All businesses have bad debts and Buy to Let is, after all, a business. Albeit one the Government doesn’t truly recognises through the tax system. A ‘normal’ allowance for this is in the region of 5% of turnover but rent arrears are running at more than twice that figure.
According to one set of figures recently published 10.7% of all UK rent was either unpaid or late by the end of August. This is an increase from the July figure for unpaid or late rent, which stood at 9%. Another source found that tenant finances took a “turn for the worse” in October with 10.1% of all rent late or unpaid at the end of the month, compared to 8.6% by the end of September (LSL Buy-to-Let Index Oct 2011).
Which ever way you look at it, this is still a huge slice of income to write-off. As rents rise, benefits reduce, and unemployment grows things may only get worse. So is Buy to Let a viable business?
For the answer we need to look back to the business model. All businesses need to factor in the possibility of bad debts but take every possible step to avoid them.
Just as a business takes up trade references you should not let anyone into your property without fully referencing them and establishing that the property is affordable to them within their income bracket.
Never let a debt accumulate. Rent is in arrears the day after it is due; so monitor your payment receipts and contact the tenant as soon as a payment is overdue.
Whilst landlords must never harass a tenant it is always the case, just as in business, that he who ‘shouts loudest’ is more likely to be paid. So be firm but polite, enquire if there is a problem, offer to discuss and/or help with this as appropriate, perhaps they have changed job and have a different pay-day, and try to agree a definite date by which matters will be resolved.
Good communications, built right from the start of the relationship with your tenant, may help to resolve any problem which arises.
Taking the matter to court should always be a last resort. This will take time, indeed the closure of some county courts will make this slow process take even longer, and involve the landlord in extra costs whilst rent remains unpaid.
Statistics also show that an increasing number of tenants are raising a defence, at the last minute, which delays a possession order. Just as a business must get their paperwork right and provide no grounds for a counterclaim when seeking payment on a contract, landlords must make sure that they have met their maintenance and repair obligations towards the tenant.
Rent arrears will continue to be a problem but the wise landlord will take a very businesslike approach to his selection of tenants, and his relationship with them throughout the tenancy, to maximise the possibility of being paid on time and in full for the service he is providing.