How to avoid costly errors when you let your investment property
You’ve invested in a great buy-to-let property. The numbers stack up well, with decent positive cash flow. That is until your tenant starts paying late. Suddenly your cash flow is out of sync.
Your mortgage interest payment is debited from your account before the rent is credited. It could cause you to fall into overdraft, incurring charges and interest. Perhaps your mortgage payment will be bounced by the bank because of insufficient funds. And late payers tend to be the tenants who become non-payers, causing, even more, aggravation and headaches.
In this article, we outline the seven steps that will help buy-to-let landlords keep late-paying tenants in line. Do this, and your life as a landlord will be much easier – at least on the financial side of the equation.
Why do tenants pay rent late?
It’s most likely that your tenant is a good tenant. Late payments happen from time to time. It could be that your tenant simply forgot to pay – the pressure of a new project at work, perhaps. These are some of the excuses we’ve heard from late payers (you can work out the ones that are genuine, and the ones that give cause for even greater concern):
- “My car broke down, so I couldn’t come to town to pay the rent.”
- “I lost my job last week, so I don’t have the money at the moment.”
- “My electricity bill was higher than I expected.”
- “I’m only a couple of days late. I’ll swing by later to pay.”
- “I had to dip into the rent to pay my train ticket to get to work.”
- “Work paid everyone late this month.”
A single late payment is usually not a cause for concern. When a tenant’s parent passes away, most other commitments get put to one side, if only for a few days. Still, you should expect to be paid on time. So, act quickly, remain calm, and be non-confrontational.
Always be mindful that a single late payment could evolve into a serial late payer – and this could cost you hundreds in fees, charges and interest.
Prevention is better than cure
There is much that the buy-to-let landlord can do to prevent late payments from occurring. It includes:
- Making sure that your tenant selection process helps you identify and select the best tenants. You’ll need to employ robust tenant selection and vetting.
- Communicating rental terms. It includes the amount and due date.
- Putting in place a late payment fee, and never waive it.
- Ensuring that rental payment terms and late payment charges are detailed in the tenancy agreement.
How much can you charge as a late payment fee?
A buy-to-let landlord can make a ‘reasonable charge’ for late payment of rent. The clause in the tenancy agreement that covers this charge should explain how much the charge is and when it will be applied. More importantly, you should ensure that any clauses added into the tenancy agreement won’t hamper eviction if needed. It’s worth noting that if you accept late payments regularly, the tenant could present this as an argument against eviction.
Your seven steps to cure late payment of rent
If your tenant is late in paying their rent despite taking all the above actions, then it’s time to cure the situation. We’ve found that the following seven steps produce the best results:
1. Communicate early and firmly
Speak to the tenant early. Don’t let the situation drag on. Be firm, inform them the rent is late, and ask when you can expect payment. Keep a record of the conversation, and confirm in writing what you and the tenant have agreed.
2. Remain in contact
Having made the initial contact, don’t let that be it. Make it easy for your tenant to contact you. This way there can be no excuses for further unnotified delay in payment. The day before the late payment is due, call the tenant to remind them of their obligation to pay.
3. Be consistent in your approach
Don’t waver from your agreement, and be consistent in your approach and communication.
4. Always be professional
No matter how frustrated you become, don’t lose your temper with the tenant. Stay calm, and never swear. Don’t threaten the tenant with anything other than what is stated in the tenancy agreement – late payment fees, for example.
5. Treat all tenants equally
It is ultra-important, especially with the explosion of social media. Tenants talk to each other. If you let one tenant get away with paying their rent late, all your tenants will expect equal treatment. If you forego a late payment fee for one tenant on a single occasion, your other tenants may refuse to pay.
6. Keep your emotions under control
Don’t become angry. Don’t get taken in by your tenant’s tears. What is going on in their personal life (whether fictional or not) should not be an excuse for paying their rent late.
7. Don’t delay the eviction process
Your final option is to evict. If the tenant can’t (or won’t) pay their rent, this is the option you should take. Don’t delay in taking this action. Any delay will only cost you more money and could harm your argument in a court case.
Not good at ‘persuading’ tenants to pay?
Many buy-to-let landlords admit to not being good at getting tenants to pay on time. They hate confrontation, find it hard to assert themselves, and end up agreeing to what the tenant wants! You must be thick-skinned and emotionless when dealing with late-paying tenants. For most buy-to-let landlords this is a difficult juggling act, in which they usually drop the balls.
As investment property managers, we are not so emotionally attached to your property and tenant as you are. It makes it much easier for us to remain consistent, calm and collected when discussing late rent payments. We have in place a comprehensive payment process, internal systems, and checks and balances. Our fully trained property managers take a consistent approach with every late-paying tenant.
Contact one of the Ezytrac team today on+44 01522 503 717, and discover how our investment property managers work with our landlord clients to relieve the stress and pressure of everyday property management.
Yours in effortless property management,