Late paying tenants aren’t just a nuisance, they are a serious business risk. One late paying tenant could be enough of a strain on your cash flow to put you out of business and you should ensure you’re taking no chances where late payments are concerned. How much could a late payment cost you and how can you protect against the risk?
Mortgage Penalties
The gravest danger for most landlords is the risk of being penalised for not paying the mortgage. Typically landlords use direct debit payments to ensure their mortgages are paid off every month and if standing orders from tenants don’t come in on time that can leave you short. Penalties will depend on the bank you use, but be sure you will be charged an extra month’s interest and almost certainly a fee for missing a payment. This could come to over £1,000 on some properties.
Credit Rating Damage
Failure to pay off a mortgage is inevitably going to damage your credit rating and could easily stop you getting good credit in the future. It’s unlikely that one payment will make too much difference, but a series of payments from a persistently bad tenant could cost you quite considerably. Don’t underestimate the costs of this and pay off your mortgage every month, even if you have to use other credit facilities.
Eventual Losses
The worst possible scenario is that rent isn’t just late but it never comes through at all. The only sure-fire way to protect against this it to take out rent guarantee insurance. This means, in the event of a tenant making a run for it, you should still be able to recover your money. You could easily lose three or four month’s rent from a bad tenant, however, so don’t take it too lightly and make sure you’re covered.
Losses from non-paying tenants can be incredibly damaging so don’t take the chance: keep things simple, take out a good insurance policy and make sure you have the proper contract in place to ensure you can swiftly remove a persistently late paying tenant.
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