Insurance: A Waste of Money Until It’s Not…

I always recommend rent and legal protection insurance for all of our landlords. For me it’s a no brainer at £180 inc VAT. As a landlord you want 2 things, your property to be looked after, and rent to be paid on time. And, although insurance can’t guarantee your property will be looked after it could cover you for damages left by tenants when they do vacate.

For those who don’t know what rent and legal protection can offer to a landlord, in essence, it does what it says on the tin. If a tenant doesn’t pay, it kicks in and pays the rent, if you need to regain possession through the courts, it covers the costs. And, as mentioned above in some cases it could cover damages beyond the deposit amount. But is it really worth it? Well, just for fun, let’s run through it and discuss some of the steps to stop you ever needing it.

Finding a good tenant starts with the first phone call. Before we even allow someone to view we do number of things, firstly verbally qualify them, make sure they are working and that they’re not going to be taking a one bed for 6 people. (Trust me, it happens, we’ve seen it!) But more than that, we run all applicants through our database to see if we’ve had any prior contact with them and suss out if their suitable or not.

On the viewing get a feel for them, ask open ended questions to try and get more information out of the prospective tenant and start to build a bit of a rapport with them, this will pay dividends if they are the right person for the property further down the line. If they like it, take all relevant details and get a proper referencing agency to do the referencing. This is often a point of contention between agents. Some swear by it, whilst others reckon in house referencing is more appropriate, me, well I believe we are property specialists, not referencing specialists and it is not something we want to get wrong. To some, this might seem a cop out, but with our percentage of property with arrears is less than 3% and we feel not only does this speak for itself, but is testament to our dedicated accounts team. (National average around 9% according to some sources).

However, what if it all goes wrong? Well, honestly, the costs stack up pretty quick. Calculators at the ready, let’s do a bit of a breakdown using UK averages. If you have a property where the tenancy is on a Periodic Tenancy, commonly known as a rolling contract, and they fail to pay the rent thus you decide to serve notice, before the notice even expires you are likely to be 3 months in arrears. (1 + 2 waiting for the notice to expire) Using the average UK rent of £788 (London Excluded) that’s £2,364. Now, the average time it’s taking for possession to be regained following notice expiring is 4 months in which rent is not usually paid. 6 months of no rent, £4,728 out of pocket, yep, all adding up isn’t it?  Add £1,200 for a solicitor and £300 for a bailiff that brings us to a rather hefty sum of £6,228. £180 for a years’ worth of cover doesn’t sound that bad now, does it?

Now for ease of my mental arithmetic, lets round that 9% average arrears rate to 10% (give me a break, I’m writing this at 6.30am on wet Tuesday morning) that’s 1 bad year in every 10 years. But using the above costing of £6288 you could buy a whopping 34 years of cover. Not so bad when you look at it like that right?

If you have any question about the above or would like to talk to one of our Trading Standards Approved, ALRA Propertymark qualified team members get in touch today.