On todays episode I’m answering your questions about recovering rent, legislation, how to find the right tenants and how to pick a good letting agent!
Today, I’m going to talk for you some of the biggest concerns for landlords right now and these are real people with real concerns because I asked a few of my landlord clients what they’re most worried about right this second. We’re starting to come into the winter months in 2020. So we’ve been through and are still going through this whole lockdown coronavirus Covid-19 type stuff but also this is relevant to the general way of life for a landlord.
The things that you’re most worried about anyway, it might not even necessarily relate to just the current situation. So I’m going to go through tenants not being able to pay their rent tenants, losing their jobs, property prices dropping, negative equity, the constant updating legislation and rules and regulations and compliance that landlords have to follow. Boilers and plumbing repairs as we’re coming into the winter months, properties being empty, mortgage rates going up meaning mortgage payments go up, finding the right tenants, finding the right letting agents as well.
I’m going to go through all of those things, but let’s start at the beginning right now because this is a big concern for everybody. It’s probably the number one reason, that landlords are nervous about investing in property or sorry property investors are nervous about investing in buy-to-let, tenants not paying rent.
Now, there’s a few misconceptions here. There’s a few fears that need to be overcome but first of all, let’s talk about the two types of tenants that are unable to pay rent. You’ve got what I would class as bad tenants. Now, these are people that just don’t want to pay their rent. They think it’s someone else’s problem. They think the world owes them something and if the landlord is put out by them not bothering paying the rent because they got smashed for the weekend and they just spend their money on all host of other things and it’s the landlord’s problem. That those are bad tenants the people that kind of choose voluntarily not to pay the rent now there I just think they’re bad people and then there’s the other side that unfortunately bad tenants ruin it for and these are good tenants that just have a change in circumstance now, I promise you if you’re watching this or listening to this Mr./Mrs. Landlord, your circumstances have changed too over the last however, many years, 50 years, since you were born circumstances change all the time for people.
Nobody leaves school, gets a job and has no circumstance change for the rest of their lives, just doesn’t happen and sometimes it’s through reasons outside of your control, and that’s the same for Mr./Mrs. Landlord. It’s the same for Mr./Mrs. Tenant, is the same for Mr. and Mrs. Letting Agent, Mr./Mrs. Business owner or investor.
Everybody goes through different circumstances at some point and sometimes multiple points in their lives.
So look at bad tenants, what happens if you’ve got a bad tendon that just decides not to pay their rent? Maybe they were receiving housing benefits or something like that and then they decided to go and start working cash in hand. The council found out and they stopped their benefits but the bad tenant decides, now did you know what? I’m just not gonna pay my rent. I haven’t been earning any money. I’ve been paid cash in hand. Fine, that’s the mentality of some people unfortunately.
Spongers if you like and unfortunately, they just go around making other people’s lives misery because that’s just the way they are. So what do we do with those people? Now, look I’m going to look at this first of all what the process should be and also what is the worst case scenario because there’s two sides to it isn’t there. Of course, we’ve got to get that tenant out.
Now, yes at the moment, right on this day at of recording this there are eviction ban type restrictions in place or eviction restrictions in place, easy to say. Eviction restrictions in place, which means you now have to wait a certain amount of time to evict a tenant. So have a listen to my other stuff about that because that is it’s all whole episode on its own. So yes, the first of all we’ve got a evict them, we’ve got to get them out. Now, under normal circumstances you go through the process if a tenant falls more than two months in arrears, then you go through the process of giving them a section notice whichever section notice is relevant to you at that time and the moment is a section 8, but that may well change in the near future, give them a section 8 notice and then after that two weeks is expired.
This is in normal circumstances by the way, after that two week notice period has expired then you can apply to the court and try to gain an eviction. Now, if you haven’t followed the in fact my other podcast or my other video everything you need for every single
tenancy, every single time if you follow that stuff to the T, to the letter then you can carry on through the eviction process without too much problem. If you haven’t and you’ve missed a few bits out here and there which is very easy to do for DIY landlords then you’ll need to go back and make sure you have rectified those things.
Look hey, give me a shout as you all know, I offer 15-minute discovery calls and you can use that discovery call for whatever you like. Just drop me an email or a message through my Facebook page to do that. So and I’ll check it all through with you. I’ll go through your compliance with you to make sure you can evict safely and that’s free by the way, you just might as well take it. But anyway, if you go through that eviction process, gets the end ups, gets the tenant out, replaces them with another tenant and in a minute, I’m about to tell you about finding the right tenants and how you do that.
So wait for that and that kind of leads from you evicted the tenant and now you’re going to find the right tenant to move in again. Secondly, we’ve got the other side of all that you’ve got the good tenants that just can’t pay, change in circumstances.
Now, these tenants are the types of people that they might have lost their job for an example, lost their job or the company that worked for goes bust or something like that then you can talk to that tenant, be open with that tenant and say “Hey, look I need some of the rent coming in. These are my mortgage payments that I’ve got to cover”, be open and honest with that tenant and you can guarantee that type of tenant is trying to find additional work. So if they’ve lost their job A) tell them to go and apply for Universal Credit because right now a lot more people are entitled to Universal credit than they ever were so go to Universal Credit, make the application, you should be able to get some support from that which helps you Mr./Mrs. Landlord get your rent in, number two is ask them to talk to their – this is in the current situation ask them to talk to their credit providers, loan providers, utility providers, all of those people that they’re paying bills out to ask for support and most of those suppliers and lenders and companies and institutions are actually providing support for people that have had financial difficulty.
If that tenant is a business. They can apply for bounce back loans, interruption loans, council grants, which not a lot of people know about and that might again, help them in their business be able to pay some of the rent because you can guarantee the good tenants, they want to pay their rent. They want to keep that security of a roof over their head. But you know, sometimes circumstances just change so offer them all those things Mr./Mrs. Landlord and if they still can’t pay the rent, they still can’t afford then think about the worst case scenario. What’s the most that’s going to happen and I’m going to go back to the bad tenant now, if the bad tenants just doesn’t pay the rent sometimes you just need to know what you’re going to lose.
I know that sounds horrific but sometimes you’ve just got to know what you’re going to lose. Now, bear in mind if you get to court and the eviction process happens, you can still apply to recover that debt because it’s a depth that the tenant owes you that money. They have a contract which states I will pay you this rent every single month now, so it just means that in that interim period of time you may well lose some money and lose some cash flow, it’s just cash flow though.
So what is the worst-case scenario? What’s the most you’re going to lose? Look, you’re probably going to lose six months worth of rent. So if you calculate it for that, it might be a little bit more maybe eight months depending on whether you’ve messed up all the compliance at the beginning and I’m sorry to say that but you know what this is if you choose to be a DIY landlord or self managing landlord, these are the risks that you take, it may well be a lot more than that if you haven’t done every single step of compliance at the beginning.
So my advice would be to just use a letting agent. It’s the safest way to manage a rental property and hey, if you want me to connect you up with the letting agent in the area that you live or your property is then do it, just send me a message through my Facebook page. I’m linked with most of the good agents around the country and you know, what if I don’t know someone in that city then I’ll let you know but chances are I probably do. So anyway with the bad tenant, we’ve gone through that whole eviction process in the worst case scenario, you know, I’m going to assume you’ve done all of the compliance and there’s so many things you need to do. I’m going to assume you’ve done it all, if you’re done all that then six months, you could stand to lose six months cash flow.
Now, once that eviction process is complete you can then apply to the courts or sorry you can then have the courts recover that debt for you and they’ll probably do that by way of a CCJ or they’ll try and settle it in that actual eviction hearing. I’ll leave that up to the judge to decide, but one way or another you should be entitled to that rent coming back. For the good tenants, what do you do? If they can’t pay the rent then the chances are they’re going to go and get another job and if you talk to that tenant and this is what I’m saying really with being open and honest with them as long as they know that you need to pay a mortgage payment at least at minimum they might be able to get some sort of work to pay that mortgage payment, and I know it’s not the full rent that you’re entitled to but get the most essential thing done first, get that mortgage payment paid. You don’t want to start missing mortgage payments because then you’ll start jeopardizing your chances of getting further funding at good rates or remortgaging later on down the line. So try and get something from the tenant to build a payment plan in.
Now, there’s a little way you can do that, it’s by renegotiating the AST or the assured shorthold tenancy contract and building the additional debt into the rent and then tying them into that future contract for another 12 months. So for an example if they’re paying £800 a month normally and they end up building up a debt with you of just making this up, two thousand four hundred quid then you can just cancel that AST contract, sign a new AST contract for an extra 200 pounds for the twelve months and you’ll get your money back over that 12 months plus the original rent to make sure that’s affordable for everybody because there’s no point in time into a payment plan if they can’t afford to keep it just but puts them back to square one, doesn’t it? Think of the longer term as well if that tenant is a good tenant, you want them to stay. So make sure you’re helping them but don’t lose money. You are entitled to make profits Mr./Mrs. Landlord, I know it’s mental isn’t it? Because you’re already swimming in cash. So, you know all landlords are loaded, right? Anyway, tenants not paying rent, losing their Jobs, all of that sort of stuff.
Hopefully that helps with that, property prices dropping. Oh, this is a big one, isn’t it? Everybody in property or who wants to get into property investing and landlording is concerned about property prices dropping now as we say this right now, there was a headline a few weeks ago saying that property prices in the UK are going to drop by 22% now personally, this is my opinion. I don’t think that’s going to happen. Course, the newspapers are going to say that sort of stuff because they want you to click their links. They want you to buy their papers. They want you to visit their website so they can sell advertising space. Their sole reason for being is to sell newspapers, sell advertising space and get you to click on their site. You do all of those things. They can make more money from advertisers. That’s what it’s all about. It’s nothing to do with the news, they’ll just write whatever they can write and that’s a great headline. So look, think for yourself be logical here.
When was the last time property prices dropped by more than 20%? It didn’t really happen, very rarely maybe after the war. Now, I’d be interested to get some actual stats here on what on what when the property prices have dropped dramatically and I’m talking dramatically because let’s think of it like this if probably prices drop and you’ve got a buy to let mortgage, you’ve got a property investment and you’ve got which has got a mortgage on it.
The chances are you’ve got a mortgage of up to 75% because you can only borrow up to 75%. Which means you’ve always got 25% equity there. So if property prices dropped by 25% then at that time, you’re just breaking even but you’re not going to sell it. You’re not selling it today because you bought it as an investment. So you’re actually going to rent it out for the next 10 years. Now, look at that same historic data and see when was the last time property prices dropped so dramatically and then how long did it take for them to recover. That’s how long you’re going to keep your property for. It might be a case that property prices dropped by 10% and then took 10 years to recover.
Okay, there you go. If you think of it like that I think half the problem is the British media you start to think that “Oh shit, there’s going to be a big problem here” when actually there’s not and if there is a problem then you know how to you know, what the bigger picture is, but so many people get that fear of the headline rather than “Okay, let’s think about it. What are the actual chances of this happening?” Very minimal. Now, I’m not saying that property is impossible, it’s absolutely not impossible. It could happen, property prices could go to nil. It won’t happen. I don’t think but it’s very nearly impossible but what I’m saying is that the chances are so small that prices are going to drop by more than your equity in your investment property.
Now, I’m not talking about your personal home, I’m talking about your property investments. So when you see those headlines, I dare you to put a comment on the newspapers or the media channels outlet saying bollocks or something like that, that will cause some controversy, don’t do that. Anyway, right next continuous updates on legislation, continuous changing legislation rules, regulations, processes, compliance or that stuff is constantly changing and over the last 10 years, there have been so many more pieces of legislation that have come into play. I feel sorry for DIY landlords.
Did you know there’s 178 different pieces of legislation that affect landlords now? Unbelievable, but the big ones are enabling tenants to sue landlords directly and enabling councils to come after landlords and keep the penalties they’re charging them. So you’ve got tenants are going crazy, you got counsels are going crazy and they’re all coming after landlords because it’s a free bit of money now isn’t it? From landlords that just haven’t got the compliance right whether it’s intentional or not, they’re coming after you. Do you know the average fine? I heard the average fine from councils to landlords is £15,000. Now. that’s very quickly going to damage your return on investment, right?
And I don’t mean to laugh about it is true though. This is all happening, but there are so many DIY landlords. The and you’re DIY landlord for different reasons number 1; it’s trust, number two is money. Don’t trust an agent to look after your property. Number 2; don’t want to spend the money because you feel like you can do it yourself. I mean, I’ve got mixed opinions on that but you know that’s up to you and number three; there’s also the thing that I guess it’s probably trust isn’t that feeling of what I can do all of it myself but if you’re that DIY landlord that feels like you can do other DIY jobs yourself or the maintenance repairs and things like that you’re in big trouble.
It’s going to happen, unfortunately, and then you’ve got roper coming in which is the regulation of property agents and landlords don’t realize that you Mr./Mrs. Landlords are going to have to get qualified to be a landlord. I know, licensing is coming in whether we like it or not. Regulation of property agencies coming in whether you like it or not and the rule is that anybody who has any kind of interaction or administration or management of any kind to do with a tenancy is going to get qualification and they’re talking about a technical, I think it’s the level 3 for others and landlords. I mean this is a big qualification takes 18 months to get done. So anyway, that’s that so like yes, that is a big concern for landlords right now again, I would obviously say “Look, just use a letting agent, be an anonymous landlord. Let them deal with it and you just enjoy the money coming in.”
There’s no point you spending an hour or two a month on your property, potentially getting it wrong in order to save an hour or two hours worth of value of your time. How much do you earn per hour in your job? Now, if you’re spending that time and potentially getting it wrong? Then come work an extra two hours a month in your job and get that money for yourself to use to pay the letting agent because that’s what you’re good at and that’s what they’re good at.
Boiler and plumbing repairs as we enter the winter months. This is a biggie things like pipes start cracking and you know, your boilers have been quiet for 4 to 6 months, whatever it is and then also in its own intent just constantly used and it causes a lot of problems. So my advice to you on that very quickly right this second today, go and get the boiler service, bleed the radiators and go and warm up the pipes gradually just go and turn your or ask your tenants to turn your boiler up very low, minimal heat and just leave that on for a couple of hours turn it off then the next day you turn it on for a couple of hours, turn it off and just basically just let the pipes gradually get used to going from cold to hot. Same with your boiler.
Just don’t put it full on straightaway, it’s like anything isn’t it? If you’ve got a car and you stick it in your own only driveway for four months and then you can hammer out a hundred miles an hour on the motorway straight away. It’s gonna go wrong. Something’s going to happen. It’s the same with you Mr. And Mrs. Landlord, think about it if you’ve sat on the sofa all day and you’ve watched Netflix, and then you know, you’re sat there from 9 in the morning all the way through till 7:00 at night, and you’re there just catching up on I don’t know Homeland or something. That’s what I’m just watching at the moment just watching all these episodes, lovely and then you get up and sprint for 200 meters. You’re probably going to injure yourself, right?
So it’s the same thing with your boiler. So the next thing is on. Oh, well, I was just going to say get it serviced, bleed the radiators, gradually increase the heat of the boiler and don’t be so intense with it, that’s the key and your tenant should be able to support you with that.
Next thing is the property being empty. Now, this is assuming that I guess this one came from a client whose property is not being tentative and is on the market, ready for let, not being tenanted. I see this so many times because and for example, if you’ve got your property on the market and £900 a month, right? And these are in my area, your areas might have different rent values, but let’s say it’s on the market for 900 pound a month and actually I’m just going to round up to a nice easy thousand. So your property is on the market for £1000 a month, right and it’s it because you think you know what it’s been rented out for four years for £950 or £900 a month and now I think I can get a bit more money for it. So you stick on the market for a £1000 a month and it’s empty for two months because you’ve got less people,
It’s maybe the top end of that rent or that rental property category. Maybe it’s a big three bed house, something like that. It’s been empty for two months. So you’ve lost £1800 in order to get an extra £100 a month now think about it like that means that you won’t get back to breaking even if it is rented after two months, you’ve lost £900 a month for two months. You’ve lost £1,800 and even if you did then rent it out straight away after that two months for a £1000 a month, you’re only going to get an extra hundred pounds a month and it’s going to take 18 months to get back what you lost.
Now what if it takes three months now? It’s £2,700 that you just lost to try and get an extra hundred pounds that means it’s going to take over two years to get that money back and so on and so on and so on my advice to you, is this put it on the market for what you want to put it on the market for, you will know after two weeks whether it’s going to rent quickly or not, two weeks. Your letting agent will tell you after two weeks, work with your letting agent if you put it on the market for a £1000 and after two weeks, it’s not been not generated any firm interest then drop it, drop it to £950.
Because look, you can move a tenant in at £950 and you are able as long as it’s in line with market value you are able to increase that rent down the line. So don’t just leave a property empty and reduce the price for now. It’s an investment, remember investment. You’ve got to make sure you’ve got money coming in. Otherwise, it’s just a poor investment so you can drop it by a bit to increase it in the future. You can increase it multiple times over the course of the entire tenancy. So don’t stick it on the market and leave it there too expensive.
Definitely don’t do that. Another way as well, have a look at your listing and if you’re a DIY landlord and you advertise your own property and find your own tenants, then you’ve I hope anyway, you’ve watched my video or you listen to my podcast about finding tenants and about finding the right tenants because it all comes from your listing as well and if you’re not advertising on Rightmove, like for example, I offer what I just call us an advertising only option. It’s only like £47. I think it is where basically you send me the photos and I will – you can use my Rightmove account. I’ll upload it for you. We’ll send it out to all of the tenants on the Rightmove because the better tenants go on Rightmove and more tenants go on Rightmove some like five to one, it’s like five tenants that search on Rightmove then go on things like Gumtree and Facebook and stuff, right?
So find the right tenants, use my service if you want or do this yourself with your own letting agent or with a letting agent that you know, but just get them to advertise on Rightmove for you, but get proper photos, take them all in landscape mode. Do not take portrait photos, please and anyway I did the whole thing on how to actually advertise that property to get the best tenants and the top rent. So the property is empty, there’s a few different ways. There’s so many more than this I mean I’ll do I’ll do more on that edge, nothing else like an interesting one. Mortgage rate going up. Yes. Oh, this is a big one if you’ve got a rental property, that’s got mortgage on it and mortgage rates start creeping up, your mortgage payments are going to start creeping up and that means you either make less profit. No, we don’t want to do that because we are entitled to make profit, aren’t we Mr./Mrs. Landlord, or you can increase the rent now, what happens if the tenant rejects that rent? It’s not their problem.
Right, now let’s think of this logically, if mortgage rates go up then your mortgage payment, yes is going to go up unless you’re on a fixed rate of course, but if they do go up then you’re going to need to adjust the rent accordingly.
Now remember it like this, you have to make profit. So work it out right now, if you’re making say let’s say you’ve got a thousand pound a month rent coming in and you’re paying out £500 a month to your mortgage and you’re paying out £200 a month for management and maintenance and roughly speaking, you’re making 30% of that rent payment is profit, right? Cool, nice figures. Now, you still want to continue making 30%. So if your mortgage payment goes up, you just recalculate and make 30% profit. That’s my profit margin on my rent and then work out what the rent needs to be and it might only be a tenner and if it’s a tenner then fine or calculate when you’re going to increase the rent, you might not jump that straight on the tenant right now. You might say well I’m not going to increase by £10 now, I’m going to increase by £20 in a year’s time, right? Better investment for the future and so on but don’t worry about mortgage rates going up because it just changes the number.
It just changes, nothing changes for you personally. It just changes the rent money, the rent income. Finding the right tenants, I’ve told you a bit about that, use Rightmove or Zoopla and Zoopla if you can use both and my agency do both so we’ll have Rightmove and Zoopla and you pay us £47, we build the listing for you, we broadcast it to all of the tenants on our database as well as on Rightmove and Zoopla, all of their tenants as well that are currently searching and that’s a really good way of getting tenants and then you just get all the inquiries of all the tenants that come along through those channels. Just get sent to you, it’s a really good way of finding the right tenant, but finding the right tenants goes a bit further. You’ve got to do your due diligence on the tenants. If you’re doing it yourself, I’d use a letting agent and again my company provides that service. It’s almost like a pay-as-you-go service. You can use them for advertising only, you can use them to qualify all the tenants and manage all the tenants.
You can use them for our commonality, all those different things but you can use them for finding the right tenants, you can use my company for doing all the referencing, the employments checks, the income and expenditure checks, the credit checking and so on and there must be other agents to do the same thing. Just like a pay-as-you-go basis almost like a menu system.
So like in that instance, I would just send you like a menu; here’s all the services that we can provide to you, choose which ones you want here and the fees are associated. And normally what I try and do is work out how long that takes my staff to do and then apply my small potential percentage of profit. The next one is finding the right letting agent.
Yeah, that’s a big one as well because like I said earlier landlords don’t use letting agents because of trust because they don’t want to use the money or because they feel they feel like they can do the job themselves but if you find the right letting agents, they have to be the ones that come recommended first of all, they have to be the ones that you feel like you could work with and the initial engagement is you feel trustworthy but finding the right listing agent is vital because your letting agent will keep you compliant and you’re letting agent will well should keep you profitable like in my letting agent for an example I built it so that means that my letting agent is focused around property investment. Meaning my agents, my staff are all focused on making the landlord property profitable, keeping the risk low, making the landlord anonymous and that’s my whole way of life so finding the right letting agent. Yeah go and find them and do it like look if you want me to recommend them to you, please let me know but all of this goes towards the same thing. If you’re going to be the best version of yourself at one thing and you got to be the best version of yourself at everything and this is another thing.