Watching the BBC documentary last week called Meet the Landlords was probably frustrating for anyone in my line of business, though it looks as though there’ll be no shortage of debt collection work in the future.
The old boy scout motto, Be Prepared, is just as important for anyone considering letting out residential property. From the stories told in the programme it was clear that some owners have not been doing their homework before plunging into a market where private landlords have now taken on part of the job of providing social housing once done by local councils – and that some tenants will run up rent arrears because they either can’t pay or won’t pay.
First some statistics. The programme said 8.5 million people in this country rent their homes and that one in five properties is owned by a private landlord. Rents are up and so, it said, are arrears. Well, we reported figures on this blog recently that suggest arrears are beginning to fall back.
But the experience of first time landlord Anna, who finally called professional help and went to court for a possession order after her tenants ran up rent arrears of £5,000 – a figure which had reached £7,500 by the time the legal process was exhausted – was salutary for those looking for easy returns on investment. It appeared she had no strategy for managing arrears and no concept of what steps to take when a tenant did not pay.
Anna felt she should not have to go to court and appear before the judge ‘like I’ve done something wrong’ to obtain a possession order. She was herself running into difficulties paying her mortgage after the tenant paid no rent.
Her experience, and that of the Caroline and family who rented out their family home when her husband found work abroad but had to take legal action to get the house back, suggests putative landlords should be aware of the pitfalls of renting out. This is especially the case where they are letting out the family’s main residence, or where the rental income is needed to support mortgage repayments.
Stock market investors are always advised never to invest what they cannot afford to lose if the market falls. Similar caution applies to property rental. Benefit caps might mean that the rent, even if paid, does not cover costs – as Caroline found with her family’s single property.
The caps on housing benefit payments introduced by the government might suggest that, to maximise returns, more landlords will seek to break up properties into smaller units, creating more houses in multiple occupation as does Jim, the self-proclaimed HMO daddy, who was filmed passing on his tips to aspiring landlords.
He expressed impatience with the ‘long winded system’ that meant he had to go to court to remove tenants in arrears. We’ve mentioned before that landlords worry about the new system in which benefits are paid to claimants, who are then responsible for paying the rent.
An eviction specialist who featured in the programme, said a lot of landlords were very naïve. They had entered a buoyant market in which the very growth meant there would be more bad tenants who would ‘prey on vulnerable landlords’. While it was not clear that the conversions in Jim’s properties would stand up to much wear and tear, the state they and Caroline’s home were left in after evictions, reinforced his argument.
Anna had learned a lesson. She would in future choose her tenants very carefully.
At SJ Collections we can help if you’ve hit problems with rent arrears, and advise if you’re setting out in the rental business on how to avoid them in the first place. We can guide you through the steps needed to gain possession of your property.