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I've just had an honest conversation with a prospective tenant. His buisiness failed and declared bankrupt very recently. Has applied with wife to rent my property as the family needs to downsize. Clearly the easy option is for me to walk and await another tenant, and I am confident 80% of replies will voice that view. However I beleive there can be opportunities in all situations, so wish to better understand the risks I would take and implications before I make a decision. Mr T is now working on a good salary (37x monthly rent), Mrs is not working and unlikely to for 12 months due to poor health. They have kids and associated costs.
T would pay 2 months deposit, plus 6 months rent in advance (from wife's savings). Have offered to repeat after that. I would offer a 6 mth AST (to him and wife) and serve a S21 as a precaution to speed eviction should that be necessary. I would ask for redacted savings statement to see how much savings they have and seek a budgeting plan to check budgeting is realistic. I guess I could explore the possibility of a guarantor. I would do credit checks, but expect to fail. Did I miss anything?
Regarding implications... Clearly one (of two?) failed credit checks would mean I would not get rent-guarantee insurance. What other implications have I missed?
Hi GG,I think this is one of those times where you can consult your "gut instinct".One thing I would recommend is you ask Mr. T. if he can supply a guarantor.If he is paying 6 months rent in advance, I feel there is little risk to you as it is a family renting, not individuals.It's really if you want to give him a chance ...See - 15 questions every landlord should ask prospective tenants
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Good Afternoon Good Guy.
You are correct that if they have failed the credit checks then they will not qualify for RGI.
Please be aware that S21's served when the AST is signed have the potential to fail because the tenant could say that he was given the S21 before he signed the AST; you cannot end a contract which has not yet begun ! !
Furthermore, getting tenants out isn't as straightforward as you may think; latest increases in court costs to regain Possession have to be added to the hidden costs of Possession too.
Section 21 Accelerated Possession process:
= An average of between 4 and 6 month with no rent.So it's all well and good if they pay 6 months in advance, but what if they stop paying rent after the 6 months? With this in mind it may be an idea to request that they continue to make monthly rent payments from the start to cover the period after the 6 months in advance payment, for added protection.
Also, do you know how secure his new job is? As it is worth taking into consideration whether there is a probationary period...
Prevention is definitely better than cure so please consider joining LandlordReferencing.co.uk, where you can upload these tenants onto our database at the beginning of the tenancy and update their behaviour throughout in real-time. You can them warn them that should anything bad happen throughout their tenancy that it will all be documented on their Tenant History file for future landlords to verify.
We quite like bankrupt tenants If our gut instinct is that they are decent people that have just hit hard times, you know that at least they have other debts!
We would require a sound guarantor, (home owner and employed) who will pass a credit check.
Stewardson Developments Ltd.
Burson Land Ltd. & Jennings & Gilchreaste Ltd.
Follow me on twitter - @philstewardson
Two things: firstly
"request that they continue to make monthly rent payments from the start to cover the period after the 6 months in advance payment"
I'm sure I've seen it suggested elsewhere that this could make the six months' lump sum equivalent to a deposit needing protecting, or worse, each of the additional monthly payments could be considered a further deposit, each needing to be protected as they are taken, since they are being collected to cover an obligation not due until later.
Secondly, the RLA advice on Section 21s says this:
"A Section 21 cannot be served in the first 4 months of the original tenancy but it may be served at the outset of a replacement tenancy. In practice however, the new six month lifespan means landlords should get into the habit of serving the Section 21 form as and when it is needed rather than habitually."
and goes on
"How will I serve a Section 21 notice to expire on the last day of a 6 month tenancy if I cannot serve in the first 4 months?
You cannot. Notice periods will now expire a few days after the end of a 6 month fixed term. If a tenant moves out on the final day of the notice period the Deregulation Act makes it clear that landlords should repay the remainder of the rent for the month to the tenant. Therefore, the tenant is only liable for rent for the few days he/she remains in occupation beyond the last day of the fixed term of the tenancy."
I would only concider someone with Bad Credit - if they are able to offer a homeowner guarantor. As well as those with bad payment history, this is what we also do for the unemployed.
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It is perfectly possible to achieve RGI on the guarantor
If the guarantor is so great then they should qualify for RGI
Just being a homeowner means not a lot
Ever tried to get cash out of a poor homeowner who may or may not have realisable equity in the property asset
Very easy for the homeowner to impose a voluntary charge in favour of a third party to take care of any equity
So then a bit pointless trying to force sale of the guarantors home which would take years
In the meantime the LL has had his property repossessed!!
A guarantor who does not qualify for RGI is no guarantor at all
Any guarantor who stood as one must be aware that they could lose their home
There is simply no way I would ever risk my home for a friend, family or associate so they could rent a particular property
This tenant needs to find a LL who isn't mortgaged and who is more able to carry the losses this tenant may cause
Any mortgaged LL should decline this tenant unless they wish to risk the losses caused by a lengthy eviction process
So RGI for a guarantor or no tenancy or the LL decides to accept the business risks of rent default and subsequent eviction
A tenant has nothing to lose out of the arrangement
They can always find another mug LL
The LL could lose everything!!
Surely out of all the tenants out there one could be found who does qualify for RGI
Why should a leveraged LL risk all on a tenant!?
For me I just don't see how the business risks make it worthwhile
But of course it is always finally up to the LL what business risks he wishes to take
Providing he is aware of what they are then the LL decides what his fate my be
Such are the joys of being in business as a LL!!
I had exactly the same issue with my previous tennant, they failed every financial test. However i went with my gut instinct and they were the best tennants i ever had.
I think facts are very important but sometimes you need to see the human side and actually meet the potential tennant.
Wouldn't risk my financial security on gut instinct
RGI EVERYTIME for me
Plenty more tenants in the sea who will pass RGI checks
I suppose if you aren't a leveraged LL then it might be OK to trust gut instinct
All that might happen if you evict is you'll be about £10000 down in income, not that C24 will take any notice of such losses if you are leveraged
Non leveraged LL can take risk on their gut instinct
Few leveraged LL can!!
If you are inclined to go with this tenant after your careful checks as suggested by other posters, you might agree the six months up front rent payment as a deposit rather than rent, then collect rent monthly. After all I would asssume he's saving at least the monthly cost of the rent so he can make the next six months rent payment. If he defaults at any point you have that 6 months worth of deposit to claim against. Otherwise at the end of six months and they default you only have two months funds available and it might take you four-six months to evict, if you don't delay in the action.
Jeremy Wasden Franchise Owner Belvoir Lettings Uxbridge, 113 Hillingdon Hill, Uxbridge UB10 0JQ Tel 01895 257935 www.belvoir.co.uk/letting-agents-uxbridge
This is a great thread. It is good to see some landlords prepared to give someone down on their luck a chance. Very contrary to what you read in the papers.I hope GoodGuy will let the thread know what he decided and how it all pans out.