Undoubtedly, one of the biggest threats to HMO landlords is finding themselves in a position where they have a difficult tenant who’s not paying rent, is upsetting other people in the house, and is even difficult to evict. 

This can be a black hole, costing thousands and thousands of pounds and absorbing hours and hours of your time, and this is one of the things we should try to avoid at all costs.

But there is one thing we can do that can almost guarantee this doesn’t happen. Yet so many people don’t employ this single tactic to protect themselves, and that’s getting guarantors for your tenants. 

In my own HMO business, it’s our policy that anyone who wants to live in our properties has to have a UK-based guarantor. That usually surprises a lot of people, but I’m hoping I can persuade you to use guarantors if you’re not already.

Read about what a guarantor is, why you should ask tenants for this and answers to some frequently asked questions about guarantors below or listen to the full episode on The HMO Podcast. 

What Is a Guarantor and Why Should I Ask Tenants for One?

A guarantor is someone who promises to pay the rent or cover any costs if a tenant doesn’t pay, accrues any debt or causes damage to the property. This agreement is in the form of a legally binding deed making them the first line of defence if things go wrong.

It’s easy to implement this process into your HMO portfolio, and it won’t cost you any additional time or money. Through this, you’ll also reduce the chance of ever having an issue when you have a non-paying tenant or someone you can’t evict because you can always lean on that guarantor. 

Overall, this will reduce your risk and give you a huge amount of confidence moving forward. And that strengthens your business massively, potentially saving you tens of thousands of pounds. 

Should I Require Professional Tenants to Have Guarantors?

When it comes to the student market, guarantors are standard. That’s because student tenants usually have little to no income. But professional tenants have jobs, more life experience, and should know how to manage debt and finance, so, why would we need a guarantor for them? 

No matter how good your vetting process is or how good the first impression a tenant gives you, you don’t know what kind of tenant they’ll be. Some fellow landlords have told me they feel uncomfortable asking professional tenants for a guarantor.

I get that it can be a slightly uncomfortable position as some of them are in their 30s, but we’ve found that 99% of the prospective HMO tenants that we ask for a guarantor from have no issues doing it whatsoever. 

What Should I Do if a Prospective Tenant Says They Can’t Provide a Guarantor?

If a prospective tenant doesn’t physically have a guarantor or doesn’t want to give you one, that’s a big yellow flag. 

When this happens, there’s nearly always a reason, and you’re right to be suspicious as this could mean no one is prepared to be their guarantor. This could be because they already got themselves into trouble or because no one trusts them.

I’m all for second chances, but we run a business and have staff to pay. Non-paying tenants can become a huge cost to you as a landlord. So, you have to take this extremely seriously, and sometimes you just have to say no.

Who Are the Best Kinds of Guarantors?

Make sure to also check guarantors closely as well. Don’t just take the tenant’s word for it. It’s also useful to know what relationship the guarantor has with the tenant. Are they a family member or friend? 

Having a friend as a guarantor isn’t usually a good option. If this tenant doesn’t pay their rent, is this guarantor really going to be able to soak up the additional cost to pay rent on their behalf? You also need to check if they are even a real person. We’ve had it before where someone has gone to the extent of falsifying this information. 

There’s no exact science here. Look at the trail of breadcrumbs that’s been left, and use your instinct. If they don’t come up with what you’re looking for, say no. We know we will be able to find the right tenants who are more than happy to provide us with a good guarantor.

What About Foreign Nationals who Can’t Provide a UK-Based Guarantor?

There are a few instances when having a UK-based guarantor may not be possible for a tenant. And one reason is if the prospective tenant is a foreign national and doesn’t have family in the UK.

It’s important that a guarantor is UK-based because if you have to pursue a debt, you need to do that through the courts. And the courts can only do that with someone living here. So, foreign nationals are the only time we will give an exception, and there are a couple of things you can do to give yourself some protection. 

For starters, you could ask the tenant to pay for a service such as Housing Hand, who will act as a tenant’s UK guarantor. If the tenant defaults on rent, you then pursue Housing Hand to recover any amount that’s not been paid.

The other alternative is that you could take a certain amount of rent upfront, such as three or six months of rent. If the tenant is able to do that, it also shows that they’re likely in a pretty strong financial position. 

Final Thoughts

Through our application process, we make it clear before we take any reservation fee or deposit that prospective tenants will need to provide a UK-based guarantor and that they’ll have to pass credit and reference checks. 

My advice to you is to take a UK-based guarantor for every single tenant wherever possible. This is unquestionably one of the reasons why, as of today, my HMO business has accrued no more than a couple hundred pounds of debt from tenants who haven’t paid in the last 12 years. 

I hope I’ve made it clear the many benefits that come with requiring tenants to have guarantors. For more advice and lessons on how to manage and systemise your HMO portfolio, become a member of The HMO Roadmap! 

About the Author:

Andy Graham is the founder and the lead trainer at The HMO Roadmap! He is also the co-founder of The HMO Mastermind and Smart Property, a specialist HMO property investment and management company. He writes as a regular columnist in different magazines about a variety of HMO topics and is the host of The HMO Podcast! Follow Andy on Instagram!