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How to prevent rent arrears before a tenancy begins

All private landlords rely on their tenants paying the rent on time. No surprise there. A regular cash flow is essential for any business but especially when you have mortgages to pay. Avoiding tenant's who could end up not paying the rent is something every landlord looks for. Easier said than done of course.

There are no guarantees but you can lessen the chances of letting your property to a non-paying tenant. Here are our top seven tips on how to prevent rent arrears before a tenancy begins.

1. Thoroughly reference the tenant

Before installing a tenant you should make sure you follow up on their references. Don't make the mistake of accepting a tenant's references at face value.

The most important references a tenant can provide include financial and previous landlord references. A credit check will reveal any history of financial difficulties and whether the tenant has a history of defaulting on credit arrangements. If this is the case you should clearly think twice before going forward with this particular tenant.

A reference from a fellow landlord is even more valuable. Speaking to a tenant's previous landlords will help you build up a picture of them. Did they look after the property? Were they trustworthy? But most importantly - did they pay the rent in full and on time? A poor report from a previous landlord should raise huge red flags.

But glowing references ensure you vastly reduce the risk of installing a tenant who will fall into arrears.

2. Draw up a tight tenancy agreement

As a private landlord with an assured shorthold tenancy, you must have a written tenancy agreement. Needless to say, you should never rely on a verbal contract.

Your tenancy agreement will include clauses dealing with the security deposit, pets and utility bills. But the most important section surrounds the rent.

Make sure your tenant knows how much they have to pay and when. But also make sure the tenant understands the consequences of not paying the rent in full and on time. Spelling it out in black and white that they will lose their home if they don't pay helps drive home the message.

If you're unsure about what to include in your tenancy agreement your letting agent can draft one for you.

3. Make it easy to pay

The tenant knows they have to pay the rent every month. It says so in the tenancy agreement. But make it easy for them to keep to a payment schedule. Insist they complete a direct debit mandate. A DD makes life easier for everyone.

The tenant doesn't have to remember to make a BACs or cash payment every month. And your cash flow is uninterrupted.

Be aware many employers pay their employees weekly rather than once a month. This can make budgeting difficult. Help your tenant out. Accept weekly rent payments. This means they don't have to find a large payment at the end of the month. They're far more likely to keep up with the rent this way.

4. If in doubt insist on a guarantor

A guarantor is a third party who guarantees to pay the rent should the tenant fail to do so. Often used by student landlords a guarantor can provide an added layer of security. Asking the tenant to provide a guarantor works in two ways. The first is obvious. If the tenant falls into arrears the guarantor will be liable to make up the payments.

The second way a guarantor works is to incentivise the tenant to make their payments on time. Usually, the guarantor will be a family member and the tenant won't want to be in the embarrassing position of having to admit they haven't paid the rent. No matter what their relationship the guarantor won't be best pleased to have to dip into their own pocket. Avoiding a family argument is a powerful reason for the tenant to keep on top of their rent payments.

5. Include a rent guarantee in your landlord insurance

Taking out rent guarantee insurance makes complete sense for most private landlords. Policies and terms differ but essentially you are insuring yourself against loss of income should your tenant default on the rent.

Most policies will pay up to a set amount of lost rent as well as legal fees for evicting the tenant. As we mentioned policies and their benefits vary between providers so make sure your broker sources the best policy for your circumstances. Make sure you factor the cost of the premiums into the rent you charge.

6. Keep in touch with your tenant

As bizarre as it sounds a tenant will make greater efforts to pay the rent if they like the landlord. Even if their circumstances change and they are struggling financially. So it's important to build a relationship. Respond promptly to issues or queries the tenant may have. Be seen as a 'good landlord'.

Keeping the channels of communication open will also enable the tenant to let you know if they're in financial difficulties. Maybe they are switching jobs and won't have a pay packet for a while. If you know this you can arrange a payment holiday or restructure the rent so the tenant finds it easier to pay. And you don't end up out of pocket.

7. Trust your instinct

Even if a prospective tenant has impeccable references and a steady income you may think there is something not quite right about them. In that case, trust your instinct. Move onto the next person on your list of possible tenants.

As one of the UK's longest established online letting agents, you'll find good tenants faster by listing your property with MakeUrMove.

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