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Julian_S

Potential tenant - but bad credit rating

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Good morning. I've got a middle aged lady wanting to view. She's moving cross country having split from her partner and has volunteered the fact that her credit rating is poor. However she is prepared to pay the rent 6 months upfront, and then again in a further 6 months if applicable.

One side of me says that I can't go wrong, all other things being equal. But the other says that a middle aged woman incapable of managing her financial affairs is a liability.

I'd appreciate any comments on the issue, thanks. (I do remember that an agency once found me a Chinese man with his own business and no regular employment - they had him pay 6 months upfront and it worked out OK)

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It doesn't automatically follow that people who split from their partner have a poor credit rating. If it were me id want to know the details. If it's just one ccj from a few years back, then that might be ok but, if it's the result of numerous problems then that should set alarm bells ringing.

In my opinion anyone with a poor credit history is a second choice because there are so many applicants with an unblemished record. Why would you want to risk problems when you don't have to ?

Taking 6 months rent up front and having that identified in the tenancy agreement means the rental period is 6 months and legally alters the notice period. It's best to leave the AST showing monthly payments and to issue a separate receipt for 6 months advance payments.....If it ever gets that far.

How do you arrive at your conclusion that says 'one side of me says that I can't go wrong' ? That's about the worst judgement call I've heard all week.

The second bad judgement is trying to convince yourself that because it all worked out fine with your Mr Chinese man then this might also be ok. The two are not related and neither has an influence of any kind on the other. You should dismiss the idea immediately.

Most business is about risk & return. Why would a landlord increase their risk of problems without an increase in rental return to compensate ?

Your choice.

Good luck.

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You need a quality guarantor as even doing more research may not show you the true history. A distant guarantor is far more awkward to sign up than one that can pop over to meet you on sign up day. I've tried signing up a guarantor some 200 miles away by using a local solicitor to witness at their expence, after a lot of faff it failed.

The problem with a relocation, possible experiment, like this is that it has it's own risks. Is she running from something that might follow her, like a violent ex?

2 risks from single female T's. 1st, if they are attractive we males might not see the situation as clearly as we should. 2nd, any female can attract male attention and the new chap/s haven't been assessed by us but may well become very important to the tenancy.

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Thanks for the comments. I arrive at the conclusion that you can't go wrong (note my wording ''all other things being equal'') simply because you have the 6 months rent for a 6 months AST in the bank before they even get the key, that sounds like a no-brainer to me.

I like the idea of rent guarantors, but it seems they can walk off after 6 months anyway, and if I have the 6 months upfront then I'm not sure what the advantage is? OK potentially responsible for putting damage right, but middle aged women......where do you draw the line?

I shall investigate the resons behind their poor credit rating, as you say, it could be something of nothing. I suspect I have a poor credit rating because I've not had any form of credit, on anything, for about 30 years so they have no info on me....

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Straight to the point.  I would want more in-depth detail about the bad credit rating. I would also require an independent property owning rent guarantor.

If this person can provide 6 months up front rent payments how come she has this bad credit rating?

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A good deed of guarantee ties the Guarantor for the period of tenancy, cue Grampa....

T'other advantage of a Guarantor who may be at risk is that an absconded tenant generally reappears when the Guarantor is made aware. I've even had tenants become more amenabl when reminded of the Guarantor's responsibility. One Guarantor even gave my then tenant a black eye for doing that to him.

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I find people who want to pay 6 month up, can open a can of worms and be a pain int the backside. 

There are a number of issues to deal with and consider:

  1. After the first 6 months how do you know the tenant can afford to pay the next six months. Too many landlords jump in feet first thinking its a no brainer when all they are doing is storing up trouble for later.
  2. As RL states there is a potential notice period issue when taking 6 months rent in advance. There is a work around which involves a specially worded clause on the tenancy a good agent should be able to advise and if they dont then steer clear of them.
  3. If the tenant is planning to go on HB at a later date do you know what the rates are for your property and what entitlement would the tenant have? There is nothing worst than chasing HB shortfall payments

Having said that it can be workable and you can mitigate potential problems by having a home owning guarantor signing a good deed of guarantee as  CoR mentions and also consider taking out Landlord insurance with rent guarantee for piece of mind, though read the T&C's and act on any tenant breach within the required timescales or could be void.  

 

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But surely .......with a countrywide shortage of affordable rental property and good tenants around every corner......why, why, WHY even give this applicant consideration.

There are so many risks with this applicant and lots of hoops to jump thru to mitigate those risks she can't possibly make anybody's shortlist.

Why give yourself extra work, a headache, future problems etc when a much better tenant will be along shortly.

I am absolutely stunned that anyone would consider letting to this applicant. 

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RL it depends very much on your area and the potential pool of tenants to choose from. If the property was in a city or the commuter belt for example I would imagine you have a huge pool of professional tenants to choose from.

My area is a coastal peninsular location and if for example I didnt accept HB tenants half the  mid range properties I manage would be empty and the rents likely to reduce .So sometimes you need to consider tenants who are not the ideal choice and come up with a workable solution with safeguards. But you need to know when to walk away (reject) a unsuitable tenant.

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I hope I'm not steering this discussion off topic .......

As an agent i understand your situation, your post explains the reasons you do what you do. But for me, that raises other questions about the landlords that place the business with you. I expect there are a number of your landlords that would describe themselves as 'accidental' because they couldn't sell, or inherited the property. But then why have the others purchased a property that is only suitable for HB tenants or perhaps more to the point, why have they purchased property in an area with limited rental opportunity.

Seems a simple business decision to do your homework before you buy to check on rent levels, target tenants, ability to let etc etc.

Recently a family member of mine decided to sell their property and move permanently to Spain. Their's is a great little 3 bed terraced house in a nice area, nicely decorated & carpeted with a landscaped easy to look after garden and I was offered it at a very reasonable price. But I discovered that the rental demand in their area is low and rents are also low. It wasnt difficult to decide that I could do better a few miles down the road where the rental market is much better.

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I think it boils down to horses for courses.

I guess I have an unfair advantage of being a agent and am not fazed by HB/Low income tenants. But I also have a number of muti properties landlords who choose to rent  very successfully to these tenants.

There also the property price to consider and the property price generally in this area can be considerably more expensive for the "better" properties but with lower yields but possibly higher capital growth (not always the case.)  So budget is a factor.

Being a landlord also myself I see both sides and my personal target market is to aim for properties that overlap both markets. The higher end of one and the lower end of the other which at present is working well (touch wood). Not all landlords have the budget, knowledge or skill set to aim for the same market as your market but it doesn't mean it is wrong it is just different.

But whatever the market if all landlords were diligent, knowledgeable, asked the right questions or used  a competent agent issues would be reduced greatly.   

 

 

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