Rent gaurantee schemes/insurance

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    Rent gaurantee schemes/insurance

    Has any landlord ever used the rent gaurantee insurance and can comment on the pro's and cons and what to watch out for? I have a property to let out and was going to use a local agent but did see an online agent who also offered the rent gaurantee insurance all at a competetive price. Anybody any experience of the online agents (i can look after maintenance and do show rounds) or the rent guarantee insurance?

    Regards

    #2
    Rent guarantee, depending on who’s offering it and how it’s being advertised, could be offering you one of two things.

    One is an insurance policy which will pay your rent in the event that the tenant doesn’t pay. It doesn’t guarantee rent when the property is empty and there will normally be strict criteria around the tenant’s suitability (income level, credit checks, etc.)

    Usually there will be an excess equal to one month’s rent and the remaining rent will be paid in arrears until you get vacant possession (or until the time limit runs out, this can vary but most will probably pay up to 12 months).

    So bank on needing to cover at least two month's rent (a smart landlord will always want to keep a reserve of around 6 months anyway).

    This type of insurance will often also cover legal costs in the event you need to obtain possession. This can be invaluable if you ever need to rely on it but, as with all insurances, read the small print and make sure you know what you’re covered for and what you have to do to comply with the terms of the policy.

    The other type is a deal whereby the agent will become your tenant and guarantee you a certain rent for a certain period. They then sublet the property to a sub-tenant at a higher amount (the going market rate) and pocket the difference.

    In the second version you will generally receive a rent from the agent in the region of 60-65% of the market rate and they’ll guarantee that amount regardless of whether the sub-tenant pays and (they’ll say) regardless of whether the property is occupied.

    The kicker is that they won’t start the rent guarantee until they find the first sub-tenant. They also usually have clauses in the agreement obliging you to take their lead on repairs and maintenance (so they can ensure the property always stays in great condition and is easy to re-let).

    In my opinion this kind of rent guarantee deal is a con. Agents offering this type of thing won’t take on a house they aren’t confident they can let quickly, they’ll only pay you from the time the first sub-tenant moves in and they’ll just take out an insurance policy on their sub-tenant to cover off the risk of them not paying.

    The risk to the agent is pretty low and they collect 30% rather than the usual 8-12%.

    The first type (insurance policy) is certainly worth looking at depending on how you like to balance risk. The second should be avoided by everyone other than those who like to waste money.

    Comment


      #3
      This is more of an additional question than answering, if you have a tenant, and you conduct the property checks (via a 3rd party to satisfy the insurance policy), then take out a rent insurance, do you need to conduct the checks every year if they renew? or would the rent insurance not require it?

      Comment


        #4
        As with any insurance policy, it depends on the terms. Read the small print.

        In my experience, rent insurance policies are not concerned with the state of the property and are unlikely to have clauses insisting you visit your tenants periodically, or at all.

        If you’re thinking of taking out a policy on a tenant you already have in situ then make sure you read the paperwork very carefully. The qualifying criteria for the tenant will be of particular importance.

        For example, many of Homelet’s policies will state that the tenant must have been reference by Homelet.

        Comment


          #5
          We have just taken out rent guarantee and legal expenses cover after having had a letting agent conduct a tenant-find only service for us.

          Not sure whether or not the premium that we are paying is competitive though as it has been a while since we last dealt with residential lets. The policy is for 12 months; has 1 month excess, will pay rent for up to 12 months; insurer battles to get possession; insurer will pay 50% of rent for up to 3 months once possession has been obtained to give us time to refurb if necessary; legal expenses cover up to 50K.

          Rent being covered pcm is £700.
          Premium is £282 for the year.

          Does this sound about right or is the premium excessive?

          Comment

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