Attention: Tired & Disillusioned Landlords
DISCOVER: How You Can Guarantee Your Rent For The Next 5 Years ..... And Maybe Even Make An Extra £10K At No Additional Cost ...... Instead Of Paying For Guaranteed Rent Insurance
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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 demoralising 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 a number of landlords that are know even making a loss ….. ouch!
Not only that, the government, is also 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 professionalising (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 the problems mentioned earlier is to find a way to ensure your rent is always guaranteed no matter what, otherwise known as Rent Guarantee.
So, How Does Rent Guarantee Work ?
In its simplest form its a contract which the landlord signs for a specified period of time which in return a guaranteed a monthly income equal to an agreed months rent is paid to the landlord.
What Does Rent Guarantee Mean ?
The term Rent Guarantee can actually mean a number of things. One form of rent guarantee is an insurance policy, typically called a Guaranteed Rent Insurance. These typically only cover tenants who pass a robust referencing procedure and if they pass that, then they’re very likely to pay their rent anyway, making the insurance just another cost for most landlords. Again for large portfolio landlords that continually invest and have management and refurbishments in place it can make sense.
Another downside is that you may have to wait months though before you can actually make a claim, which essentially increases your void period (more costs). The alternative is a rent guarantee service which I’ll explore more later on in this article.
We must stress that in out experience it’s not possible to fully guarantee rental income with just insurance alone as the condition and management of the property directly impacts its performance and therefore its ability to generate rental income and guarantee your rent. Don’t be fooled that an insurance policy is all you need.
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Should You Use Guaranteed Rent Insurance ?
Rent Guarantee 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 you should be most concerned with and vary according to the policy include:
- Any tenant must undergone 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.
- The rent guarantee insurance must be purchased BEFORE the tenancy is agreed or you will be preventing from making any claims for a certain period of time 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 a guide on how to rent effectively and certifications like your EPC, gas and electricity.
- 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 of rent 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.
- Rent guarantee insurance does includes solicitor fees which may be required to regain possession of the property.
Are Guaranteed Rent Schemes Better Alternatives ?
Another option is to use a Guaranteed Rent scheme or service which can vary depending on the levels of professionalism adopted by the vendor. If done correctly this approach can make a landlord significantly more income, however its important to do your research on the company and more specifically the individuals behind the business. just because a company is young or doesn’t have many clients , does not mean that it can’t provide you with a stellar outcome.
How Does Insurance Compare To Guaranteed Rent ?
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 explain the financial benefit lets have a look at how the costs stack up side by side in the following table:
Market rent (per month)
Annual rental income (Market rent x 12)
Annual management fee (-10% +VAT of Market Rent)
Typical void periods (-10%)
Typical repair costs
Gas & elec certificates
Rent guarantee insurance
ANNUAL LANDLORD INCOME
5 YEAR LANDLORD INCOME (Annual Landlord Income x 5)
|Letting Agency||Rent Guarantee|
|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 Rent Guarantee service to the sum of an additional £10K over 5 years which for most landlords would be most welcome indeed.
We view Guaranteed Rent Insurance as more of an additional security blanket than something you can rely on 100%. If you do the right things in the right way you can negate much of the need for insurance.