How to secure your rental income?

A rental investment generally represents more than a savings investment: the investor takes out a loan whose repayment plan is conditional on the regular receipt of rent, or uses this rent to acquire another property if the first is already fully owned. The receipt of income is therefore, in the vast majority of cases, essential.

Uncertainties nevertheless remain, which can expose the property owner to risks. Certain methods exist to secure the receipt of rental income or, failing that, to transfer the risk to a third party tasked with this purpose. An overview of all the means at your disposal, to ensure your dream of becoming a landlord never turns into a nightmare!

What real risk does a landlord face?

Securing rental income has a cost and necessarily impacts the overall profitability of the investment: to convince you of the merit of using such methods, let us first review the risks involved.

Handing over your property to a tenant who is most often a complete stranger is not reassuring. And for good reason, beyond potential damage, the idea is then to rely on this person to provide the funding necessary for repaying a loan (in whole or in part) or at least, to ensure the payment of a deserved pension. Even renting to relatives can sometimes prove complicated, moreover.

The concrete risk is evident: the tenant may decide not to pay the rent, even when they sometimes have the means to do so. The loss has an immediate impact on the owner’s finances, who may find themselves in difficulty as they are nevertheless obliged to repay a loan and pay charges. The means made available by law to remedy the situation generally require several months of proceedings, punctuated by cumbersome steps. Fortunately, preventive measures can be taken.

Requiring a guarantor

This mechanism constitutes the first reflex of any landlord, and involves appointing a third party sufficiently close to the tenant to act as guarantor. Their inscription on the lease will lead the owner to turn to this guarantor to wipe out the tenant’s debt in the event of default by the latter. Attention, this is indeed a person and not a monetary deposit, also known as a security deposit.

Two levels of guarantee exist: simple and solidary. In the first case, the owner must follow a procedure to attempt to recover what is owed from the tenant before turning to the guarantor. The advantage of a solidary guarantee is that the guarantor can be contacted directly from the first unpaid instalment, without further formalities.

The guarantee system has a limitation: in the event of insolvency of the person acting as guarantor, the landlord returns to square one and must initiate proceedings with the institutions.

The Visale guarantee

The Visale guarantee (standing for Visa for Housing and Employment) comes from a government scheme designed to protect landlords from possible rent defaults. Action Logement is then responsible for repaying the lost sum and consequently fulfills the same role as a solidary guarantor.

Conditions are nevertheless imposed to access this service:

• The tenant must be aged between 18 and 30 for unrestricted access;
• If they are over 30, it is necessary to justify being a private sector employee with a net salary of €1,500 maximum;
• Also for those over 30, professional mobility can allow access to Visale: a CDI during a trial period, a CDI of less than 6 months, a job offer or a transfer are then required;
• The Visale guarantee can only be set up during the first three years of the lease.

If these criteria prove too restrictive and even a solidary guarantor does not constitute absolute security, two other solutions are still available to a rental investor.

Insurance against unpaid rent

As its name indicates, taking out such insurance aims to provide compensation to the landlord in the event of unpaid rent, and even of delay in the payment of said rent. It can be taken out with a generalist or specialist insurer, or with certain real estate actors. It is also found under the name of Guarantee for Unpaid Rent (GLI).

Insurance contracts in this domain offer very variable coverage and rates: it is essential to compare offers and determine the real need. On the other hand, the tenant must necessarily present – and this point is common to all private insurance – a healthy or even affluent financial situation. A fixed salary equivalent to three times the rent amount is notably required, most of the time.

Point of attention: when taking out insurance against unpaid rent, it is prohibited to additionally require the tenant to provide a guarantor.

LMNP investment

A final solution to receive certain and sustainable rental income: opting for non-professional furnished rental (LMNP) in a serviced residence. The contract established with such residences includes a clause guaranteeing the payment of rent, even if the property remains vacant!

You may also discover that as an investor, this type of acquisition offers many advantages: no rental management, no maintenance or renovation costs, several very interesting long-term tax advantages and in addition, the possibility of declaring income received outside property income, for lower taxation.

You now have all the useful information to bring greater security to your rental investment. Nevertheless, be reassured: unpaid rent represents only about 2% of the total rent received in France and therefore in no way constitutes a rule. Also keep in mind that beyond formal protection mechanisms, making contact with the tenant to understand their situation in the event of sudden non-payment, or even amicable negotiation, can just as well resolve the situation and preserve a relationship that should remain one of trust.