FORGET FALLING house prices, rising mortgage rates and tough competition from other landlords. Nothing dents your buy-to-let returns like a problem tenant. Rental arrears, vandalism or just plain antisocial behaviour upsetting the neighbours — it can all cost you a lot more money than a blip in the Halifax house price index.
Despite changes to the law in 1996 that made it easier for landlords to deal with nightmare tenants, there are still too many who don’t pay and won’t leave. According to Landlord Action, a firm that will help a landlord to regain control of his property, one tenancy in ten is problematic. “The most common issue is rent arrears,” says Johnathan Chippeck, of Landlord Action, also known as clicktoevict. “We have had cases of tenants owing a year’s rent.”
Hans Retallick, a full-time landlord from Kent, was owed even more money by the time his problem tenant disappeared. Like many experienced landlords, he bought the property with a sitting tenant to avoid having to find someone new. Unfortunately, the tenant was already in arrears and continued to withhold rent. By the time he called on Landlord Action, there was £1,885 owing, which had reached £2,600 by the time a bailiff was sent in. Then there was the headache and extra cost of refurbishing the ruined house. “The whole (eviction) process took 13 to 14 months, during which time no rent was coming in. Although the property is now properly let, it will take years of rent to make up the money that I lost.”
Since becoming a landlord seven years ago, he has built a portfolio of 45 properties and developed an investment strategy to cope with problems such as these. “I find that it’s better to have a lot of small houses with a few small problems than a few large ones with large problems. There is safety in numbers. There are problems at every level. At the top of the market, professionals can lose jobs and become unemployed. Having someone who pays £2,000 a month fall into rent arrears is much more of a problem than someone who pays rent at £200 a month.”
Not all landlords think through their investments as clearly as he does and in a difficult market many are cutting corners in their efforts to find a tenant quickly. Johnathan Chippeck says: “Landlords are taking silly risks because the market is so saturated with other investors. Everyone is a landlord these days and sometimes they don’t even bother to run a credit check on their tenants.”
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With more than two million private tenancies in England alone, disputes are bound to arise. There are bad examples on both sides of the fence. For every tenant who vandalises a home, falls into arrears or disappears without paying rent, there is an unscrupulous landlord who withholds a deposit unfairly.
Successful landlords, however, will know the law and do their homework thoroughly before handing over the house keys. The best way to deal with problem tenants is to avoid them. But the usual credit checks may no longer be enough. Although speaking to the tenant’s employer and previous landlord gives some idea of a tenant’s record, Johnathan Chippeck advises investors to go a step further and ask tenants to produce bank statements for the past three to six months.
“If you ask a bank for a reference all they will do is write a letter stating that so-and-so has been a known customer for the past eight years,” he says. “You won’t know whether he has been bouncing cheques. Investors need to know whether a tenant is financially sound and that his income exceeds his outgoings.”
If things do go wrong, landlords should be careful when dealing with their tenants. A small slip-up can nullify the whole legal process. Landlord Action deals with problem tenants in three stages. In step one it serves the tenant with a legal notice (hand-delivered within 48 hours). This costs £115 and in most cases is the only action necessary. But if the tenant does not pay up within two weeks, solicitors will begin court proceedings and obtain a possession order from a judge for a fee of £565. If the tenant ignores the court order and refuses to leave, Landlord Action will send in a bailiff for £198.
Johnathan Chippeck emphasises that the most important thing is the paperwork. “Judges throw out a case if a landlord puts an incorrect time or date on his notice. After waiting months for a hearing, landlords have had to go back to the drawing board because of simple mistakes.”
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For free advice from Landlord Action call 0870 7652005 or www.clicktoevict.co.uk
HOMES with good transport links rate highly on investors’ tick-lists. This four-bed semi in Leatherhead, Surrey, is only five minutes’ walk from the train station for a 45-minute commute to London. It costs £395,000 and would let for £380 a week. The garden is small, the interiors are neutral and there are new restaurants on the high street. John D Wood & Co, 01932 842323