's a shame we can no longer direct posters to @G_M's sticky anymore. 

Halabala9

Lover_of_Lycra said:

Mike997 said:

Hi Guys,
Thanks in advance for the answer!

Why are the only two options cash in the bank or BTL?  What other investment vehicles have you considered?

There are already many. many threads on the forum already from people such as yourself thinking about getting into BTL, have a search and read the advice.

And this is what I am doing now but those topics are describing the issue and possible solutions. What I can`t find anywhere is how often such situation occurs. The thing is that if someone asks for help here, it is usually a person that didn`t have any insurance etc. so I can`t see any opinion on that.

What other options would I have if not cash or BtL? There is stock exchange where I am planning to invest lets say 20-30k. Other options seem to be very limited these days.

babyblade41

I've done it professionally for many years , both private and industrial units without mortgages.

It is not an easy way to make a small amount and not at all safe especially now.

The rules and regs needed, the voids , the length of time it takes to evict for non payment and the cost taking to the court, all the while having no rental income .

On one of mine I had an Ok tenant for many years with no major problems until a change of partner.  Eviction took 10 months which included bailiffs.


Different councils have different timescales and ours was very quick . The chances of getting a cent back were too remote to pursue but getting the property back was my main concern, then the 5k to repair the property ready for selling .

It's not something I would go into again and certainly not with mortgages 

theartfullodger

Tenants not paying and other issues are a couple of the very obvious risks a landlord takes.  Most years I make money from my rentals:. But not all years.

You need to have the financial AND emotional reserves to cope with the tenant-from-hell or agent-from .. who doesn't pay for 7 months whilst you pay mortgage etc & legal fees to evict and get 'phone calls about eg leaking toilet dripping into lounge at 10:24pm Saturday night.  And you must fix it or judge will give tenant more time due to evil landlord not carrying out his responsibility

greatcrested

Lover_of_Lycra said:

Mike997 said:

Hi Guys,

I have been thinking about BtL as I have got some cash that is only losing the value due to inflation sitting in my bank. BtL + Interest Only repayments + high enough deposit to sleep well sounds like a nice idea to me. At the moment I am looking for information about this business, eventual costs and problems and I can say that there is pretty much only one thing that concerns me, tenant arrears and what can be done with it. Few questions:

1) How often does it happen that a tenant is not paying and how long does it take to get rid of such person?
2) Is it possible to get the money back through court after such person got finally kicked out?
3) What about insurance that covers tenant arrears, is it worth it, does such insurance really work?

I fully understand that it is difficult to answer such questions as one landlord might be renting out for 10 years without a single problem when the other one might have a problem non stop, but I am just wondering what is the general % of such situations on the market and what to expect as a new landlord. Property damage and that sort of costs can be manageable but a tenant that is not paying and cannot be kicked out is not. That is the reason I want to make sure that I understand all the risks before making such decision.

Thanks in advance for the answer!

.....  It's a shame we can no longer direct posters to @G_M's sticky anymore. 

New landlords (1):advice & information :see links in next post

Thanks to tbs624

Before letting a property, get a good book (below), take a course, & read the following (Applies in England/Wales):

SEE LINKS AT THE END OF THIS POST.

Research
Learn the legal obligations, & tenant's rights. See Shelter's website below. Even if using an agent, learn the basics of Landlord & Tenant law, deposit registration, inventory management, repairing obligations, notice & eviction processes. Understand the difference between Fixed Term and Periodic tenancies. Ultimately you are responsible, not the agent.

Do a detailed budget (spreadsheet). Include all costs. Base income on 10 months a year to allow for voids, & tenants who default: a) initial set-up b) routine annual c) tenant-change-over costs. Budget d) repairs & overheads - predictable and unpredictable (eg new boiler). Add agency fees, landlords insurance, tax etc. Estimate postage, phone, petrol, documentation etc. Have contingency fund for worst-case 'tenants from hell' where you have to pay a mortgage for 8 months without rent, then pay to repair damage. Read a good book.

Permissions
You'll need
* Consent To Let from your Mortgage Lender unless you have a Buy To Let mortgage (CTL/BTL).
* Consent from your Freeholder if you have a lease (ie a flat and some houses).
* Specialist landlords insurance. Normal domestic insurance is invalid if you let the property. Compare risks as well as premiums.
* in Wales, some English councils (& Scotland) you must be registered & maybe licenced (here).

Safety & the Law
Since 1/10/15, new tenants must receive the 'Prescribed Information':
* government leaflet "how to rent"
* EPC (min E rating)
* Gas Safety Certificate if there's gas
* Smoke detectors on each floor
* CO alarm if there's solid fuel heating.

* From 1/2/16 landlords must check tenants' immigration status.

* furniture - certified fire-resistant
* electrics & electrical appliances - safe.
* Security deposit - registered & 'Prescribed Information' provided within 30 days of receipt. Failure has serious consequences. Never rely 100% on an agent.
* HMOs - special rules: check local council.

Documentation
* A good tenancy agreement. Consider the OFT's unfair contract terms guidelines
* check-in inventory should be comprehensive. Use inventory clerk? Otherwise, deposit deductions will be hard to justify
* holding deposit - refundable?
* application & vetting forms. Authorisation for credit searches
* standing Order mandate for rent payment
* letters to utilities for account hand-over
* security deposit scheme application. It's the law
* tenant info folder: boiler/appliance instructions, alarm system; how to replace smoke/CO alarm batteries; location of stopcock/fusebox etc; rubbish arrangements, emergency contact no.s for repairs; colour/brand of emulsion to touch up paintwork; current utility suppliers (+ ask the T to let you know if they switch); local doctor etc

Management
Be cautious appointing a letting agent. The right agent is as important as the right tenant. Check their credentials & get recommendations/references. Check your contract with them. Can you get rid if they're no good? See link below.

Take tenant vetting seriously, either DIY or use an agent. Check ID, references, income, credit history, immigration status etc & take nothing for granted (reference the LL before the current one - he may be keen to move them on). Consider a guarantor for high risk tenants, or if you can't vet (overseas applicants, first-time renters etc). Remember a Guarantor Agreement must be Executed as a Deed/witnessed, & guarantor given the tenancy agreement in advance - many agents get this wrong.

Don't let your agent force you to renew Fixed Term contracts if a Periodic Tenancy will suit. Agents recommend new Fixed Terms as they charge fees from both sides, but a Periodic Tenancy arises automatically. See link below.

Consider carefully whether & when to increase rent. A long-term tenant is far better than a nominal rent increase. See link below.

Consider maintenance/repairs: Use your own handyman/contractor when needed, DIY, or leave it to your agent who will have contractors.... at a price.

Decide how often to inspect (be reasonable) and include in the tenancy agreement.

Tax
You're running a business, even if it's a short term arrangement or rental to family, so you have to declare rental income whether tax is payable or not. Research the Income Tax liability and allowances before you start. Note only the interest element of your mortgage repayments is tax-deductable (see below). Consider Capital Gains Tax. If going abroad, & you have no agent, read the Non Resident Landlord Scheme - see below.

Support and advice
Join a Landlord's Association and/or a web-based source (see below). Membership fees are tax deductible, & offer discounts on insurance, documents, vetting services, training and more. Some areas have local associations affiliated to one of the nationals. Check your local Council for accreditation scheme for private LLs.

Rent Guarantee Schemes
Some Housing Associations, councils, and private letting agencies offer schemes which guarantee your monthly rental income, removing the risk of costly voids between tenants. The advantage of these schemes is obviously the certainty of regular income to pay your mortgage etc. Against this you must weigh 1) the (significantly?) lower rent you will receive; 2) the removal of your freedom to select either the specific tenant or even the type of tenant; 3) the reality that the HA/agent etc will have little concern for the protection/condition of your property; 4) the reality that their priority will be to have a tenant (any tenant) in occupation. Additionally you should ensure that your landlords insurance/mortgage terms do not prohibit the type of tenant the HA/agent plans to install.

Additionally, be aware your contract will be a commercial tenancy, not an AST (Assured Shorthold Tenancy). This has significant legal ramifications (eg S21, S8, S13 Notices don't apply).

General Advice
Remember although it may have been your home, you will be handing over "exclusive occupancy" of the property, and tenants are entitled to view it as their home, without undue interference ("quiet enjoyment"). Make sure you understand the limit of your rights (ie access - a dodgy clause in your tenancy agreement does not grant you free access)

Be business-like but fair, most tenants respond in kind, looking after your property and keeping those expensive voids at bay.

And be careful letting to friends or family - will you be willing to evict if you have to? Are you concerned about losing their friendship or love?

OK - now visit the post below (New landlords (2) )for the promised links to all the research you need to do before taking the plunge!

greatcrested

New landlords (2): Essential links for further information

If you are a new landlord, or taking over management from your letting agent, the links below support the guidance in the previous post (New landlords (1)). This includes links to the relevant leglislation and regulations, as well as to other websites providing guidance and information.

Books - Try your library. (Check publication date as laws change):
The Complete Guide to Residential Letting 2015 (also available here)

Successful Property Letting 2017: (How to Make Money in Buy-to-Let)

Landlordzone (Landlord information + forum)

Landlord Law (Property solicitor!!!8217;s website - clinic, blog, resources, advice etc) + Landlaw Law links (more links for landlords)

Shelter England (Tenants' rights) Shelter Scotland

Shelter (Repairs in private rented homes)

Gov advice (Renting out your home: government website)

HMRC (Property taxes eg Income Tax on rent (and allowable expenses to offset tax); Capital Gains Tax, etc)

HMRC (Non Resident [= overseas] Landlord Scheme)

Deposits (Payment, protection and return)

Deposits (Gov site: rules on deposit protection)

Prescribed Information (RLA links to various deposit schemes' documentation)

HSE (Gas Safety Certificate rules)

EPC (Energy Performance Certificate rules)

How to rent (mandatory government leaflet)

ESC (Electrical Safety Council - Rules)

The Smoke and Carbon Monoxide Alarm (England) Regulations 2015 (from 1/10/15)

Right to Rent (Mandatory checks on tenants' immigration status)

RLA (Residential Landlord!!!8217;s Association - mixed reviews)

NLA (National Landlord!!!8217;s Association)

Letting Agents (Tips for selecting, and tips for sacking them)

Letting agents (Landlordzone guide)

ARLA (Letting agents' professional body)

The AIIC (Association of Independant Inventory Clerks)

ParagonAdvance (Tenant referencing provider !!!8211; there are others. Use Google) Letsure

Landlord & Tenant Act 1985 (Repairing obligations; LL's address; and much more)

Landlord and Tenant Act 1987 (Address for Notices; etc)

Protection from Eviction Act 1977 (speaks for itself really. Also makes harrasment a criminal offence)

Housing Act 1988 (Definitions and rights of various tenancy catagories - note AST is most common; creates Statutory Periodic Tenancies)

Housing Act 2004 (Deposits; Houses of Multiple Occupation; etc)

Localism Act 2011 (section 184 - updates to deposit scheme rules)

Deregulation Act 2015 (amendments to deposit penalties & S21 service, smoke alarms, retaliatory eviction rules)

Statutory Instrument 2015 No. 1646 (Prescribed Information at start of tenancies from 1/10/15 - Deregulation Act)

Requirements for new tenancies since Oct 2015 (Stat Inst 1646 & Dereg Act)

Tenant Fees Act 2019 Abolition of most tenant fees from June 1st 2019 Gov Guidance Notes

Shelter information on 2019 restrictions on tenant fees.

Written demands (for rent etc: LL's actual address needed) Beitov Properties Ltd v Martin

Rent Increases (how and when can rent be changed)

HMOs (Licencing of Houses in Multiple Occupation in England: A guide for landlords and managers)

OFT356 (Unfair Terms in Tenancy Agreements)

Housing (Wales) Act 2014 (landlord registration & licencing)

This advice is not exhaustive. Whole books are devoted to the subject.

greatcrested

Mike997 said:

1) How often does it happen that a tenant is not paying and how long does it take to get rid of such person?
2) Is it possible to get the money back through court after such person got finally kicked out?
3) What about insurance that covers tenant arrears, is it worth it, does such insurance really work?

1) Pointless to ask. It might happen with the first 3 tenants you have or you might go 5 years without problems. The statistics really don't help. In normal times, between 1 to 3 months after serving a S8 G8 Notice. Currently between 4 to 6 months.

2) Yes. Assuming a) you can find the tenant and b) the tenant has the money or assets to repay you.

3) It can work, but there are a number of caveats eg tenant referencing done by the insurer or their prefered agency, initial arrears may be excluded; arrears may be capped (eg 6 months) etc etc

Thrugelmir

With only one let property you haven't got a diversified portfolio. Rather akin to investing in the share of a single company. You run the risk of sizable losses. However much due diligence you undertake beforehand. 

[Deleted User]

Greatcrested's response goes to show that landlording is not a trivial task in terms of the legislation and there can be significant financial liabilities if you misstep. Many have a go landlords (let to buy, inherited property, 1st BTL) will seriously underestimate and lack knowledge to deliver in a 'professional' and legal manner and ultimately this could result in the risk of some financial loss.
I have found having 1x BTL to be generally profitable but harder work than I'd have ever imagined. The media and government tend not to have anything nice to say about landlords (good landlords) and the tax regime can be punishing. This can be mentally draining if you dwell on it.
I have chosen not to evict and rely on rent gurantee insurance a this time. Instead I have significantly reduced rents for my tenants, as have other landlords as it is the fair thing to do. I do not expect grants from the government to cover this, I don't want a prize for it. However, it is hard for me not to look at the second home stamp duty that I am about to pay (eyewatering) and think that a lot is being asked of landlords.
Good luck with your choice.

tom9980

I am exiting the joys of being a landlord, I was given 4 days notice by my latest set of tenants and frankly given the attitudes expressed in the past month and the likelihood of more legislation incoming I cannot think of many good reasons to continue. Not being able to evict and a slow cumbersome court system is a nightmare for some landlords this pandemic will highlight to some how difficult it can be as a small landlord.

It it is amazing how easy it is to pass tenancy checks yet still hide debts, so many people have debt but no ccj's or defaults and it only ever becomes clear when they move and the letters keep coming. Often for phone contracts, or low amounts under £1k that most companies don't seem to chase through the court system because it is so easy to avoid.

So much easier putting money into long term funds and making similar amounts within your pension with tax relief or in an stocks and shares ISA. Having said all that in 6+ years I have made good money and owed only small amounts in damages from one set of tenants out of 4.