James Davis – Portfolio Landlord & Property Expert
In this week’s article James Davis, CEO and founder of Upad, highlights the increasing importance of selecting tenants based on affordability given the growing cases of rent arrears.
Avoiding the Growing Trend of Rent Arrears
Landlords and tenants are in a financial tug of war. While property owners struggle with growing rent arrears, renters are taking on too much expenditure. The worst possible eventuality is when this dynamic breaks beyond repair, leaving both sides with legal fees to pay and new relationships to build.
In London, up to 60% of young professionals’ take home pay is being spent on rent. While this doesn’t necessarily represent the rest of the UK, it is a trend that we do not want to emulate.
If you think about the modern tenant lifestyle, there are many new and incremental outgoings that most tenants forget to account for. Whether it’s a Spotify subscription or increasing student loan repayments, renters are now committing to more standing orders than ever before. In fact, the growth in unsecured debt such as loans, credit cards and overdrafts is nearly £10,000 per household.
As a result, I’d recommend that rent should be no more than 30% of a tenant’s net pay. This will allow a financial buffer for any unforeseen monthly payments.
Fail without the detail
Evictions are expensive. To rise above this worst case scenario isn’t easy but it is necessary, especially if you are one of many landlords who owns multiple properties. Multiple evictions are really expensive and time consuming.
From the beginning of a tenant search, landlords must ask the right questions about income and help their tenants to understand the impact of local bills and taxes on their monthly living costs. It is also important to revaluate risk throughout a tenancy, continuing to communicate with tenants about their situation and employment.
Most importantly, you need to nip problems in the bud. When a tenant doesn’t pay or you notice that they have stopped responding to calls, take a soft but direct approach to understanding more about their situation. Do this yourself, as tenants are less likely to respond to impersonal, automated agency emails. A tenant will be much more likely to work with you to resolve a short term cash flow problem if you approach them with an open mind, rather than an assumption that they’ve just stopped paying rent.
Getting free advice
If you are concerned about the national rise in rent arrears, I have set up a webinar providing practical advice for landlords to safeguard their investments. https://attendee.gotowebinar.com/register/3263065016188538628