It’s a downward spiral that is showing no signs of slowing its descent.
But how do we stop it?
Where do you stand?
Conversations around money are never easy to broach, especially when it relates to people’s livelihoods and money owed. You never want to arrive at a point where you need to do so, but as a landlord, you have the right to evict your tenants if they fall behind on their rental payments, as long as you comply with the strict procedures set out by the government.
In England, the general rule is to provide your tenants with a minimum of two months’ notice prior to eviction which can be either during or at the end, of the fixed term agreement.
The full guidelines and procedures for private renting are set out by the government, which you can view here.
Here are some of my top tips for lessening the blow of unpaid or late rental payments:
Understand your cashflow
The only problem you can fix is the one that you know about. The first key step to regaining control of your rental payments is to understand what you are owed, by who, and when. It’s also important to know when your bills are due so that you can balance out your incomings with your outgoings.
Once you have visibility of your expected transactions, you can start to build a picture of how full your cash ‘pot’ is likely to be at any one time. By forecasting where you are likely to be in the next six to twelve months’ time, you can pre-plan and avoid constant firefighting.
As you grow your property portfolio, it will naturally become more complicated and time-consuming to manage your finances but several tools that utilise the power of open banking are available to help provide clarity.
Reduce fees
Much like in business, showing empathy with those who pay your bills (or not, as the case may be) will go a long way in protecting relationships and securing long-term, reliable income.
If you can afford to do so, consider lowering your rental fees, even for a short period of time. Whilst this will damage your profitability, your tenants will be more likely to pay on time. After all, it is better to have some money coming in than none at all. Your tenants will also be grateful for the opportunity, going a long way to protecting the tenant/landlord relationship.
Close the gap
If reducing fees simply isn’t an option, focus on what the real issue here is, and that’s cash flow. The likely scenario is that money is leaving your account to pay for your mortgage, but rental payments are not coming in.
Now that you understand the cash flow problem you have, you can begin to take the necessary steps to reduce that gap. Do you have a particular tenant that regularly fails to pay their rent on time? Are all of your rental payments across your property portfolio due at the same time? Could you bring any incoming payments forward? What do your procedures look like when it comes to deposits?
At this stage, it is important to take an in-depth look at every aspect of your property portfolio to consider the impact that payment timings and amounts have on your cash flow trends to ensure the peaks and troughs in cash flow trends are never too extreme. Whilst change is often required, ensure it’s never at the detriment of the relationships that you have developed with your tenants and suppliers.
Now that you have reduced the cashflow gaps where possible, it’s time to look at how you can close them altogether.
Rental financing
With bills, employees and suppliers to pay, it is highly unlikely that you can afford for the money that you are owed now to be paid in a couple of months’ time.
Whilst often greeted with a degree of disdain due to the association with extortionate interest rates, rental fee financing is a tool that has drastically improved in recent years and is largely underused by landlords and management companies.
Hesitations towards financing rental invoices are understandable. In an ideal world, you would have a flourishing property portfolio, populated by tenants that pay their rent on time, month after month.
Financing rental invoices offer an opportunity for property managers to build their portfolio with confidence, removing concerns of when the money will come in.
Everyone needs somewhere to live, but with the cost of living crisis, the property industry is at somewhat of a crossroads. You have worked hard to accumulate the capital required to
develop your property portfolio, but you shouldn’t be forced to operate as a charity. Support is needed and it is available if you look in the right places.
