|
|
|
Moving dates of rent payments arriving Due to weekends and bank holidays plus the way the bank clearance system works, rent payments can take much longer than you might expect to arrive, and therefore may not be available in time to cover outgoing mortgage payments. This article looks at this with a series of examples. The delay, which as you will see, can be as much as three weeks where an agent is used even with a perfect agent, who transfers money to you immediately they receive it, will often mean that monies that you might have expected to logically be available to cover mortgage payments is not available at the right time. We therefore need to be able to both understand why this occurs, how to calculate the risk of it occurring and look at what actions we can take to minimize this. In the following example we are looking at payments made by tenants via Standing Orders, with a rent date of the 26th of the month, and standing order dated 23rd so as to theoretically allow 3 days to clear. Some agents do this, on the concept that rent is due in their account on the rent date. If an agent, therefore undertook to remit to the landlord on receipt, they would not be doing so until after the 26th in the majority of months. In the 18 months period shown below, if everything runs at the very fastest rate this actually only occurs 5 times out of 18. Standing Orders are processed through the BACs system. When a standing order is actioned on a particular payment date it leaves the tenants account on that date and is then in the BAC’s system. It will typically take 3-4 working days to reach the payees account (either the landlords agents account or the landlords account), but sometimes it can take as much as 6 working days to work it’s way through. Working days are Monday to Friday, so the days of Saturday and Sunday as well as Bank Holidays are not included. Based on this information we have put together a chart for rent payments occurring on the 23rd of the month, detailing when you should expect the money to arrive in your account. The dates in red below are those that are affected by a bank holiday.
In this period Easter bank holidays did not affect it, but as Easter moves about, it will in some years. As both Good Friday and Easter Monday are bank holidays you have 4 non working days in a row, and either side only 4 working days before another weekend and 2 more non working days so actual payment arriving could run some days into the following month. From what we have shown here, if you are not using an agent, and got your tenant to make standing order payments on the 23rd, the earliest mortgage date that you can reliable cover with the rent is the 6th of the following month. Payments via an agentContinuing from the above data, if the payment is made via an agent and on receipt paid on to you by bank transfer, again via BACS. If you use an agent and are able to persuade them to remit to you the payment when received, by transfer, you need to then work out the latest date this is likely to occur and create a second table like the one below to work out when payments will arrive with you. This table takes the continuation of the same data above so the right hand column above is the 2nd from left below. We have assumed that in most cases the agent will not actually have had a chance to look and make the transfer instantaneously but should be able to do it within 24 hours.
*13th April 2004 date is delayed by Easter. Realistically therefore any use of these rents received has to be planned to occur after the 14th of the following month. The example we have given was, as you will see, based upon a payment date set by an agent as the 26th, with a standing order date of the 23rd, with the concept of getting the rent to the landlord by the first. Realistically this is very unlikely to happen. If as a landlord you were to rely on this, it may well give you considerable problems. ConsiderIf your tenant is paid monthly at the end of the month, it is likely that a standing order date of the first of the month, would be more pleasant for them and more reliable in practice. In which case you can see the point the money can reliably be available for you to use for mortgage payments slides back. The problem, as you will appreciate, is not caused by your tenants or the agents, but by a banking system that runs slowly, even in the instantaneous electronic age. You may imagine that it would be likely to speed up, but before you expect it, consider the value of the many billions of your account holders money, that is lost in limbo, but earning deposits for the banks, and the effect of a constant stream of these limbo funds producing enormous cash flow. Its a good stunt to get a away with as long as they can. In two transfers, where an agent is concerned you will appreciate that monies can be lost to you for up to 3 weeks after it has left the tenants account. You will see that the effect on your cash flow can be considerable as the number of properties increases. Other points to watch out for when using agentsWe have here, while looking at agents, considered the situation where the payments have been transferred to you as soon as the agent has received it. This as you will see when you look at agents terms is often not the practice. Some may remit to you cleared funds on a particular date of the month, so perhaps a month can be lost on some or most payments being relieved, due to the staging of standing orders and the date the agents use. On other occasions agents may only pay over to you cleared funds quarterly, so not only have you to wait up to 3 months for payment to get to you routinely, but where a payment misses a set date, perhaps it may be a further three months until this sum will get to you. As a landlord you may ask, how you can overcome this cash flow problem.You cannot reasonably expect your tenants to cover this problem for you. So ultimately the best you can do is to fully understand it and be aware of both the dates you arrange mortgage payments to be made and dates you can be sure monies will become available to you. A factor that may have an impact is the dating of payment days, often set by when the tenancies begin, but need not be. You could for example start all tenancies on a set day of the month, or more practically work on the concept that if there is less than a set number of days to add these days rent to the first full months rent, and if equal to or greater than the set number, to calculate the first months rent based upon this. Some landlords see no advantage in this and are not inclined to take a smaller payment at the beginning, however as the sum you get by a set date may be more useful to you than the up front amount that just has to sit idle in an account. The other factor is of course the date that you have to make the mortgage payment, and you should explore when this is to be and what, if any, changes you can make. As the first months mortgage payment is not due until a month after completion, you may have an impact upon this by selecting the completion date. It at least brings up a few questions you need to ask the lender, when exploring the deal on offer. Where you are running with the concept that the tenants month starts at the date the tenancy starts, you will see that being able to persuade them to move it forward only a day or two, may mean that you are cash flow wise a thousand pounds or more better off. So why might a tenant be persuaded to start it earlier. Perhaps to be able to check out everything and complete the inventory before moving in, perhaps to be able to get services, phones etc organized and working, perhaps you can think of other reasons. It may even be worth you offering them the equivalent of the first few days, as a bonus or gift value, in that it is not actually costing you anything, and they are getting access to the property early, but importantly moves the payment in line with your cash flow, rather than cash as a reward for moving in early you could use something like Argos vouchers allowing them to choose something of value to them towards their home. If you are unable to cope with it at all then at least you are aware of the potential problem. You will also appreciate that when you have a large number of properties, if this cash flow problem was to line up and all delay available cash to beyond the mortgage payment dates, then you have to carry a far larger cash float to be able to cope with this.
|
|