A guide to protecting your rental income

As a landlord you hope that, once you’ve done all the checks, complied with all the rules and regulations, and taken all the references and deposits, your property is going to be let and the rental income will start to flow.

In most cases, that’s exactly what happens.

Occasionally, though, things don’t go to plan. There are various reasons why your rent might stop coming in but happily there are also several ways to protect your income.

Accidents and disasters

Sometimes, despite all your best efforts, something will go wrong with your property. Whether it’s a flood due to bad weather or a plumbing problem, fire damage, or some other factor that you couldn’t have planned for, something might happen that means your tenant can’t live in the home and so you can’t collect rent.

To protect against this, you can sign up for loss of rent insurance. This will cover you if your property can’t be lived in for an insured-against event, such as fire or flood.

Sometimes, this product is folded into standard landlord insurance policies that also cover liability, buildings and contents etc. It’s worth checking existing policies to see if you already have cover for this – and if it’s going to be enough.

It’s very important, however, to check that wording – ‘loss of rent’ insurance – because it is very different to other rental guarantee insurance in that it doesn’t cover you if your tenant just stops paying the rent.

Any issues with defaulters

Getting into arrears is not uncommon. In fact, around one in two landlords will experience it at some point in the course of a year, according to the National Landlords Association (NLA).

If your tenant can’t, or won’t, pay the rent then there are very well-worn paths you can go down to have them evicted. That said, such actions take time and money, and of course during the whole process you have a property that is occupied and no money coming in from it. There are insurance products that will cover you for this.

Often called rent guarantee insurance, rent protection insurance or landlord rent insurance, these products will cover you if your tenants stop paying. Landlord rent guarantee insurance isn’t particularly expensive. Many annual premiums come in at less than 5% of a single month’s rent.

For any policy to pay out, however, landlords have to have met all the policy requirements, which can be quite strict. Landlords will have to make sure their tenant is on an Assured Shorthold Tenancy Agreement and that their deposit is held in an accredited deposit protection scheme, for example.

Tenants will have to pass rigorous credit and reference checks, and some insurers will insist this comes from a tenant referencing service provider. The same will be required of guarantors, if they are used.

Landlords must keep an up-to-date record of all payments, including when they were due and when they were actually received. If a landlord doesn’t inform their insurer quickly that a payment has been missed, this could result in the policy not paying out.

Most rental insurance policies include rent guarantee and legal expenses insurance, because the process of getting defaulting tenants to either pay up or get out can wind up being quite lengthy and expensive, particularly if a disgruntled tenant ends up damaging your property, too.

Protecting an empty home

There is one more form of rent guarantee – one that is offered by some lettings agents.

Such a promise to cover your rent even if the property is empty is often called a ‘rent guarantee scheme’ rather than ‘rental insurance’ – although some agents may use both terms. It’s very important, therefore, to get your agent to clarify exactly what they mean, exactly what’s included and what’s not.

Guaranteed rent arrangements can sometimes require the owner to sign the property over to the agency for a period of time (five to 10 years is usual) rather than a tenant.

The agent will then effectively sublet the property. Typically, an agent will charge more rent than the landlord, because this is where they make their money.

Before going into such a scheme, it’s very important to check that the agent you’re using is financially secure.

They will need to make good on their promise to pay you regular rent even if the property is empty, or if the tenant defaults. The company also effectively owns your property for that time, so if they go bust it can be very difficult for you to get it back.

Other schemes include council-backed rent, where the local authority employs an agent to find property for vulnerable people. The rent is guaranteed, as are court costs in the event of eviction. However, the rent is usually a bit lower than the going rate and the landlord isn’t covered for damage.

One other option is ‘rent to rent’, but generally it’s considered the least secure because the landlord is liable for most costs, including legal ones if they need to evict a tenant. This is where an agent sublets the property and then rents it out room by room, often changing sitting rooms into another bedroom.

There’s a number of ways to protect your lettings income and it’s important you compare and contrast the various insurance policies and schemes, to ensure you haven’t left a hole somewhere, or doubled-up on cover.

Sometimes, the best protection of all is to make sure your property is attractive and in full working order, and that you do all your checks and meet all the regulations to attract the best tenants.

Find out more about Landlord Insurance from MORE TH>N.

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