Calendar icon January 3, 2024

What is Rent Guarantee Insurance? Limitations & Top Providers

Ah, rent. It's the financial fuel that keeps rental properties rolling. But what happens when that fuel line gets clogged? Even if a resident comes with a great payment history and credit, life happens. Maybe it’s a job loss, an economic slump, or even identity theft – whatever the reason, most property managers will experience lapsed rent payments at some point. For property managers, stalled rent means your clients’ property is suddenly a financial risk rather than the asset it should be.

Enter a new(ish) solution that provides a safety net for property managers and owners: rent guarantee insurance. Think of it as a stopgap for your investors in case of missed rent, leaving them financially secure while you can take your next steps thoughtfully.

Rent guarantee insurance is an owner benefit that many savvy property managers have begun to include in their suite of services to entice new investor clients. So, let's break down the rent guarantee magic. In this blog post, we'll be your tour guide through the maze and answer questions like:

  • What is rent guarantee insurance, and why should you care?
  • What does this type of insurance cover? When should you offer it?
  • What are the limitations or risks of rent guarantee insurance? 
  • Who are the top providers of rent guarantee insurance in the U.S.?

This service is all about reducing risk for owners, which is a massive value proposition for any property management company to offer their clients. We’ll also talk about some measures you can take to protect residents (and, therefore, owners) beforerent delinquency becomes an issue.

We’re all about helping customers reduce risk. Here’s a great way to do it.

 

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What is rent guarantee insurance?

Rent guarantee insurance is a type of insurance policy designed to protect property owners from financial loss caused by resident rent default. Essentially, it acts as a safety net, stepping in to cover missed rent payments for a predetermined period if a renter fails to fulfill their lease obligations. 

Think of it as a financial backstop, ensuring a property’s rental income remains stable even when a tenant falls into arrears.

Let's break it down with an example: You may have a resident who passes your credit check and other screening with flying colors. But then, they experience identity theft and have their assets frozen for a certain period of time. Rent guarantee insurance would help to cover the unpaid rent while they’re getting back on their feet. In this case, it can help them stay where they are while they get their financial accounts restored – and protect your clients’ cash flow over that time.

In other scenarios, the outcome may not be quite as sunny (fully restored and still a resident!). Let’s say there’s an economic downturn, and one of your residents loses their job. While no one wants to evict a resident, you may find your hands tied. With rent guarantee insurance, you can offer your owners the peace of mind that they won’t lose money during the eviction process. 

Providing services like this can set you apart from other property management companies and help drive leads.

How does rent guarantee insurance work, and who needs it?

Rent guarantee insurance is a benefit for property owners and is one option that property managers can offer their clients as part of a suite of services. It also can provide peace of mind to property managers, knowing their investors won’t be paying out of pocket if a renter stops paying. 

Here’s how it works: An insurance company offers coverage for a monthly premium. As a property manager or owner, you can pay that yourself or build it into the rental cost. Then, if a renter ever stops paying rent for nearly any reason, you can file a claim with the insurance company and get that missed rent paid while the resident is still delinquent.

Rent guarantee insurance isn't a one-size-fits-all magic button for every property manager and owner. It’s most explicitly valuable for property owners who:

  • Have new or unproven tenants: For first-time renters or those with limited rental history, the risk of default can be higher.
  • Own multiple properties: Managing numerous rentals comes with a higher exposure to potential tenant issues. Rent guarantee insurance distributes that risk.
  • Own high-value properties: The financial impact of missed rent can be particularly painful for owners of expensive properties. Rent guarantee insurance acts as a financial shock absorber.

But rent guarantee insurance can be a good idea for anyone, depending on their risk appetite.

Why is rent guarantee insurance important?

Rent guarantee insurance can be a critical way to protect your clients’ – and therefore your – financial stability. For a monthly (or yearly) premium, you can ensure peace of mind in case a resident has a significant life change, moves out suddenly, or simply fails to pay rent consistently. 

This type of insurance can also take care of the hassle of following up with residents who have stopped paying and even starting the eviction process. 

Whether or not you opt for rent guarantee insurance, one of the best ways to ensure you’re protected is to focus on protecting your residents’ ability to pay rent. At Second Nature, we provide support for this through our Resident Benefits Package

Our identity protection feature ensures that if residents are ever the victim of identity theft, their missed rent payments are covered. Credit building helps ensure residents build financial security, and our renter’s insurance program helps cover other liabilities on the property side, including loss of rental income in covered scenarios.

What does the rent insurance guarantee typically cover?

Rent guarantee insurance is solely focused on protecting property owners from loss of income if a resident falls behind or defaults on rent payments. Since rent is the primary pipeline of income for a real estate investor, this is critical coverage if that kind of loss happens. 

Property owner’s insurance covers damage to a property but not loss of rent. That’s why this type of insurance is unique. Rent guarantee insurance won’t cover certain scenarios, like if there is a failure on the property owner’s sign to comply with a lease or keep the property habitable.

A Note About Eviction Protection: Some services that offer rent guarantee insurance also include eviction protection, but not all do. Eviction protection specifically covers the costs of an eviction. Rent guarantee insurance may not involve an eviction at all (for example, in the case of identity theft, the resident may just suspend payments for one or two months while their finances are restored). Or, eviction costs may not be included in the rent guarantee policy. 

Property managers can include both rent guarantee insurance and eviction protection in their suite of owner services.

 

Happier residents

 

Limitations of rent guarantee insurance 

Of course, rent guarantee insurance has its limitations, just like any type of insurance. Here are a few of the limitations to consider before you decide to pay for this coverage. 

  • Not all residents will be approved: Insurers do just as much due diligence as you do. They likely will refuse to cover a tenant with a history of defaulting on payments or a low credit score, etc. They may have different standards than you have established for your PMC. 
  • Insurance may take time to kick in: Most rent guarantee policies will kick in after a full month or more of non-payment. You may be on the hook for this. However, you may be able to use the security deposit to cover this, depending on local regulations and your lease agreement. 
  • Premiums can be pricey: Rent guarantee insurance can cost around 5-7% of your annual rent payments. Of course, you can find ways to fold this added cost into residents’ monthly rent payments, but you will need to be conscious of whether this tarts pricing you out of the market. 
  • You may promise more than you can deliver: Always be careful when marketing a service as a “guarantee.” We’ve seen property managers get in trouble when they can’t deliver on a “guarantee.” You may let down owners, or you may even get in trouble from a regulatory standpoint. Nothing is 100% guaranteed, even (or especially!) with insurance. 

Another risk? Thinking you can offer this yourself without an insurance license. Recently, a property manager in Texas got dinged by the Texas Department of Insurance for offering things like “pet guarantees” and “rent guarantees” without being licensed to offer insurance.

That’s why it’s important to use a real insurance provider when you decide to offer rent guarantee insurance. And that leads us to our next section: The best providers for this service right now.

Best rent guarantee insurance providers 

Here are the top rent guarantee insurance carriers available right now.

1. Steady Rent

Steady Rent is geared specifically for property managers in the single-family rental space. They help property managers provide risk protection to their investors – you help them protect their rental properties, all while improving your bottom line. 

They provide two services: rent advance and an owner benefits package. 

Rent advance provides up to 12 months of rent payments upfront, regardless of resident payment. Property managers also receive their fees upfront. This is only available for investors working with property managers who are already partnered with Steady, and the property must meet certain requirements. 

Steady’s benefit package allows owners to access the Rent Advances, as well as rent protection of up to two months of rental payments if a tenant defaults.

2. TheGuarantors

TheGuarantors focuses on rent guarantor insurance along with innovative risk management solutions for property owners, renters, brokers, and property managers. The company’s promise to residents is that they can help them get into a property they want but might not otherwise be accepted for. For investors and property managers, the promise is to reduce risk and strengthen their bottom line. 

They offer rent coverage, deposit coverage, and renters insurance. The fees are paid for by residents, so it adds no cost for investors or property managers. The company also says it will step in to help work with residents who have stopped paying rent. 

The downside is that some residents say the insurance comes at too high a price, and the user experience is not as good as comparable services.

3. Nomad

Nomad is another property management software company that focuses on a rent guarantee. Their team also helps manage the details of marketing, screening, leasing, and any issues that arise with rent payments.

The service is more applicable to self-managing landlords who need support in each step of the leasing process. The way Nomad’s process works is they manage the lease for you and pay you rent on time every month. For larger or more established property management companies, this won’t be the ideal solution as it likely won’t be flexible enough to your needs.

4. Home365

Home365 is a property management solutions company in the same vein as Nomad. They offer a “one rate” to the owner that covers rent guarantee, leasing and renewal fees, eviction fees, repairs and maintenance fees, and tenant turnover costs. They guarantee 12 months of full rent every year, with a rate subject to a deductible per incident. They have a platform for property managers and investors and a separate platform that helps residents find homes that are a good fit.

5. SureVestor

SureVestor is a "landlord insurance" brand that helps cover unexpected costs for property owners. They partner with property managers to give a discounted price on their services. Their full coverage includes Scheer Landlord Protection Insurance, which covers malicious damage up to $35,000, loss of rent coverage, eviction costs, sheriff fees, legal expenses, etc. They also offer $1M liability coverage for property managers, up to $100,000 in tenant liability coverage, and a security deposit alternative service.

6. Tenantcube

Tenantcube is a property management software solution that includes a rent guarantee in its package of services. They provide a rental management platform that helps support tenant screening, automated rent collection, lease templates, and management software. 

Their rent guarantee will make up payments when a tenant stops paying up until the tenant vacates the property. You can rely on coverage for up to one year or $60,000 in covered rent. They also support reimbursement of eviction legal fees up to $1,500 and malicious damage protection up to $10,000. 

Tenantcube is generally a good solution for more self-managing landlords who need support managing their properties – rather than established property management companies that need a more sophisticated solution.

7. World Insurance

World Insurance’s rent guarantee covers renters if they involuntarily lose their jobs or otherwise can’t pay rent on time. They provide up to $60,000 of guaranteed rent as well as damage protection of up to $10,000 and eviction cost coverage. 

This service is geared towards renters themselves, and there are fairly high standards for who will be accepted. Approval can take a long time.

8. Insurent

Insurent is a lease guarantor company available in some parts of the U.S., including New York, New Jersey, California, and a few other states. Renters can use the service to get approval in homes they otherwise would not qualify for, as long as they meet certain criteria like creditworthiness, employment, etc. 

For property managers and investors, it can support filling a property more quickly with residents who seem like good renters but might need a little extra coverage or a guarantor. This might include people like first-time renters who need to build a rental history.

9. Rent Rescue

Rent Rescue is an arm of Next Wave Insurance Service. They reimburse rental owners for up to six months of lost rental income due to nonpays, including skips or eviction, and up to three months if the default is due to a court order, military deployment, or death of a sole tenant. It is available in most states. 

The idea of Rent Rescue is to close the gap between the moment that a resident stops paying rent and when you can finally resolve the issue. It’s a rent default insurance to help keep your cash flowing during this period. They also provide up to $1,000 in legal expenses to pursue eviction.

Keep learning

How to Optimize Operational Frequency with Processes and Software

Property management software is currently helping property managers establish efficient and reliable processes at a higher rate than ever before in the PM industry. With that development in the proptech industry has come the development of tech for self-managers that has changed the capacity of the accidental landlord. Thus, the demand for efficiency at scale has risen in order to separate the professional from the amateur, and the establishment of processes that allow such a thing has become a critical topic for professional property managers. Optimizing property management processes Carter Fleck of Triton Property Management, a growth-oriented firm out of northern Virginia that is approaching 300 units with larger goals for 2024, joins us to share his expertise on process definition. Fleck is the General Manager responsible for operations and strategic growth, and he has been developing effective processes to ensure efficiency at Scale at Triton, and in the process, he has garnered an understanding of how to do so. “A lot of failing,” says Fleck. “In the early days, we were getting a lot of good and bad feedback, but typically the bad feedback is what you adjust off of.” Fleck believes that assumptions are the enemy when it comes to defining procedures and sourcing software for your PMC. “The image that we use is if you're going to build a sidewalk before people even start walking on a field, it's kind of dumb. You have to see where people will walk first, and then you'll build a gravel path. So number one, you see where they walk, see where their intentions are in the grass, then you build a gravel path. And then eventually, once that walkway is established, that's where you build your processes and procedures.” The analogy is a visualization of the concept that you have to see how people operate before you can establish processes to make how they operate more efficient. Fleck encourages the negative experiences of process breakdown and cites them as the only way to really nail down what your processes should look like. “Over time, between the tenants giving feedback and owners giving feedback, we adjusted our processes. It's a mix between figuring out where the owners walk and where the tenants walk, and then building paths that align.” Fleck details an example of how Triton adjusted its process after an assumption it made got challenged: "We had an assumption that payment plans were helpful for residents," says Fleck. "And so the way we handled delinquency is we would reach out to them and would be like, ‘you need to pay this. Do you have a payment plan option?’ And they would always say yes. Our process was we'll put you on a payment plan, we'll invite you to a payment plan, you'll accept the payment plan, and then we'll monitor the payment plan. That in itself was a lot of work, but we thought it was doing well. But some of the owners that we had managed for mentioned that another property manager doesn't allow any payment plans. And if you're not fully paid up by the end of the month, then the eviction process starts if you’re over $500 due. So we're like 'alright, well, we'll serve you in that we'll change our processes.' And we did, and our delinquency percentage shrunk significantly. So, consistently, by the end of every month, we're around 5% APR. Whereas with payment plans we're like 5 to 10%.” Fleck obviously credits seeing the assumptions in motion as what prompted the need for process iteration, and he firmly believes that making too many of these assumptions is one of the biggest mistakes growing property management companies make. Like any business experiencing growth, process definition is critical to achieve efficiency at larger volumes. What Fleck is essentially advocating for is processes based on what you know, not what you think, and there is a big distinction. Managing property management software Fleck has installed both general and tech-based processes, and cites that understanding of how people interact with processes as the key in both areas. "They don't focus on user experience. That's really important. Number one, how the tenants like the tech, but specifically how the people who are using the tech are gonna adopt it. So when we were choosing a rent inspection software, we had so many people recommend one, software and I, we almost pulled the trigger on it. But then I was like, let's do a trial run on both these two. And we chose the other one because it was way better user experience for property managers. So user experience, both for us and for residents." Tech is a tool that is ultimately as good as its users, and if it's not used correctly or at all, its potential is wasted. An over-reliance on technology can actually go hand-in-hand with an under-reliance, as both often spring up from a lack of understanding of how to choose, implement, and manage it. In this vein, Fleck can't recall many property managers who operate with too much tech. As long as you're not purchasing redundant software and you've done and continue to do your due diligence, tech-based process can make your business more efficient. "I more often find myself having that conversation," says Fleck. "When I'm talking to property managers in my sub-market, who aren't connected with like a NARPM, who aren't connected with like a Crane group, or who aren't connected with a Second Nature, aren't connected to the tune of what the property management industry is doing and the cutting edge of it, I'm just like, 'you could save so much of your time and you could scale this so much more if you only even if you just had tenant Turner, or if you had LeadSimple.'" No matter what your story is a property manager, if growth is in the cards, so is process and technology refinement. Hopefully, Fleck's experience in these areas can help you stay efficient and organized as door counts grow.

Calendar icon April 19, 2024

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Why offer a tenant benefits package?

In the residential real estate sector, like everywhere else, residents and property investors alike are getting younger – and with this generational shift comes expectations for a certain level of convenience and support. To put it bluntly, today’s residents want their needs proactively anticipated. It’s something they're willing to pay (and stay) for. That’s where a tenant benefits package comes in. In this article, we’ll explore what a tenant benefit package is, how it improves the experience for both property managers and tenants, and crucial mistakes to avoid. Before we get into the details, we want to give a shoutout to our very own “Resident Benefits Package” – which is how we refer to the benefits comprised in the “tenant benefits package.” “Tenant” is not yet a legacy term, but we here at Second Nature are trying to evolve it. That’s because, in our experience, property managers work hard to make renters feel like they’re not just parties to a contract – they’re residents. On one hand, this is just humans being humans, but on the other hand, it also encourages them to invest in care for their new home and add value to the property. Ready to get started now? Build your Resident Benefits Package today. What is a tenant benefits package? A tenant benefits package is typically a bundle of services, conveniences, and provisions offered by a property manager on top of the basic lease agreement. They represent a triple-win situation for property managers, residents, and property owners, as they enhance the overall rental experience, generate additional income, and protect the real estate investment. It might include conveniences such as online monthly rent payment options, or portals for submitting maintenance requests and tracking their status. It could also include various financial perks, such as credit rating improvements that are contingent on on-time rental payments, or discounts on nearby services such as fitness centers. It might also include amenities ranging from move-in concierge or utility set-up services, to identity protection services, to HVAC filter delivery. The cost for resident benefits packages is typically included in the lease and added as a monthly fee, with the fee being dependent on the specific benefits. Indeed, the benefits contained in a tenant benefits package will vary depending on the property manager and the type of rental property. The overall goal is to provide tenants with an enhanced quality of life while simplifying the experience of renting. At Second Nature, we pioneered the only fully managed resident benefits package, in response to PMs who wanted to make their business stand out. Our RBP includes an array of services and supports for residents, from filter delivery to credit building to maintenance. Why should property managers offer a tenant benefits package? Beyond the triple-win considerations mentioned just above, there are compelling and concrete reasons why property managers should offer tenant benefit packages. We'll turn to these now. Ancillary revenue Some tenant benefit packages include optional services or add-ons that can generate additional revenue streams for the property manager. This might include things like renter insurance or HVAC filter delivery. Resident experience Tenant benefit packages deliver numerous savings and value to tenants, beyond the value they would get if they were obtaining the same benefits "à la carte." Additionally, by offering additional services and conveniences, benefit packages can make tenants feel valued and more satisfied with their living experience. For instance, maintenance hotline requests, tenant portals, and air filter replacements all make life easier. Add-on services like identity theft protection can offer a sense of security. And discounted renters insurance coverage, utility concierge services, or other perks can save tenants money. Decrease tenant turnover and vacancy rates In a competitive rental market, tenant benefit packages can be a major differentiator toward boosting retention rates and reducing vacancy rates. Properties that offer these packages can also attract a wider pool of qualified tenants, and potentially command higher rents. Note that certain benefits in the package, like online rent payments and maintenance requests, can automate tasks and free up the property manager's time. This allows them to focus on more value-added initiatives. How does the tenant benefits package improve the tenant experience? Tenant benefit packages can significantly improve tenant satisfaction in several ways, by making life easier, more convenient, and potentially more affordable. For instance, if an online portal (a baseline feature for most property management software) is included for rent payments and maintenance issues and requests, this eliminates the hassle of writing checks or waiting on hold to speak with someone about a clogged drain. In other words, tenants have the peace of mind of knowing they can manage their tenancy 24/7 from the comfort of their own devices. Some packages might include features like filter delivery services or regularly scheduled HVAC maintenance. This frees tenants from having to remember these tasks – and ensures their apartment is well-maintained. Certain packages might also offer "verified vendor" services – in other words, a vetted vendor network that can help provide a more secure feeling to residents when service providers are on-site. On the financial side of things, a benefits package might offer discounts with local suppliers for various goods and services, or on a renters insurance policy obtained through the property manager (with applicable waivers for residents who have their own insurance). This can save tenants money on a necessary expense. Some packages also help residents with their credit scores via credit reporting and credit building services, so they can transition from renting to home buying when the time is right. The idea is that the credit reporting program reports on-time rent payments automatically to all credit bureaus, helping residents build their credit simply by paying their rent on time. Some benefit packages include resident rewards programs that represent a powerful and positive incentive for on-time rent payments, including gift cards or cash. As far as living perks go, packages sometimes include added benefits such as access to fitness centers or community events. This provides tenants with additional spaces to relax, socialize, or stay healthy. Packages can include security deposit alternatives that serve to provide a means for residents to be financially liable for damages without having to pay a significant lump sum upfront, such as pure insurance, surety bonds, and ACH authorization programs. Ultimately, tenant benefit packages create a more professional and responsive image for the property management company, which helps tenants feel valued and allows them to experience a smoother, more stress-free rental experience. What are the mistakes to avoid when offering tenant benefits packages? Property management companies should take care to avoid certain pitfalls when implementing tenant benefit packages to ensure they are providing true value to tenants as well as delivering profitability to the PM company itself. For instance, it's important to ensure that the services you're offering are actually relevant to your target renters. For example, young professionals might appreciate discounts on gym memberships, while families might prefer pet-sitting services. You should also take care to clearly communicate what's included and not included in the package to new residents. Don't oversell the benefits – focus on how they genuinely improve the living experience. It's also very important to set realistic expectations for response times on standard maintenance requests, emergency maintenance requests, or virtual concierge services. Likewise, be clear on all available payment methods, as well as rent due dates, late fee structures, and any associated payment processing fees. If your package includes services from third-party vendors, ensure that these vendors are reputable and reliable. Research their customer service record and responsiveness to ensure a smooth partnership and a positive experience for tenants. Above all, regularly monitor the usage of different benefits within your benefits package. This can help you refine your offerings and ensure you're not spending where spending is not required. Looking for a Resident Benefits Package? If you’re looking for a “plug and play” resident benefits package, Second Nature’s RBP is the way to go. Designed to be easy to implement and simple to use, all the services it includes are managed by Second Nature – which means there’s no day-to-day upkeep required from the property manager: Second Nature keeps it running. It’s a simple way to grow your business and create great experiences that residents will pay and stay for. Learn more about our fully-managed Resident Benefits Package.

Calendar icon April 2, 2024

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