DIRECTORS’ INVESTMENTS - 24.10.2007

Protect your rent

Costly business

Many buy-to-let landlords now have mortgage interest payments in excess of their gross rental income. An interruption in rental income may mean the difference between being able to keep a property and having to sell it.So it’s therefore vital that you take the necessary steps to ensure you’re not sitting on an investment you have to shift. You could use an agent to find your tenants; they may do the vetting and arranging rental insurances for you. Or you could take a DIY approach.

Know who you’re dealing with

Before agreeing a tenancy, have a comprehensive credit check carried out. This can include previous landlord or managing agent references together with past and current employer checks.

Difficult tenants

Some tenants aim to be difficult; some are through no fault of their own such as splitting with a partner or losing their job. Either way, you need your rent. Insurance can retrospectively cover that from “day one” although premiums would be lower with an excess of, say, a month’s rent. Policies can pay 100% of the rent for up to twelve months if a tenancy agreement is breached.

Get ‘em out! Ultimately, you may have to resort to eviction. Legal costs can be significant so legal expenses cover would be a big help. Policy limits vary considerably, although £25,000 to £50,000 is typical. A proportion of the rent following eviction would help while you are trying to re-let - 75% for two months is common. Lost rent could cause the highly geared landlord significant and unpredictable cash flow problems. Although rents are finally rising, one group increasingly attracted to renting will be those who could no longer afford their mortgage payments. Housing their problem could cause a bigger one for you.

Foreign tenants?

Immigration abounds and many arrivals will head for rented accommodation (they have little choice). But do you want to be lumbered with someone who refuses to pay after a couple of months? Special policies can vet new arrivals including checks with their new UK employer.

Tip. Tenancy referencing policies start at around £30 with rent protection insurance starting at around £90. Don’t forget, such insurance premiums are tax deductible but any payments received would count as taxable income. (See The next stepfor details of insurance policies.)

“Can’t work, can’t pay…”

What can you do if your tenant has an accident, is sick or becomes unemployed? Until recently, not a lot. However, policies are being developed that can incorporate different combinations of accident, sickness and unemployment cover. Even the self- employed and controlling directors can benefit from the continued security of a rented home with more practical definitions of “unemployment” being devised.

Tip. Consider the small print of all relevant insurance policies before you sign on the dotted line.

The next step

For details of landlord insurance policies, visit http://companydirector.indicator.co.uk (CD 09.02.03).