Every property owner aspires to maintain a consistent and dependable cash flow from their rental properties. Unfortunately, achieving this isn’t always a straightforward task. The world of private lettings carries its fair share of risks, including periods of property vacancy and tenant rent arrears.
If you seek financial stability as a property owner, two options stand out: rent guarantee insurance and guaranteed rent schemes. Both of these measures aim to safeguard or compensate you for unexpected losses in rental income.
However, it’s essential to differentiate between guaranteed rent and landlords’ rent guarantee insurance. In this comprehensive guide, we will compare these two approaches to rent protection and examine their respective advantages and disadvantages.
What Is Landlords’ Rent Guarantee Insurance?
Rent guarantee insurance functions as a protective insurance policy designed to safeguard your rental income in the event your tenants fail to make rent payments. Such situations are familiar to most private landlords and are often unforeseeable. Even the most dependable tenants can experience financial setbacks, such as job loss.
With rent guarantee insurance, you can file a claim with your insurer to recover missed payments. Typically, most rent guarantee insurance policies offer coverage for a period of 6 to 12 months. This gives you ample time to follow the formal eviction process and find new tenants. Various providers offer different levels of coverage, so it’s advisable to explore your options.
Pros and Cons of Rent Guarantee Insurance
The primary advantage of rent guarantee insurance for landlords is the peace of mind it offers. Most policies are affordable, typically costing less than £200 per year, making it a small price to pay for a year of rent assurance. However, there are certain drawbacks to consider:
1. Not Instant: Initiating an insurance claim requires time and effort. Typically, you must serve your tenant with a Section 21 or Section 8 eviction notice before your insurer will pay out.
2. Excess Payment: When making a claim, you will usually be required to pay an excess, often equal to one month’s rent. This means you won’t receive compensation for the full amount of lost income.
3. Initial Waiting Period: Claims made within the first 90 days are typically not covered. Therefore, you have no protection if your tenants cease paying within the initial three months.
4. Time Limit: Claims must usually be initiated within 60 days of the first missed payment.
5. Potential Rejections: Claims may be rejected if the tenant has a history of rent arrears, or if you fail to update your insurer regarding changes in your circumstances.
6. Exclusion of Void Periods: Rent protection insurance typically does not cover void periods, necessitating separate unoccupied property insurance.
Additionally, unlike guaranteed rent schemes, you remain responsible for property management, which can entail unexpected expenses such as emergency repairs, renovations, and legal fees.
What Is a Guaranteed Rent Scheme?
A guaranteed rent scheme, often referred to as ‘rent to rent,’ is a service that offers landlords a consistent, risk-free rental income stream. It involves entering into a contract with an agent, such as a property management company, who sublets the property. The agent may utilize it for short-term holiday rentals or long-term leases.
Most guaranteed rent agreements span from 3 to 5 years, ensuring you receive fixed, regular payments, irrespective of the property’s rental income. This arrangement holds even during periods of property vacancy. Throughout the contract, the guaranteed rent company typically manages all aspects of property upkeep and maintenance. Be sure to review the contract thoroughly before signing, as each company’s policies may vary.
Pros and Cons of Guaranteed Rent for Landlords
Guaranteed rent schemes offer several notable advantages over rent guarantee insurance policies:
1. Long-Term Financial Security: Your rent remains guaranteed, providing long-term financial stability without income reductions during vacant periods.
2. Simplified Payment: You are paid by the agent (guaranteed rent company) rather than the occupants, eliminating the need for insurance claims in the event of tenant rent arrears.
3. Full Tenant Management: The agent handles all tenant-related matters, including emergencies, inspections, repairs, and evictions, alleviating the burdens and stresses of property management.
4. Maintenance Coverage: Property management companies typically cover costs associated with cleaning, servicing, and refurbishing the property.
The primary downside to guaranteed rent is that the income may be lower than what you could potentially earn from private lettings. However, this isn’t always the case, as with AV Stays, landlords have the opportunity to earn a monthly income comparable to, or even exceeding, open market rates.
Initiate Your Guaranteed Rent Journey with AV Stays
At AV Stays, we offer property owners a secure, reliable, and hassle-free method to secure a guaranteed rental income. With our guaranteed rent service, you can enjoy consistent monthly payments without concerns about void periods, rent arrears, or agency fees. Our guaranteed rent contracts span from 3 to 5 years, with the option to extend if desired. We maintain your property to the highest standards throughout the contract.
To determine how much guaranteed rent your property could generate, reach out to AV Stays today. Fill out our online form or call 02035 760893, and we will provide you with a prompt estimate.
