Please Note: This Article is 2 years old. This increases the likelihood that some or all of it's content is now outdated.

If you’re a landlord you probably want nice, reliable tenants, who have a proven, regular income, a spotless renting history – and a penchant for cleaning.

You’re not alone. A recent poll of landlords found that 64% said they wouldn’t rent to tenants on benefits, and three quarters said they wouldn’t rent a property to students.

In some ways that’s fair enough – the pitfalls of different tenant types are clear from your insurance premiums. There can be up to a 75% difference in how much it would cost to insure the same property for tenants on benefits and professional working tenants. That uplift is based on calculations assessing the risk involved, and how likely you are to make a claim.

When you throw in the potential cost of a ‘bad’ tenant – from damage to eviction proceedings – you’ve got an equation that many landlords would say simply doesn’t add up.

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But with the rental market changing and coming under increasing pressures, the ‘perfect’ tenant simply may not be available to you. And sticking to this safe and sensible formula could be stopping you from diversifying your portfolio and maximising your income.

As a landlord, you could be missing out on lucrative, untapped markets. So here’s a quick guide to help you assess the risk, mitigate, and maybe start to think differently about potential tenants…

Working professionals

The plus side

Working professionals are clearly landlords’ favourite tenants. They’re responsible, solvent, and unlikely to fall behind their rent payments.

The down side

Don’t be lulled into a false sense of security. However reliable your tenants, there’s no substitute for regular inspections to make sure there are no issues at your property. Even something relatively minor – like damaged grouting – could escalate quickly and end up costing you money.

Make sure you keep in touch and keep up to date – if your tenant does become unemployed and fails to tell you it could invalidate your insurance policy.

Families

The plus side

Families are now the most common type of tenant in the UK’s private rented sector, and they often want unfurnished properties and long leases – meaning they’re very little effort for landlords. Plus if your property is near good schools, shops and transport links, the yields can be fantastic.

The down side

A family wants to make your property a home, and that means they’re looking for top quality accommodation, and top notch customer service. They’re also more likely to want a blank canvas, and to be able to put their stamp on things – for instance by decorating children’s rooms. If you don’t want them to hang a family portrait, blue-tac pictures of Little Mix to the walls, or potty train on your carpets, you might want to think again…

Relatives

The plus side

Renting to family saves you the hassle of finding and vetting other tenants, and means you know who’s living in your property.

The down side

If things do go wrong and you’re renting to family, things can get pretty messy. It’s really important to make sure you don’t cut corners and set up a proper tenancy agreement so everyone knows where they stand.

If you have a buy-to-let mortgage remember to check the details – some require landlords to charge at least 125% of the monthly mortgage costs, so you might be constrained if you wanted to give a family discount.

Students

The plus side

The plus side of students is their abundance. If your property is anywhere near a university, there’s no escaping students!

Letting to students can yield particularly high yields – up to 10% in some parts of the country. Students aren’t fussy tenants, and should be pretty easy to please as long as you’ve got good transport links to campus and nightlife. If you’re prepared and have budgeted for more than the usual wear and tear, renting to students could really pay off.

The down side

More than 75% of landlords say they wouldn’t rent to students. They tend to be a higher risk proposition because of their lack of experience, financial instability – and reputation for throwing parties.

Make sure you take a thorough inventory at the start and end of each tenancy, including photographs. You can also ask for a guarantor, for an extra level of security.

Tenants on benefits

The plus side

Tenants on benefits are the least popular choice for landlords for a multitude of reasons, 30% say they wouldn’t rent to them. But don’t write them off too soon! Believe it or not there are benefits to tenants on benefits.

Landlords who are prepared to put in extra checks and measures can hugely expand their pool of tenants – and sometimes quantity over quality can be an effective investment strategy with the right portfolio of houses.

One possibility open to you – especially if you want to be hands off – is to consider renting out to a local authority. Councils often need extra social housing stock, and can guarantee you rent for 4-6 years – no management, no maintenance, and no letting fee. You won’t make as much as you would renting privately, but if your goal is long term capital growth it’s an option that could work for you.

The down side

The most obvious issue with housing benefit tenants is the higher risk of rent default, because their finances are less stable (and less abundant) than people in work. Your insurance company may refuse to offer some types of cover, such as rent guarantee, and some buy-to-let mortgage providers won’t lend to you if your property is going to be let to people in receipt of benefits.

There’s set to be an added pressure for landlords with the roll out of Universal Credit, which will see housing payments made directly to tenants instead of to you – so you’re relying on them to manage the money and effectively budget for rent.

Make sure you establish procedures early on, like how your tenant will pay. Find out what date of the month they receive their benefits and consider changing your rent’s due date to match it. Always thoroughly vet potential occupants on their rental history, and have them provide a strong guarantor.

Multiple occupancy tenants

The plus side

Houses in Multiple Occupation are on the rise – and can help you maximise the potential rental income of a property. What’s more, having multiple tenants often means they police each other – and they’ll let you know pretty quickly if someone isn’t following the house rules!

The down side

Splitting up the property into individual bedrooms with shared bathroom and kitchen facilities can be expensive. You’ve also got to get the right kind of licence, follow HMO rules and keep on top of all the maintenance issues – which with more tenants are going to be more likely.

There can also be a higher turnover of tenants in HMOs as they move on at work or with their studies – creating more work for you to find them, vet them, and make sure they can peacefully co-exist with the current residents.

However, if you get the right mix and contracts for 6-12 months, the work you put in could well be made up in profit.

Whatever kind of tenant you choose, it’s really important to make sure you weigh up your long term investment goals and budget for the worst case tenant scenario. Getting the right insurance is key – make sure your legal expenses are covered in case of tenant disputes, take out malicious damage cover, and look into rent guarantee – protecting your income if your tenants do stop paying up.

Always check your insurance policy carefully so you know exactly what you’re covered for and what you’re not – and get the peace of mind and confidence you need to expand your target tenant group.

Article Courtesy of: Simple Landlords Insurance

Please Note: This Article is 2 years old. This increases the likelihood that some or all of it's content is now outdated.

1 COMMENT

  1. If a company wants to rent your property, as 2 of its employees have been relocated for a 6 month project, does this mean you have an AST?
    The agent is telling me that there will be no employer checks no previous landlord referencing, and the credit check is on the company.
    Knowing how companies treat their suppliers (90-120 average payment terms) then I am most concerned to let my property out to a company.
    I have requested upfront payment for the 6 months fixed tenancy, but this has been negated.
    Could you advise of the posible issues for me, as it is my sole and main property as I rent abroad.

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