insurance for landlords
25 June 2008

Rising living expenses along with the approved increase in the price of electricity is making it increasingly difficult for tenants to pay their rent. Figures released by the Tenant Profile Network earlier this month show that 11 percent of Gauteng tenants did not pay rent at all in the first quarter of 2008 as opposed to only six percent of Western Cape tenants. Nationally, 28 percent of all tenants paid late or not at all. If the cost of living continues to increase, there is a strong possibility that more tenants will pay late or not all.

People are increasingly opting to rent rather than buy their residential property, a fact illustrated by the recently released FNB Barometer. This survey shows that activity in the rental market is much stronger at the moment than in the home buyer sector. The barometer, which rates market activity on a scale of one to 10, puts the home buyer market at a low 4.96 while the rental sector is at a strong 8.4. 

Lynne Kuter, marketing manager of Rentmaster Ltd cautions against viewing the deposit paid by a tenant as the best protection against defaulters; that deposit cheque is generally required to fix damage caused to the property, rather than cover for an outstanding rental.

As an investor, there is a way to mitigate the risk involved with rentals. Kuter advises the following approach:

• Collect and verify all relevant information pertaining to the potential tenant.
• Assess the risk profile of the tenant.
• Ensure the application is properly completed and that the information is thereafter compared against the vetting criteria before any contracts are signed.
• An insurance policy for landlords to mitigate the impact of a non-paying tenant

Rentmaster offers an insurance policy for landlords to further mitigate the negative impact of a tenant who cannot make his payments.

Kuter explains that they will, in essence, collect the monthly rent on behalf of landlords and pay out the rental, even if the tenant defaults. The insurance gives the landlord cover against three months of rental default and also ensures that the tenant is evicted at no cost to the landlord. A number of rental management companies make use of the collection services offered by Rentmaster. This product is underwritten by Santam.

Landlords should always be careful about taking in new tenants and make use of the services of experienced professionals before risking losing their money in the rental market. Remember, applicants with bad credit records are usually also bad tenants.

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