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  • Insurance

    Mitigating business risk through insurance

    Welcome to a brand new week of themed content, here on Property Tribes, where we are looking at different business risks in the property sector and how landlords can mitigate them.

    This is all part of our year long "Smart Landlord" campaign, celebrating the 10th anniversary of Property Tribes and, hopefully, over the past decade, Property Tribes content has assisted landlords in avoiding the pitfalls by making someone else's hindsight their foresight and sharing tips on how to reduce risk.

    This graphic illustrates the process of risk mitigation in business:

    For this week, we have identified three main types of risk:

    1.  Risk of financial loss

    This could be through a tenant not paying the rent, buying a bad property deal, suffering void periods, interest rate rises, making poor business decisions, having a tenant on Universal Credit without having direct payment to landlord, a "black swan" event such as a major local employer shutting down.

    2.  Regulatory risk

    This covers everything from Government intervention, increasing legislation, and fines for non-compliance - which can be up to £30K.  There are now over 180 Government statutes and regulations that landlords have to adhere to in order to provide a compliant and safe home for tenants.

    3.  Rogue risk

    Encountering a rogue tenant, lettings agent, property trainer/guru, builder, or some other person or business you transact commercially with.

    Ultimately, all of these will result in financial loss, not to mention stress and emotional heartache, so smart landlords look to mitigate their risk at every opportunity.  They know that prevention is ALWAYS less expensive than cure!

    To launch "Business Risk Mitigation Week", today we are looking at how insurance can reduce your risk as well as giving you landlord peace of mind.

    Most landlords have three main fears when it comes to letting a property:

    1.  The tenant will stop paying the rent

    2.  The tenant will damage the property

    3.  You may struggle to remove a delinquent tenant due to the court system, tenants being advised by local authorities to stay in their home until evicted etc.

    These risks may be amplified depending on the tenant demographic you choose to rent to.  Professional tenants are likely (but not always) to pose less of a business risk than those tenants in receipt of benefits.

    Tenants in higher value properties are likely (but not always) to look after the property.

    However, no matter how robust your referencing, the fact is that you WILL encounter a rogue tenant at some point on your landlord journey.  It is inevitable.

    Like a professional lorry driver, you should expect to have a couple of accidents during your career.  Lorry drivers accept this risk when they get behind the wheel and so should landlords.

    There are two things you can do to lessen the impact of business risk:

    1.  Mitigate against it in every way possible, usually by undertaking intense due diligence and/or insuring against it.

    2.  If you do experience a bad situation, be pro-active in dealing with the problem (as problems tend to escalate if you leave them to fester) and seek professional advice to support you in solving the problem.

    The ways to mitigate against a delinquent tenant are:

    >  Robust referencing

    >  Undertake an inventory

    >  Undertake mid-term property inspections

    >  Take out rent guarantee insurance which costs circa £90.00 per annum.  This can be obtained from PT insurance partner, Alan Boswell Group, by calling the ABG team on 01603 649736 .

    Robert Guy of Alan Boswell Group joins me to launch "Business Risk Mitigation Week" and discusses the role of insurance in doing that, the different types of insurance available to landlords, and also the importance of having the correct insurance for the activity you are undertaking:

    Other ways to mitigate tenant risk:

    >  Ask the tenant for a guarantor who is a home owner.  

    Use social media as part of your tenant profiling.

    >  Use a Guaranteed Rent service, like the one offered by PT partner, Northwood.  This guarantees to pay the rent on time every month, even if there is a void or if the tenant stops paying the rent.

    > Maintain respectful and open communication with your tenant at all times.  This is key to stopping landlord/tenant relationships turning sour.  If the tenant starts to become problematic, I believe your first approach should be empathetic, trying to understand the tenant's problems and seeing if you can assist them getting back on track.

    If you do experience a delinquent tenant, then the first thing to do is seek advice.

    >  Ask on forums like Property Tribes.

    >  Contact a specialist service like PT partner, Landlord Action on 0333 363 8384.  (If you have rent guarantee insurance, this will take care of all the legal costs of removing the tenant).

    One thing you should not do is leave the problem to fester, as it will only get worse.

    In 15 years of being a landlord, I've only ever had to serve an S21 notice 4 times, and only one of those cases ended up in court.  I think that those are reasonable downsides/odds for all the benefits I have enjoyed through property investment.

    The bottom line is that we should make provisions for encountering rogue tenants and factor that into our financial planning.

    Insurance will also mitigate against other risks such as flood, fire, and other perils, as well as third party liability insurance which protects the landlord should a tenant or tradesman suffer an injury in the rental property.

    One additional way to mitigate risk is to join a Landlord Association and take advantage of all their support services and training.  Property Tribes is partnered with the Residential Landlords Association and PT members can enjoy 25% discount off joining.

    This is how the rest of the week is shaping up:

    Tuesday - the importance of inventories with the Association of Independent Inventory Clerks and Inventory Base.​

    Wednesday - mitigating risk through the use of a reputable lettings agent with David Cox, CEO of ARLA.

    Thursday Mitigating business risk via due diligence

    Friday - Mitigating business risk by using verification

    SEE ALSO  -         7 ways for newbie landlords to mitigate risk

    UP NEXT -            "Cheap is often expensive in property" - Paul Shamplina

    DON'T MISS -       New buyer - advice for low risk start



    On another thread - Can you lose a fortune in BTL? - landlord Jonathan Clark has provided the follow list of risks that he has faced:

    Buy badly,
    bad tenants ,
    no rent ,
    tenants cause damage , 
    voids ,
    floods ,
    fire ,
    wind blows down fences, 
    service charges leap higher,
    major works surprises ,
    damp ,
    rewires ,
    accidents ,
    CPO`s ,
    rental demand drops as supply exceeds demand,
    ripped off by LA / maintenance people,
    bad neighbours,
    roof leaks ,
    boiler goes ,
    replace kitchen / bathrooms ,
    carpets ,
    redecorate ,
    sewage from mains backs up to yours,
    murder in the street ,
    crime rockets,
    lender recalls mortgage,
    forget to protect deposit so 3 x that for fine ,
    council comes after you with HHSRS reports,
    forget gas certs massive fine ,
    risk of jail -  ignorance of existing or new legislation ,
    tax and more tax ,
    SDLT rises,
    PRA strangles you,
    divorce ,
    ID fraud,
    threatened ,
    carbon monoxide poisoning ,
    legionaries ,
    radon gas ,
    government chaos,
    shower pump goes,
    vermin, rats mice squirrels ,
    bed bugs ,
    wasp nests,
    overhanging trees ,
    tenants slips and sues you ,
    accountancy errors,
    rip off training courses ,
    rip off property sourcers,
    inflated rents luring you in ,
    valuers down valuing, 
    break a leg,
    negativity taking hold ,
    low self esteem ,
    fear of success

    Please feel free to add to this list of risks that landlords face as we can create a really valuable resource of the pitfalls to look out for and what to do to mitigate them or avoid them altogether.