Updating post from Reddit.
Afternoon folks,
After a bit of advice as a new landlord. Have a guy (known, family friend) who is willing to pay a full year's rent upfront. Funds have been verified by the estate agent.
Any pitfalls of this to be aware of?
Had the idea to invest the full amount into a decent returning savings account and draw down on the values as needed throughout the year to cover any costs / mortgage etc.
I can’t pass credit scoring. Set up a business 5 years ago and I defaulted on about 20 things. Fortunately it all went well and I sold the business for 8 figures. If I now rent I always just pay the first 12 months upfront and show them my bank account. The same before I sold the business. Couldn’t pass any financial tests even though I was drawing £100k a month so just paid upfront and showed the numbers.
Not everyone has great credit but we can be great tenants!
Maybe he can’t get a reference.
Same happened with me, one year up front. Everything was fine just be careful of any impact on tax returns as this will show as all your income in a single tax year and could push you over a tax threshold. It all depends on your own personal circumstances.
It does tip me into higher tax by a small amount. Tenant is willing to split if necessary
Talk to an accountant, but I believe the income can be split across years if the tenancy is written carefully.
Basically you write the tenancy agreement for 'pay £X per month', and then if he chooses to pay all upfront on day 1 that's his choice, but it doesn't become your money till the day it's due. (He could ask for his overpayment to be returned anytime before the due date).
Then you put it in the tax return based on the due date, not the actual date received.
Why does he want to do this?
Just started a business, so is well financed but can't get a mortgage due to not having books long enough.
Also going through divorce, so wants it sorted and out of the way.
It'll be the divorce.
The judge is unlikely to take those funds off him if paid now.
Get him to pay 2 years! 😉
Or, he can’t get a tenancy due to not having books long enough. Which is the way I, as a landlord, would be viewing this. Do you think you know better than businesses who deal with this stuff all the time?
What happens when in 12 months time his new business isn’t going quite as well as he’s projected to you?
Sure. And someone with a long employment history could lose his job 12 months later. There is nothing like zero risk.
Paying 12 months upfront sends you a message: I'm a good saver and responsible with the money.
If there is no other concern in his credit report. For me, it would be a good candidate.
Interesting that you actually take an upfront offer of 12 months as a positive thing… I think most experienced landlords would view it very much an amber flag, if not a red one. There’s always a reason.
Yeah. There is a reason: He hasn't submited his self-assesment yet. I don't see anything obscure or weird here.
His SA from 2023-2024? We don’t know. If not, sounds like he ought to pull his finger out if that’s what he needs, or will help him secure a tenancy. My guess is that this is a new business anyway, probably started since 5 April, so any SA 2023-2024 (relating to a previous job, maybe?) will be 100% irrelevant. And we have zero idea whether this business will fly. Just because he has the cash now (maybe from a redundancy payment? who knows) absolutely doesn’t make him an acceptable risk in my book.
I’ve had this several times it has worked out well for me. Maybe he wants the cash to be gone from his account if he’s going through a divorce!
The way you speak I don't know who you're fighting with 😂 Being condescending over nothing, next time don't be surprised when people chat shit about landlords
I’ve done it before typically as they can’t pass credit scoring…..
Never rent to people you know. There’s so much tenant demand. Completely unnecessary.
If the credit score is good (no CCJs, etc...). I don't see any problem. His story makes sense to me.
Yes, he could default after 12 months but INMO the risk is really low. Someone irresponsable with the money would not have that amount of cash sitting around.
We are loving to London and we may end up offering 6 to 12 month upfront. We are top notch tenants but we don’t have credit history because new in the countries. Also as landlord in another country I wouldn’t see having the tenants pay upfront 12 months…you will get a nice return 4-6% if invested… so you would be better off taking it.
But…I would never do with family and friend. Just make everything weird
I’ve done this before. They didn’t have a credit rating at all nobody would give them a house but they worked hard and offered me 6 months up front. Think they were there for 3 years never missed a payment. Did do some DIY electrics that I had to sort but it was fine.
Two words.....weed. farm.
Not this chap. Well, if he does, he can share.
The thing to be careful of is that it looks like it completely removes the risk of him taking possession of your home without paying rent, but in reality it only postpones this risk by 12 months. (Or 6 months if he suddenly changes to 6 when you’re about to sign…) As someone else has posted this is common practice when renting a property for farming or other nefarious practices.
That's true. But it gives a considerable amount of security. A recurring rent defaulter would not offer 12 months upfront.
Professional fraudsters do, though usually a bit less than 12 months. I should know.
There is no zero risk of course.
But at least for me, having 5 digit figure on your bank account + clean credit history says a lot. Only a tenant with a homeowner guarantor would be a better candidate.
I always get downvoted to oblivion making this point on Reddit but if your tenant doesn’t pass normal checks then rent up front really isn’t helping.
Uh. What's your definition of a "normal check"?
This looks set to be banned under the new legislation coming through. Might be worth checking on what date that's scheduled to become effective.
If he’s a family friend, why are you using a estate agent?