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  • Buy-to-Let

    Default stance for Tenant providing Guarantor

    Hi Everyone

    In the recent interview between Vanessa & DL we saw that one of the (default) conditions for DL to let one of her properties was that the tenant needs to provide a guarantor.

    This idea really got me thinking whether this might be the stance that I should be taking? I don't know whether its easier to apply this approach up north because the rents tend to be slightly cheaper and the liability for the guarantor is therefore reduced. I know there are loads of payday loan companies who insist on the borrower providing a guarantor (although I accept these might be deparate people looking for money to plug a gap in their finances) and they are never short of applicants - so there's clearly people willing to act as guarantors for their loved ones and friends!

    I'm thinking of trying to insist on all future tenants of mine having guarantors but I'm not sure how receptive prospective tenants would be to this idea. Like DL, the deposit is almost irrelevant because if you have a bad tenant then the costs of getting rid of them are so high that you sometimes see Vanessa recommend that we just pay to get rid of them out of the property. Basically the deposit is almost worthless because it outweighs other costs.

    I know there are Zero Deposit schemes, etc. but in this topic I'm looking specifically at getting rid of the deposit process completely and replace it with a mandatory guarantor. Tenants might find it beneficial that they don't have to save for a deposit but Landlord has a slightly favourable view of the tenant in the event that they fall in hardship then the cost could be recouped from the guarantor.

    Questions:

    • What are your thoughts on this?
    • Do you think as a Landlord, I become less attractive and therefore have fewer enquiries?
    • Are there drawbacks of this apprach that I've not considered? I know that Guarantors are not always reliable themselves but at least its a better back up than a 5 week deposit which I feel is pretty much worthless these days
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    Saagar

    Disclaimer: I have no legal expertise nor am I a qualified advisor on any subject. A humble landlord using an open forum to exchange ideas and experiences. 

    I have vowed from now on that I would only take tenants with a HOME OWNING guarantor. Their mate down the pub who lives in a council house is useless. The last lot had their octogenarian parents sign as guarantors. 4 months later the rent was late, one phone call to daddy and he took over the payments, and gave notice to quite as his daughter had taken on more than she could afford, and he wasn’t prepared to subsidise her forever.
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    ``the deposit is almost irrelevant``

    I struggle with any thinking that says as a starting point that £600 in the hand  is irrelevant / worthless

    £600 is worth £600 and its sets the tone for the tenant to have some skin in the game

    Only if demand for your product is so low does one have to adjust that criteria to attract tenants

    Other than that my view is to look to take a deposit and a guarantor not either / or


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    Jonathan Clarke. http://www.buytoletmk.com

    I think the dilemma I find is that asking for both might limit me to the number of tenants who might show interest - more so around insisting on a guarantor.

    I take deposits but most tenants I've found to date have been good so never had issues with deposit. However in one instance where I did have a problem tenant, I wish I had read Vanessa's suggestion and used the deposit return as an incentive to get them out.

    In an ideal scenario I want to have both but the deposit process and the value it currently give me feels too low, especially with the 5 week restriction. However, my concern is that asking for both my reduce my pool.

    Do you find it easy to get good tenants with good income etc but then are still happy to provide guarantors - without objections?

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    Saagar

    Disclaimer: I have no legal expertise nor am I a qualified advisor on any subject. A humble landlord using an open forum to exchange ideas and experiences. 

    It goes in waves but 10 years ago they never offered really .

    I had to do all the asking

    But now they seem more alert to raising their game and are more prepared

    Some people dont like it but only because they  know they will struggle to find one

    I say the more boxes you  tick the better your chances

    I like it when a tenant has done their homework before they ring me and offer me their best shot

    Demand is high where I am so every enquiry i get i tell them to get all their ducks in a row

    I say RIA , deposit , guarantor , passport , proof of income etc

    Send me proof of this if you are happy too even though I havent got something available at the mo

    When a property comes up i say  - you can then hit the ground running

    Some respond within the hour with a professional package of information

    Some dont and e mail me in a month and vaguely ask again if I have something 

    They lose out because they have made zero effort in the meantime to get their house in order



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    Jonathan Clarke. http://www.buytoletmk.com

    I stated in that article that I did kind of see where DL was coming from in her interview, but don't think I could do it in the South. Average deposit for me is £1000-£1500 so no way I'm turning that down.

    As Jonathan states, doing both is probably your best bet. However I do think doing both could be a major turn off for tenants.

    Imagine the scenario....

    Tenant turns up. Earns £100k, A++ credit rating. Full references. The perfect tenant. You then ask him for a guarantor as well as the deposit. I can see how he would be confused at this request. I think it's ok to ask for one or the other but there needs to be a good reason to ask for both. 

    Surely you'd be better off with RGI?


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    That's exactly my concern - the example you've used - asking for a really good tenant to provide a guarantor would be seen as odd by the tenant.

    I'm trying to see if there is model that I can adopt across the board but i guess each case needs to be viewed separately.

    I've never used RGI but I've looked into it. The issue I find is that the conditions they place means that the tenants would normally fall under a 'good tenant' category anyway. I don't have a large portforlio and I don't really have a problem with good tenants since they always pay rent and keep the house well. If there was some way for the RGI to cover someone who wouldn't been deemed 'good' on paper then I'd definitely cover it.

    For example I rent to a single mother who under an RGI scheme never meet their criteria, however I know she is completely reliable and has paid rent and been good for a long time.

    It's good with the types of responses I'm getting from the tribe as it's helping me shape the approach and come up with a strategy that might work for me.

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    Saagar

    Disclaimer: I have no legal expertise nor am I a qualified advisor on any subject. A humble landlord using an open forum to exchange ideas and experiences. 

    "If there was some way for the RGI to cover someone who wouldn't been deemed 'good' on paper then I'd definitely cover it."

    ... That’s what the guarantor is for! In these situations you will take both, the deposit and the guarantor.

    It’s quite straight forward to me.

    • If tenant is good, take out RGI for reassurance (that is the equivalent of the guarantor you desire)
    • If tenant seems good but high risk on paper, fails referencing, take out the guarantor.

    In both instance you get someone to back the tenant should things go sour.

    I’ve rented in the past to tenants who have failed referencing but proceeded anyway. Some went good, some not so good. You take a risk but there are ways to minimise that risk.

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    Thanks Adam. 

    I think your succinct bullet points has given me a clear explanation in my mind. I can see where you're coming from.
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    Saagar

    Disclaimer: I have no legal expertise nor am I a qualified advisor on any subject. A humble landlord using an open forum to exchange ideas and experiences. 

    I also don't think it would work in London.

    Last time I rented my husband and I were in our 30s and between ownership. There's no way I'd have asked someone to be our guarantor. We both have income, had plenty of savings and good credit ratings. It would have been ridiculous and embarrassing for us to ask someone to guarantee our rent. I can see why it might be a reasonable thing to ask for if a person can't pass referencing themselves, but otherwise surely it's a bit offensive?

    I'd never insist on a guarantor but I do insist on tenants who qualify for RGI.

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