Amid the awfulness of Covid-19, I keep thinking about the ever-present problem of risk – our approach to it and how to protect ourselves from its effect. Will such a scenario befall us again? Probably, who knows?
From a private rental point of view, I do know that being cool-headed and making every effort to design out risk for landlords is the sensible response. Being an ethical landlord is a critical role in society, but you have a responsibility to be a profitable one too (take note Shelter). Otherwise, no income = no property to rent out to people in need of a home.
Whether it’s a consequence of Covid-19, or something far less universally horrifying, designing out the risk must become second nature to landlords.
Reducing risk from 100% to 0%
Formula 1 is one of the most dangerous sports in the world, but even they don’t entertain an “it’ll never happen to me” attitude, because they know it could. The decisions they make are based on assessment and then management of the risk involved. Running a private rental business isn’t a dangerous sport! Designing out the risk for landlords is entirely achievable. We do it all the time, both as a letting agent and as a landlord. Here’s the process:
1. Designing out as much risk as possible (75% risk reduction)
Achieved through comprehensive tenant referencing, requesting Guarantors, watertight contracts and documentation, checking and tracking rent collection by Direct Debit, management of the landlord tenant relationship, effective communication, quarterly property inspections, etc.
2. Assess remaining risk and determine how to deal with it (20% risk reduction)
Achieved through diligence, automated processes, compliance and safety certification, understanding landlord and tenant law, rules around benefits, proactive management of tenancy issues and disputes, etc.
3. Address how to manage the latent risk (remaining 5% risk)
Protect against any remaining latent risk that cannot be controlled or designed out – in this case our Rental Guarantee.
Rental Guarantee – how reassuring is that?
Having a tenant default on paying their rent can be a regular occurrence for many landlords in ‘normal’ times. In the current climate, the risk to landlords is even greater, added to which recently passed emergency legislation prevents you from starting court proceedings to evict tenants for at least 3 months. Choosing our Rental Guarantee removes the first risk, so the disaster-related second one is irrelevant!
Our Rental Guarantee is underwritten by our business insurer – so it’s our risk, not the risk to our individual landlords – because they recognise that their exposure to risk is dramatically reduced thanks to our diligence (items 1 and 2 above). This faith in The Right Place is reflected in the very high level of cover and competitive cost of our Rental Guarantee – at around 1% of your annual rental income it’s always been reasonable, but in the current climate, it’s an absolute lifeline!
Case study: rent at risk
When the Coronavirus pandemic first broke, we took a detailed and phased approach to communicating with our tenants to help them through any problems caused by the lockdown, thereby enabling them to take advantage of any government assistance as soon as possible and reassuring them that help would be available to them if their income suffered.
One family (4 adults and 2 children) followed our instructions and headed off disaster very successfully indeed. They got in touch following 3 of the adults losing their jobs at the same time. As securing some kind of income was vital, we directed them to a famous supermarket’s recruitment campaign with the result that all 3 were hired.
We then agreed a different payment date with the landlord (who incidentally had taken our Rental Guarantee, so her income was protected in any case). Within the space of 2 days, the family’s income was secured for the foreseeable future, rent payment continued (albeit a few days late each month for the next 3 months) and a claim against the Rental Guarantee was avoided … and all in time for the Easter break!
Not everyone will be as fortunate as this family in getting replacement jobs. However, our policy of designing out the risk to landlords means everyone has improved odds against hardship.
Be low risk, be strategic
Though rent default is the most significant risk to your income as a landlord, there are other areas that can cause unnecessary expense if you take a relaxed approach:
Risk 1: new gas and electricity safety regulations
There’s now an inevitable backlog for lapsed and new safety certificates – unfortunately, the Covid-19 lockdown does not let you off the hook. If your property doesn’t have the correct safety certificates you’re breaking the law, because your tenants are at risk (that word again…). When the current lockdown restrictions are eventually lifted, you and hundreds of other landlords will be seeking the services of the same few tradespeople.
Risk 2: no physical viewings
Not being able to physically show potential tenants around a property is a drawback. Cue our ‘virtual tour’ videos, which overseas tenants rely on all the time to find a suitable home in Milton Keynes. We’re skilled at creating professional videos that promote properties in a tenant-targeted way and managing the different issues that virtual negotiations can raise.
Being low risk makes economic sense for every business, but for landlords it’s 100% essential. As a sector, we aren’t universally loved and consequently we come in for the kind of scrutiny rarely levelled at other business groups. Add to that a crisis such as Covid-19 and the need for planning and pragmatism is even more important.
The Right Place has always been agile and resourceful, our antennae sensitive to the risks for landlords. We’re also enthusiastic early-adopters of technology and automation, all of which means we are the low risk letting agency – crisis or no crisis.