Warning for accidental landlords

The BlairPA

It's not just the Blairs running a property empire. The number of accidental landlords has gone through the roof recently. When the market is going nowhere and some properties are refusing to sell for anything up to six months, sometimes we just need to bite the bullet, rent the property out and move house.

It seems like less of a risk than cutting the price of the property and hoping the cost of your new property will come down too. However, it's worth bearing in mind that there are a number of risks you take on when you rent out your property. So what are the biggest, and how can you protect yourself?

Rental voids

One of the most common problems landlords encounter is that the property can go for a number of months without you finding anyone to rent it. This is less of a risk than it used to be as demand has increased. However, it means that it's dangerous to do your sums on the basis that you will have someone in the property 12 months of the year. The rough rule of thumb is to assume it will be occupied for 10 months.

Then there's the risk that your tenants will simply stop paying the rent, and stay put without paying the bills. The risk of this has grown with the insecurity in the job market. There's now a far higher chance that your tenant's financial position will change dramatically while they are in the property. You can protect yourself to some degree by getting references from employers and former landlords, but there are no guarantees.

Damage and theft

You also need to think about damage. This may be accidental or malicious, but either way it can be expensive to put right, and means you will miss out on the rental income in the period when you are working on the property. Again references can reduce the risk, but even then, accidents will happen.

Then there's the risk of theft. Residents may simply take the keys at the end of the tenancy, or they may take something more integral, such as the contents from a furnished property, or fixtures and fittings from an unfurnished one. In the latter case there's a risk they will do serious damage to the property. For these sorts of things it's essential to ensure you have sufficient insurance cover to help you out if the worst comes to the worst.

Insurance options

In fact, insurance can protect you from almost all of these risks (aside from periods where you cannot find a tenant). However, you need to be sure you get the right cover.

Defaqto warns that not all landlord insurance covers all the same things, so you need to weigh up the risks you are most worried about and those that could cost you the most money, and make sure your policy provides enough cover.

It analysed ten serious risks, the percentage of policies covering it as standard and as an optional extra, and found some alarming gaps.

Insurance gaps

Unoccupancy period (the length of time a policy will allow a property to remain unoccupied)
standard 99% optional extra n/a
Loss of Rent cover
standard 86% optional extra 14%
Malicious damage by tenants
standard 47% optional extra 17%
Lock replacement following theft of keys
standard 45% optional extra 38%
Employers' liability
standard 33% optional extra 39%
Unauthorised use of gas, water, electricity (where a property has been occupied without the landlord's consent)
standard 28% optional extra N/A
Theft damage by tenants (cover for damage caused from theft or attempted theft by tenants)
standard 23% optional extra 6%
Squatters cover (cover for legal fees to remove squatters)
standard 20% optional extra 37%
Landlords' contents cover
standard 11% optional extra 89%
Rent guarantee (cover if tenants default on rent payments)
standard 0% optional extra 39%

Mike Powell, Defaqto's Insight Analyst for General Insurance, added: "In addition, landlords need to understand the level of cover actually offered by a policy - as although the risk may be covered, the level of cover provided varies widely between policies. As ever, people need to focus first and foremost on the features and cover offered by policies when comparing options and not be driven by price. After all, this would be taking a major risk with their assets."
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