A Better Alternative To Guaranteed Rent Insurance For Landlords

Attention: Tired & Disillusioned Landlords

Discover How You Can Make An Extra £10K Over The Next 5 Years With This Alternative To Guaranteed Rent Insurance For Landlords …….

The Alternative View To Rent Guarantee Insurance For Landlords

Dear Landlord,

Renting property can be tough, especially if you’ve experienced long or regular rental voids and had issues with any of your tenants. It can quickly become painful, costly and sometimes downright demoralizing especially when you have other commitments. On top of all that the government recently added a new buy-to-let tax under the guise of Section 24 (known as the Tenant Tax) which has made some forms of property investment like buy-to-let much less profitable and I know several landlords that are know even making a loss ….. ouch!

This time, the government is planning to take away a landlords powers to evict problem tenants through the scraping of Section 21 ……. and for many landlords, this final nail in the coffin has forced them to start selling up …… and they’re doing it in their droves!!

Hang on though, hasn’t property always been a good investment and doesn’t it provide a much-needed service to the community? The simple answer to that is, yes, and it will continue to be the case. However, these moves by the government are the beginning of professionalizing (read that as complicating) the rental market so unless you are serious about running this as a professional operation like a business it’s going to be, and will most likely, get much tougher for individuals and small portfolio landlords.

There is some hope, as a number of ways do exist to help alleviate some of these problems, however, as you can see from the above changes, and with more planned on the horizon, there is and will be far more red tape and hurdles to jump through to make property a worthwhile investment.  One way of overcoming these problems is to find a way to ensure your rent is always guaranteed no matter what, otherwise known as Rent Guarantee.

How Do Rent Guarantees Work?

In their most simple form, it’s a contract, which you the landlord signs for a specified period for which in return a guaranteed monthly income is paid, equal to an agreed months rent. This figure you are guaranteed to receive each and every month no matter whether your property is tenanted or not.

What Does Guaranteed Rent Mean?

The term “Rent Guarantee” can mean several things.  One form of rent guarantee is an insurance policy, typically called a guaranteed rent insurance designed specifically for landlords.  These policies typically only cover tenants who pass a robust referencing procedure and if they pass that, then they’re very likely to pay their lease anyway, making the insurance just another cost for most landlords.  Again for large portfolio landlords, it can make sense.  Another downside is that you may have to wait months before you can claim it, which essentially increases your void period, resulting in more costs.  The alternative would be a rent guarantee service which I’ll explore later on in this article.

Should You Use Guaranteed Rent Insurance For Landlords?

Landlord certificate for guaranteed rent

Guaranteed Rent Insurance is like any other insurance product in that you can purchase it from specialist insurance brokers and the costs vary along with the levels of your cover.  As always, ensure you read the policy details so you are clear on what you are getting for your money, just as you would a ‘life insurance policy’ or ‘buildings and contents’ policy.

The terms and conditions which you should be most concerned with and can vary according to the policy provider include:

  • Any tenant must undergo a comprehensive tenant referencing check before the agreement is signed and accepted.
  • Some insurers will not allow tenants receiving housing benefit whilst others may accept a working guarantor.
  • Insurance like this must be purchased BEFORE the tenancy is agreed or you will be preventing from making any claims for a certain period stipulated in the policy.
  • As with any insurance, all claims will have an excess amount that you must cover up to and the policy will only cover beyond that, which is usually equivalent to a month’s rental income.
  • All of the correct documentation must have been provided to the tenant at the start of the tenancy, such as the guide on how to rent, an EPC and gas and elec certificates.
  • The insurance will only cover you for the period up until you take possession of the property or until the tenant has surrendered the keys.
  • A cap is usually placed on the amount recovered, usually between £25,000 to £50,000 per claim.
  • The time it takes to receive the first month’s rent (which has not been paid) under a claim is usually around 8 weeks in arrears, so you must continue paying the mortgage regardless.
  • Guaranteed rent insurance does include solicitor fees which may be required to regain possession of the property.

Guaranteed Rent Programs – Better Alternatives?

Another option is to use a guaranteed rent scheme or service, which also vary depending on the levels of professionalism adopted by the provider.  If done correctly these services can provide a much higher return on investment than an equivalent insurance policy could ever and tend to work best in large towns and cities such as our Birmingham rent guarantee service.

How Does Insurance Compare To A Service Financially?

The best way to demonstrate this is by looking at an example, as on the surface it may appear at first that taking out insurance is more profitable for the landlord, so to help demonstrate the financial benefits let’s take a look at how the costs for using letting agency combined with rental insurance stacks up against a lease guarantee service in the following table:

Letting Agency Rent Guarantee
Market rent £1,000 £850
Annual rental income (Market rent x 12) £12,000 £10,200
Annual management fee (-10% +VAT of Market Rent) -£1,440 £0
Typical void periods (-10% ) -£1,200 £0
Typical repair costs -£1,000 £0
Gas & elec certificates -£100 £0
Rent guarantee insurance -£75 £0
ANNUAL LANDLORD INCOME £8,185 £10,200
5 YEAR LANDLORD INCOME £40,925 £51,000

As the table illustrates, the market rent a landlord receives does initially appears higher with the letting agency, however the Nett Income to the Landlord (after costs ) is actually far higher with a service guaranteeing a rental income to the sum of an additional £10K over 5 years which for many would be a much better alternative to guaranteed rent insurance for landlords.

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