When you have a property for rent, the ideal solution is to have no vacancies and a steady, reliable cash flow that is consistent each month. This is the dream for many landlords, and not having to worry about missed rent payments sounds like the perfect way to protect your investment – but it sounds too good to be true. In reality, there will be times when you either do not have tenants ‘in situ’, or your current tenant cannot (or will not) pay their rent.
However, there are a few options that you can look at to help ensure financial stability as a landlord – rent guarantee insurance and the guarantee rent scheme. Both have been designed to help prevent or reimburse you for unexpected losses of rental income, and we’ve put together the ultimate guide including pros and cons to help you choose the best option.
What is the guaranteed rent scheme?
The guaranteed rent scheme (also known as the rent-to-rent scheme) is a form of legal, managed sub-letting. As a landlord, you will lease your property to an agency such as Denhan International for an agreed period in which we will then be responsible for your property. Once this has been agreed upon, our team here at Denhan International will care for your property as if it were our own and maintain the property and cover all the necessary administration.
By entering into our guaranteed rent scheme, you will be essentially handing over full control of your property and the entire rental process – all in exchange for a guaranteed and consistent monthly rent payment that won’t change depending on the circumstances, i.e. if the property is empty.
What are the advantages of the guaranteed rent scheme?
- Long-term stability as a landlord – we can offer guaranteed rent schemes that last several years.
- Guaranteed rental income each month – you know what you will be paid and when even if there is no tenant currently living in your property.
- As one of the top agencies, we will return your property in good condition at the end of our lease. We will also keep on top of any maintenance that is required throughout the lease, and let you know if any work is needed so you don’t have to worry about any unexpected bills.
- It saves you time and hassle as we organise all the day-to-day management of the property as well as keeping on top of all paperwork and legal requirements.
- Covered utility costs – the guaranteed rent scheme also covers the utility costs of the property when the property is empty or if a tenant doesn’t pay.
What are the disadvantages of the guaranteed rent scheme?
- Lack of decision-making power – some landlords like to be in full control over their property, and by entering into the guaranteed rent scheme you won’t have any rights to things such as which tenants will live there, however, you do have the right to use your own contractors as long as work is done in the required time frame as per contract. But in some emergencies, you may not be able to decide on which contractors are used.
- Monthly income may be lower than if you rented the property yourself, but you do not get the additional hassle that comes with renting a property and you would not have the costly estate agent fees when a tenant moves out.
- Ongoing legal liability – while an agency would help to ensure that you are compliant and following all of the rules and regulations, if there were an issue you could still be fined by local authorities.
What is rent guarantee insurance?
Unlike the guaranteed rent scheme, rent guarantee insurance is a form of insurance that can be added to your own landlord insurance policy. It will provide you with cover if you do not receive your rental income for a whole variety of reasons. While there are a wide variety of reasons why someone might not pay their rent, the end result is always a gap in the landlord’s income, and this can get messy if the landlord is tied into making mortgage payments on the property as well. Each insurer will offer a slightly different version of the rent guarantee insurance, but it generally is arranged for a set period or up to a certain amount.
What are the advantages of rent guarantee insurance?
- You will not be left high and dry if your tenant is unable (or unwilling) to pay their rent.
- You can continue to make your mortgage payments during periods when you do not have any rental income due to the tenant’s issues.
- If you are currently in a dispute with your tenant, you will continue to receive your monthly rental income during the eviction process.
What are the disadvantages of rent guarantee insurance?
- It is not instant – claiming on your insurance will take time and effort. Typically, you must serve a Section 21, or a Section 8 eviction notice before your insurance provider will even consider paying out.
- You will have to pay an excess when making a claim, and it is usually equal to one month’s rent. This means that you won’t be compensated for the full amount lost.
- Claims made within the first 90 days of the policy starting aren’t usually covered so you will have no protection if your tenant stops paying in the first 3 months.
- There is a time limit to make your claim, usually within the first 60 days of not receiving payment.
- Claims may be rejected if there is a previous history of arrears or unpaid rent, or if you fail to inform your insurer of changes to your circumstances,
- Rent protection does not usually cover void periods when the property is empty – if this is something that you are concerned about you will have to look into another type of insurance called unoccupied property insurance.
- Once the policy limit has been reached, you will not be able to claim any further arrears – even if the tenant is still living in your property but not paying.
Which is the best option for me?
As a letting agent in London, we see landlords being let down every day by unreliable tenants or by unfortunate circumstances. While both options will ensure that you don’t miss out on any payments, the guaranteed rent scheme will mean that you don’t have to worry about anything – we will do the hard work for you.
Here at Denhan International, we want to make sure that you enjoy our flexible leasing options and receive the best possible rent to achieve a return on your portfolio – you are our main concern. In a crowded rental market, you need to be sure you can trust your property management company, and we have the expertise, knowledge, and skills to give you that peace of mind.
You can enjoy a fixed amount being paid on time each month, without having to deal with all the stress and hassle that comes with renting a property! It is the perfect option for first time landlords, or for those who have a more extensive portfolio and are looking for someone they can trust to run them all. We aim to give you the most from your investment and keep all the stress at bay.
t really is that simple! Why would you put all the unnecessary stress on yourself when we can do all the hard work for you? If you are looking for some more information on our guaranteed rent scheme, then speak to our friendly team today.