ASK534: What happens when a good tenant fails referencing? PLUS: How to align your mortgage expiry dates?

0:02Rob B:Hi, I'm Rob. And I'm Rob. And this is Ask Rob and Rob. Hey everyone, welcome to Ask Rob and Rob, the show where you give us your wonderful property questions, normally property anyway, and we do our very best to give you a great answer in return. We'll try that format once again this week. But before we do, let's give you a quick reminder of how you can get your question on the show.

0:23Rob D:Yep, it is so easy. You just have to go to propertyhub.net slash ask. And once you're there, you can leave us a voicemail, which is amazing because we get to hear other people's voices on the show and we get to hear questions that take us into areas that we would never otherwise cover. So we love it. And helping us to do that today is Peter.

0:41Rob B:Hey, Rob and Rob. Peter here from London. Great show. Thanks for the support. I've got a rental question. My current tenant's been in for a few years now and I do have rental insurance. My insurer has said that I need to renew my rent referencing every three years, which we've just done. But this time, unfortunately, it's failed. So I'm not eligible for the rental insurance, but I've got a tenant that's been paying well over the years. So what would you recommend in this scenario? What would be my options? What should I be thinking?

1:19Rob D:thank you peter thank you for your question i love this show because we get to cover things that would never otherwise come up and this never has before but this is a really tricky situation there's a couple of options here so you obviously haven't told us why this person has failed and there probably is going to be a way to get them to pass it depends on who the referencing provider is but for example getting a guarantor could be one way of getting them to pass referencing so i understand that it's a very tricky conversation because you've got a tenant who's in there they're doing everything they're supposed to do so if you're going back to them to say i need this extra thing from you so i'm safe in case you stop paying i can see how that's not the easiest conversation but if you can find your way around that then there probably is going to be something you can do to get a pass but that's something for you to look into the other way you could look at this is say well actually i'll take a business risk and not ensure this tenant from now on because I think there's a strong argument that insurance is most valuable in the first year because when someone is coming in they can sail through referencing everything could be fine but you don't know what they're really going to be like so the first year and even the first few months are the riskiest period you could say by the time the tenant's been in there for multiple years it's highly likely that if they have been exemplary so far they will continue to be so of course you don't know that you are still taking a risk anyone however well-intentioned can fall on hard times so if it were me in this situation i would probably proceed without insurance obviously depending on the overall state of the relationship and how they've been and things that we can't know just from your question but that's how i would approach it but being aware that i was taking a risk in doing so if you're minded the other way then that's totally fine.

3:04Rob D:Nothing wrong with that at all. You're not doing anything out of line by going back to the tenant and trying to arrange things so they can get a pass and your insurance can continue. So Peter, thank you. Really interesting question and good luck. Let's listen to our next question in from Philip.

3:19Rob B:Hello, Rob and Rob. I have a question that I haven't been able to answer despite looking at your propertyhub.net slash university courses, which are marvellous. I've even gone back to the beginning of your podcasts and listened to them, especially the mini series is like how to be a property investor. They're wonderful. I've read your book, Rob. In fact, I've read two of them. I found a lovely two-hour YouTube video, which is a highlight of one of your books, which you should look at. Everyone should look at that. It's brilliant. So I've not found the answer. Hence my question to you here. Maybe it's really obvious, which is why no one's asked it and it hasn't been addressed, but it's not obvious to me.

3:55Rob B:So I've just finished the first phase, the purchasing phase of my property empire. I'm going to sit on the purchases now for five years until I have enough equity to refinance and reinvest. Trouble is, my first property I purchased two years ago and the mortgage will expire in three years. The second property will expire in four years and the third property, the mortgage will expire in five years. I need the equity of all three to make my next purchase. I won't have enough with two and certainly not with one. When you've got lots of mortgages, how do you align the expiry dates of them all so that you deal with the period between borrowing when it expires and when you can next invest.

4:35Rob B:Do I put the money in an interest account? Do I sit on the variable rate and that will eliminate my yield? Will the mortgage company be okay to lend me the money when I've told them it's for investing in a property, except I don't up to two years because I'm not in a position to be able to do it yet? What do you do? Thank you so much for your help. Philip, thank you for your question. i think before i go direct to answer and there is a solution so do not worry i think this is a classic case of making sure your goals are clearly defined which it sounds like you do have clearly defined goals but then working with experts to build a strategy to help you with those goals so because you've locked yourself in to the five-year products you've come across a potential stumbling block against your strategy.

5:24Rob B:But if you'd gone in for two-year products, at least on some of the properties, you wouldn't be in this situation now. Now there may be very good reasons why you've gone for a five-year fix. The point I'm making here is when you speak with a broker and you work with a broker, help them understand your goals, your aspirations, and your strategy so they can help give you products that align to that strategy. So the way you've gone about it isn't optimal. However, there is, like I've alluded to, a solution. So for everyone else listening, work with an experienced broker, people who are experts to help you guide you through this so you don't make the same mistake.

6:04Rob B:But luckily, Philip's mistake is not going to be a strategy ender. Because, Philip, what you can do is you can approach those existing lenders when there's equity in those properties, and you can prove that by resales on the local market. You can go to them and ask for a further advance which is just another way of saying lending more money they will look at your property they will look at your proposed valuation and you in many many cases with most lenders are able to then take a new mortgage out against the higher valuation now it's not guaranteed they may not agree with your valuation there will be some costs involved because you will often need to pay for a valuation.

6:50Rob B:But if you have confidence and you can see there's clear evidence and evidence being and sales of similar properties in the immediate area, not asking prices on Supler or Rightmove, if you have complete confidence, then they should come to the same view as you and allow you to get that money out. It's more common than you'd think. I know many clients who've done this as well. So while it may not be something many people are aware of, It's not niche. It's not going to be something the lenders don't understand. They'll be able to go through that process with you. The other alternative is finishing up with those products early and paying the redemption penalty.

7:30Rob B:And you may look at the redemption penalty, think it's quite small. And when you've run the numbers, getting a new product may be the better way forward. That's another approach you can take. And that's just running the numbers. And it's worthwhile investigating that too. But either way, the good news is you do have options.

7:46Rob D:best of luck all right well that is two more questions answered which means our duty is done and we can leave you to get on with your day we will be back again with the property podcast on thursday so hopefully we'll see you there bye-bye bye-bye