Tenants Deposit Protection – what are the alternatives?Make Text Bigger
I find the current tenants deposit protection schemes very time consuming and a waste of money, which all tenants sadly ultimately pay for through their rents.
I fully appreciate that a few tenants and a few landlords do give the other side a tough time hence understand why deposits need to be regulated if they are taken.
However, is there a better way to manage this area? How else can landlords get protection against tenants not paying their rent or damaging their property?
I would really appreciate the opportunity to read the thoughts of other Property118 readers, especially if they have any practical experience of letting in Australia or the USA ?
Alternatives to Deposit Protection
The main reason I take a deposit is to cover me if my tenants leave owing me rent or have damaged my property, also it gives the tenant a stake in the property so they tend to look after it better.
I like to hold the deposit so I can agree any claims direct with my tenants. After 16 years I have not had one dispute in which we could not simply agree a solution.
Below are some of the ideas and products I’ve considered as alternatives so there is no deposit to protect.
1) Have a Guarantor for the tenants; these also need to be referenced in the same way as you reference the tenants.
This obviously reduces the risk to you of non-payment of rent but does not eliminate it as your tenants and guarantors could go bad at the same time. Also many tenants do not want to ask anyone else to be their guarantor and so would not be interested in renting your property, plus it might not give effective cover against damage done by tenants.
2) Do not take a deposit so there is no deposit to protect.
This gives you no protection but you will fill your properties more quickly. However, you may attract the poorer tenants who statistically are more likely to give you problems with no payment of rent or damage to your property in the future.
3) Ask the tenant to pay for a Warranty.
Warranty companies such as Deposit Approve promoted by Landlord Assist offer an interesting product which is actually worth about 12 weeks rent so on paper. In theory that’s twice as good as taking a 6 week deposit. However, I understand that Warranty companies are not regulated so if they got hit with some bad claims they may just go bust and disappear leaving you with no protection.
4) Do not charge a deposit but simply charge a non refundable Administration Charge of say £100 for every tenant you take, payable by the tenant before they move in.
All these non refundable administration charges will hopefully add up and will go towards any non payment of rent and damage done over the long term but you are likely to be left out of pocket especially if you had a few tenants go bad on you at the start.
5) Take out a rent guarantee product.
The cost of the rent guarantee is likely to be £100 per year. For smaller landlords this makes excellent sense if you look at the upside/downside risks. However, if you are a larger landlord you may find it makes more economic sense not to insure your rents and run the risk yourself.
I would really appreciate your thoughts especially if you have used a Warranty company or have practical experience of this area in Australia or the USA? Please leave vyour comments in the section below this article
Mark Garner – Garner Homes
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