One of the biggest threats to a landlord’s income is the risk of their investment property being unexpectedly vacant. Even if the landlord doesn’t have a mortgage, additional expenses, such as council tax, can soon leave them out of pocket and their expected return on investment deteriorated.
It’s a risk worth taking seriously. One in six landlords (16%) has taken steps to remove tenants from their property in the last three years. The most common reason cited for this is late or non-payment of rent, with 46% of landlords acting as a result of rent arrears for over two months. This can potentially lead to a property being empty for several months and cause landlords to lose money.
Choosing and referencing tenants carefully (or hiring a letting agent who can do this on your behalf) is one way to help protect landlords against the risk of having problem tenants. However, sometimes tenants who look great on paper can turn out to be far from ideal in reality - regardless of the thoroughness of up-front checks. A tenant reference is a snapshot of their current position, not a looking glass into the future.
Taking a deposit at the beginning of a tenancy is another way landlords have traditionally tried to mitigate this risk. But tenancy deposits - capped at five or six weeks’ rent under the Tenant Fees Act - can only go so far, especially if there are dilapidations and rent arrears that need to be covered.
Increasingly, landlords are opting for a proposition that can include a service to provide them with an added layer of security in the event that a tenant fails to meet their obligations. Rent protection insurance products can mitigate the entire potential loss of rent should a tenant fail to pay. Whilst products and the amount of cover offered varies, they also often include legal expenses to facilitate the eviction of non-paying tenants in a worst-case scenario - this ensures that as a landlord, you’re not hit with a hefty legal bill on top of everything else.
“Unfortunately, there have been times when not having insurance has cost landlords quite a lot of money,” says Daniel Glewis of Shaws Kensington in London. “The reason we wanted to to offer rent and legal protection is to make sure that our landlords are fully covered in the worst case scenario. It is the best thing an agent can do.”