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Posted by admin on October 11, 2021
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Guaranteed Rent Schemes - Pros and Cons

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Find Out Everything You Need to Know About Guaranteed Rent

Letting a property can be stressful for landlords. They are affected by financial and economic climate changes. They have to dedicate time to finding and handling tenants. Plus, at the end of the year, they may have less money in their pockets than expected. Guaranteed rent schemes aim to relieve landlords of any additional stress and offer them a simple solution for letting their property.

What Is Guaranteed Rent?

The main purpose of guaranteed rent schemes is to offer a simple solution to first-time landlords and buy-to-let investors when it comes to letting out their properties. They unburden landlords of the additional stress relating to dealing with tenant queries and complaints. Plus, they guarantee landlords that they receive their rent on time. This can secure their investment and guarantee them a steady income, unaffected by any changes in the financial or economic climate.

Through a guaranteed rent scheme, landlords actually let out their property not to the tenant directly, but to a third party property manager. This can be an individual or a company. This way, the landlord has no direct contact with the tenants and does not have to worry about any additional hassle. Aspects such as tenant screening, property maintenance, managing queries and complaints, potential evictions are all handled by the property manager.

When choosing a guaranteed rent scheme, the landlord is free of any stress. All they need to do is collect their guaranteed monthly payment.

How Is Rent Paid Under a Guaranteed Rent Scheme?

The biggest advantage of a guaranteed rent scheme is that landlords receive their rent payments on time every time.

Landlords can rest easy knowing that they receive their rent payment on a fixed date each month. This happens without depending on the tenant’s ability to pay and no matter if the property is occupied or not.

Who Handles the Maintenance and Repairs Under a Guaranteed Rent Scheme?

When choosing a guaranteed rent scheme, any repairs or regular inspections relating to the property are handled by the property manager. The landlord does not have to worry about any maintenance throughout the contractual period. This ensures that the property is well-kept and returned to its landlord in good condition.

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How Secure Is a Guaranteed Rent Scheme?

Using a guaranteed rent scheme, landlords can secure their investment and receive a constant and guaranteed income throughout the contractual period. This way, they don’t need to worry about late payments or vacancies. They also don’t need to worry about managing any repairs or maintaining the property. In addition, once the contractual period is finished, landlords receive their properties back in their original condition.

Do Guaranteed Rent Schemes Include Eviction Procedures and Costs?

In case the landlord fails to pay and any reasons for eviction arise, they are handled by the property manager through the guaranteed rent scheme. The landlord does not have to cover any eviction or solicitor fees for this purpose. They also don’t need to appear before court.

Types of Guaranteed Rent

There are several types of guaranteed rent schemes landlords can choose from depending on their needs and preferences. Here are the main characteristics of each type:

Guaranteed Rent Insurance

Guaranteed rent insurance is a type of insurance policy that covers the value of rent. In case the tenant fails to pay the landlord on the due date, the insurer pays the landlord the equivalent value of the rent due. The period covered by this type of insurance is the length of an individual tenancy.

The cost of a guaranteed rent insurance policy is between 6% and 12.5% of the value of monthly rent. For the landlord to be able to benefit from this type of insurance, the tenant must first pass a credit and reference check performed by the insurer. Tenants who receive housing benefits are not covered by guaranteed rent insurance.

The cons of guaranteed rent insurance are that claims usually take a very long time to be processed and the landlord receives no compensation when the property is vacant. In addition, if an eviction process needs to be initiated, the landlord must appear before court.

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Council-Backed Rent

The council-backed rent scheme is normally managed by a property manager assigned by the local council. The aim of this scheme is to support categories of tenants who are more vulnerable and have a hard time finding a tenancy. The tenants included in council-backed rent schemes are typically ones receiving housing benefits. If the tenant fails to pay rent or the property becomes vacant, the landlord will still receive their rent.

The cons of council-backed rent agreements are that they have a duration of 3-5 years and the value of rent paid to landlords is lower than the market average for similar properties. In addition, council-backed rent does not cover the costs of any property damage or wear and tear. So, at the end of the contractual period, the landlord does not receive their property in its original state.

Rent to Rent

Rent to rent is a form of subletting. In this case, an individual or an agent lets the property from a landlord and goes on to sub-let it to other tenants. The value of rent typically paid by the agent is usually in line with the market value of the property.

There are several cons to this type of guaranteed rent scheme. The first one is that the tenants chosen by the agent are not necessarily screened or verified through a credit or reference check. They can be anyone the agent chooses. The second one is that the landlord may be exposed to legal vulnerabilities if the contract used by the agent in the subletting process with the tenants is not correct.

The third one is that the agent may modify the layout of the property to create additional bedrooms and fit in more tenants. Last but not least, in case of any court-related issues, the landlord must appear before the court and cover the legal fees.

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Letting Agency Guaranteed Rent

When landlords choose a guaranteed rent scheme with a reputable property manager, they benefit from more guarantees. First of all, the property manager will handle all the required tenant credit and reference checks to ensure that the property is in the right hands. Second of all, unlike other options such as the guaranteed rent insurance, this option includes the payment of rent for periods when the property is vacant.

Other benefits of this guaranteed rent scheme include:

  • property maintenance and inspection checks performed regularly by the property manager
  • covering repair costs up to an agreed value (typically 1.5 months of rent)
  • full coverage of legal fees in case eviction is required
  • shorter contractual periods (from 1 year upwards)
  • the landlord does not have to appear before the court in case of evictions.

Guaranteed rent means that instead of having to look for tenants and handle their queries and complaints, landlords can hand over the property to a property manager who will manage everything for them. It is like having a professional tenant.

This is how guaranteed rent works:

  • The guaranteed rent scheme typically starts with an inspection and valuation of the property that will determine its market value.
  • If the property needs improvement works to meet lettable standards, landlords can also receive competitive quotations for refurbishment works and options to spread these costs out throughout the duration of the contract.
  • The guaranteed rent contract is negotiated between the landlord and the property manager and the duration and other terms are agreed.
  • Once the contract is signed and a rent due date is set, the landlord will start receiving the agreed rent as of that date no matter how long it takes the property manager to find a tenant.
  • Throughout the duration of the contract, the landlord is worry-free, and all property-related issues are handled by the property manager. They receive the agreed rent each month on the due date no matter what.
  • After the contract is finished, the landlord receives their property back in its original state.

How Guaranteed Rent Works

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Pros and Cons of Guaranteed Rent

Guaranteed Rent Benefits

The number one benefit of guaranteed rent for landlords is that it takes away the stress and worry associated with letting their properties. Everything from finding and screening tenants to handling the property’s maintenance and repairs falls under the property manager’s responsibilities. This way, landlords don’t waste any time managing tenants or their property.

The second major benefit of guaranteed rent for landlords is that their expected yields from their investment are guaranteed. No more worrying whether the property is occupied or vacant or whether the tenants will be able to make rent on time. Landlords receive their due rent payments each month on the same date. Whether or not the tenant pays the rent or the property is occupied.

Landlords also benefit from the flexibility offered by guaranteed rent contracts. They can choose a shorter or a longer period depending on their needs and expectations.

 

In some cases, landlords can even benefit from the payment of rent in advance.

Additional benefits for landlords include knowing that their property is safe and well-guarded. From tenant screening to regular inspections, and handling the required maintenance and repair works, the property manager takes on all property-related worries so the landlord can be free of any worries.

Guaranteed Rent Cons

We mentioned a few cons for the other types of guaranteed rent schemes for landlords above. But, you’ll be surprised to learn that there actually are no cons to letting agency-backed guaranteed rent.

The truth of the matter is that the rent value a landlord obtains in a guaranteed rent scheme is slightly lower than the market rent for that type of property. Think of it like a commission you pay to have all the risk and responsibility relating to the property taken over by the property agent.

Apart from that, there are no cons to choosing this guaranteed rent option.

If you are interested in benefitting from a guaranteed rent scheme for your property, our experienced property managers are ready to walk you through your options. Contact them to find out what the guaranteed rent process entails and how you can secure all of its advantages for your investment. Read more about our guaranteed rent services here: www.guaranteedrent.one/

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