How do guaranteed rent and rent guarantee insurance differ?
This question comes up all the time – probably because both concepts aim to deliver much the same thing – making private landlords’ lives considerably less stressful by ensuring they get a reliable cash flow from their rented properties. After all, financial stability may be everyone’s dream, but it’s hard to achieve when you’re relying on people who are hard-pressed for money to pay the rent, when the cost-of-living crisis is making money tight even at the high-earning end of the market – and when high mortgage rates and other inflated costs are narrowing already tight margins. So, let’s weigh up two possible solutions designed to help reduce the risks and iron out the wrinkles in landlords’ cashflow: rent guarantee insurance vs rent guarantee scheme.
Although the two things are quite different and they protect landlords’ income in different ways, they’re often confused. So let’s start with definitions.
What is rent guarantee insurance?
Well, as the name suggests, it’s a specialist insurance policy designed to protect your rental income when your tenants can’t (or won’t) pay their rent, whether it’s a case of long-term accumulation of arrears or occasional missed payments. Of course, it won’t keep paying you forever – but most policies cover you for 6-12 months, enough time to get through the process of evictions where necessary and of finding and installing new tenants.
What is a guaranteed rent scheme?
Also often known as ‘guaranteed rent for landlords’ and ‘rent to rent’, this is a handy way to dramatically cut your risk and offload almost all the hassles and headaches of a landlord’s life. To put it simply, you hand over the job of running your letting business to another company – usually a property management company – which then sublets the property in return for an agreed and fixed rental rate for a fixed contract term. So you get your rent every month regardless – even when the place is empty or when the tenant fails to pay! Both approaches have their advantages and disadvantages – so let’s weigh up those pros and cons.
Rent guarantee insurance – the upside and the downside.
The big plus here is that for a very modest annual premium, usually less than £200, you can be sure of getting every penny you’re owed in rent, even when your tenants prove to be unwilling or, through redundancy or illness for example, suddenly become unable to pay.
The downsides are that these things take a considerable amount of time, not to mention the effort of making a claim – and you’ll probably have to serve a Section 21 or Section 8 Notice before you can make that claim. Also, you can’t claim for periods when you have no tenant – or for missed payments in the first 90 days of a tenancy – and of course there’s always the chance your claim will be rejected. That may well happen if your tenant has a poor payment history or if you don’t update the insurer with changes in your circumstances. Finally – and this is where guaranteed rent has the edge – insurance doesn’t cover any upkeep or repair costs!
Guaranteed rent schemes – the pros and cons.
OK, the big plus of guaranteed rent schemes is that they give you peace of mind – just like rent guarantee insurance, but more of it! That’s because your contract, which usually lasts three to five years, not only guarantees a fixed rate of rent from start to finish – it also pays you even when the property has no tenants! When you hand over the keys, you also hand over all the worries of being a landlord – so you can sit back and relax in the knowledge that the rent’s covered for the full contract term. Better still, the scheme covers all the maintenance costs, including cleaning, repairs, and refurbishment – as well as all tenant-related matters, such as selections, inspections, and evictions.
The downside? There’s only one – as you probably guessed, your rental income may be a bit lower than on the open market, but most people find that the reduction in stress is well worth it!
Of course, with a hugely successful Guaranteed Rent for Landlords Scheme of our own, we’re a little bit biased, but still, we’d say guaranteed rent schemes come out on top every time! Why not talk to the Abel Living team to find out more about offloading the headaches and hassle of being a private landlord?