Landlords - If offered rent protection do you see the value

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Landlords - If offered rent protection do you see the value

Matt Guignon
Real Estate Agent · St. Louis, MO · Member since 2017 · 74 posts · 20 votes

General question to all the landlords out there. Much of this business is a constant game of running cost/benefit analyses. Let me know your thoughts on this one. Would you opt for this voluntary service? Rent Protection states - For the price of 1 months rent divided and billed over a 12 month period you get payment protection. For whatever reason, if your tenant stops paying rent the property management company would continue to pay the owner on their behalf as the PM worked out a solution with the tenant on the back-end. If tenant needed to be evicted as a last resort the owner would also not have to pay legal or processing costs. If rent was $1,000/month the owner would be billed an additional $83.33/month for this "insurance" which would provide coverage up to 11 months or $100,000 of lost rent. What are your thoughts, do you see the value in this type of product or would that eat away too much of your cash flow? Looking forward to hearing your feedback! 

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Wesley W.
Rental Property Investor · The Vampire State · Member since 2013 · 2k+ posts · 2k+ votes
4y

As others have said, the cost is vastly incongruent with the risk it mitigates.

I have a guaranteed expense of a minimum of one month's rent per year with your plan, regardless of any other contingencies that occur.  Your logic that the price of evictions eclipses the cost does not hold water.  I would have to have an eviction occur in each unit more frequently than once every three years for the cost to be recouped.  Anyone who is having that occur needs to get out of the landlording business immediately.

I would much rather do a better job screening tenants and decrease the chance of economic vacancy way below the annual rate of 8% that this would offset.

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  • Brandon Harris
    Rental Property Investor · Albany, OR · Member since 2016 · 39 posts · 23 votes
    4y

    To me that rate is too high. It guarantees that I will lose 1 month of rent each year in order to protect myself from potentially losing rent. You would have to lower it a lot to be worth it. I suppose it depends on your area though and how long evictions take.

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  • Matt Guignon
    OP
    Real Estate Agent · St. Louis, MO · Member since 2017 · 74 posts · 20 votes
    4y

    And the price of evictions I suppose? Our area an eviction takes about 60 days and runs $600-$1000

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  • Bill B.
    Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
    4y

    It sounds like There’s a cheaper solution out there. ‘The guarantors” were interviewed on the rental income podcast. They charge less than a month’s rent and cover both missed rent and tenant damage. Their idea is the tenant pays for the insurance as it costs less than a security deposit. Haven’t tried them and probably won’t as I’ve only had 2 evictions in 20+ years. It’s just not a problem. 

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  • Greg M.
    Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
    4y

    If rent is $1,000 and you'd cover up to 11 months or $100,000, how is it possible to get to $100,000. You'd be maxed out at $11,000. And in most times and most places you can get a deadbeat tenant out within 3 months max. 

    If I have a PM handling my property and also insuring payment, I'd be worried that the PM would be overly cautious with potential new tenants. I'd be losing out on rent while the PM searched for a less risky tenant. 

    Your rate is WAY too high. I'd can see paying $99 a year at the start of the lease if you certify the tenant, reimbursement me lost rent up to $2,000/month until the tenant is out, and cover eviction costs. 

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  • Matt Guignon
    OP
    Real Estate Agent · St. Louis, MO · Member since 2017 · 74 posts · 20 votes
    4y
    Quote from @Greg M.:

    If rent is $1,000 and you'd cover up to 11 months or $100,000, how is it possible to get to $100,000. You'd be maxed out at $11,000. And in most times and most places you can get a deadbeat tenant out within 3 months max. 

    If I have a PM handling my property and also insuring payment, I'd be worried that the PM would be overly cautious with potential new tenants. I'd be losing out on rent while the PM searched for a less risky tenant. 

    Your rate is WAY too high. I'd can see paying $99 a year at the start of the lease if you certify the tenant, reimbursement me lost rent up to $2,000/month until the tenant is out, and cover eviction costs. 


    The $100,000 is just the policy. Obviously not the case with this particular example. Good feedback, I guess it also depends on the tenant class you’re catering to. An eviction without missed rent in my market is about $750. 

    But proper screening and tenant placement can mitigate much of this concern. I suppose this may cater more towards the accidental landlord or mom and pop that are trying to mitigate all risk and headache while waiting for appreciation or reaping tax benefits. For the cash flow centric investor I agree it’s quite the price to pay 

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y

    I have an insurance company that will guarantee rent and it’s paid by the tenant along with a lower security deposit as insurande will pay deposit

    Anyone wants info feel free to hit me up

    7e investments53 Reviews
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  • Wesley W.
    Rental Property Investor · The Vampire State · Member since 2013 · 2k+ posts · 2k+ votes
    4y

    As others have said, the cost is vastly incongruent with the risk it mitigates.

    I have a guaranteed expense of a minimum of one month's rent per year with your plan, regardless of any other contingencies that occur.  Your logic that the price of evictions eclipses the cost does not hold water.  I would have to have an eviction occur in each unit more frequently than once every three years for the cost to be recouped.  Anyone who is having that occur needs to get out of the landlording business immediately.

    I would much rather do a better job screening tenants and decrease the chance of economic vacancy way below the annual rate of 8% that this would offset.

    3Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    4y

    I don't see it..............in 30+ years I have never had an eviction and hope to keep it that way. My wife and I spend a lot of effort and focus on screening. We make sure our properties are well maintained and offer value for our tenants and a profit for ouselves. 

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    4y
    Quote from @Matt Guignon:

    As a property manager, I'm familiar with those programs and can tell you they are not worth it. The house always wins. Just like any insurance program, they can offer the protection because they know the numbers work in their favor.

    If you're evicting a tenant every couple of years, you have a bigger problem. I know different markets have different results, but I manage 400 rentals, many of them C-class and a few D-class, and I've only evicted one of my tenants since 2014 through the court system. 

    The DIY Landlord Book4.7247 Reviews
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  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    4y

    @Matt Guignon. Sounds like the upswell of a warranty protection program at Best Buy, etc. most of those are garbage and deliberately set up to be just difficult enough you decide it’s not worth it to pursue.

    Leaving cost aside, I’d be worried that any time delay of them contracting their attorney etc would hurt you more than help.

    And if you do have an eviction just hire a competent eviction attorney and your cost will be about the same. Why not put that same 83/mo in a reserve account if u are worried?

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  • Curtis Mears
    Property Manager · Raleigh, NC · Member since 2014 · 729 posts · 596 votes
    4y

    @Matt Guignon

    Not a chance. I have been investing since 2015 in ltr. During that time, I have not had any nonpayment of rent. Of course, I screen my tenants and do not rely on pm. And I have 10 rentals so I would be paying over $10k a year. Not even close to making the numbers work.

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