Over recent years there has been a huge increase in popularity for a Guaranteed Rent service. In this guide, we are going to provide you with a comprehensive explanation of the guaranteed rent schemes as well as some of the benefits and drawbacks.
A Guaranteed Rent service is typically where a third party agrees to pay you, the landlord, a fixed rental each month over an agreed period of time. The third party effectively becomes the tenant and takes over control and management of the property and seeks to rent the property out for a margin. This can sometimes be misunderstood as subletting, which occurs when a traditional tenant rents a property from a landlord under an Assured Shorthold Tenancy (AST) and then seeks to underlet the property to other tenants without the landlord's permission and without using the correct legal framework.
With guaranteed rent, the landlord and the third party enter into a Commercial Agreement and use the appropriately drafted legal framework such as a Management Agreement or a Commercial Lease.
There are typically 3 different types of rent guarantee schemes:
1. Guaranteed Rent Insurance
Guaranteed rent insurance acts as a solution to prevent for loss of rental income once a landlords signs up a tenant. These insurance policies are reactive and can only be used once a tenant goes into arrears typically taking 8 - 40 weeks to pay out. Whilst it can provide you with some peace of mind, it may prove difficult where you do not have enough of a buffer to cover your mortgage, bills, repairs or other costs until the insurance company pays out.
2. Guaranteed Rent Council Schemes
This is typically an arrangement where the Local Authority agrees to let from private landlords to provide social housing. Tenants will typically experience personal challenges such as homelessness, unemployment, drug abuse as well as physical and mental health issues.
This type of scheme tends to massively increase wear and tear on the property due to the tenant profile and is more favourable to properties in less desirable areas.
3. Guaranteed Rent Letting Agents and Companies
Nuovo Lettings is a well established guaranteed rent provider letting properties from landlords nationwide. This solution may not be suitable for all landlords and we have taken the time to summarise the benefits and drawbacks ensuring you make a decision that suits your needs.
Benefits
- Consistent monthly income
- No having to deal with problem tenants
- More time. No more time spent managing your property
- Hassle free. All maintenance and repairs handled
- Property upgraded adding value and increasing equity
- Zero void periods
Drawbacks
- Limited control over the type of tenants
- No control over the design and decoration
- Guaranteed rent letting agent may go out of business
- Potential risks of liability if the property breaches regulations
When renting your property yourself or using a letting agent there are fees involved.
If you rent it yourself there is the cost of advertisement, fuel and time away from work and family as you do viewings, credit and reference checks and deposit registration costs.
If you choose a letting agent there are fees associated if you choose either a Tenant Find or Management service. With a Tenant Find service, you can typically expect to pay one month's rent as a fee upfront whilst opting for a management service you will pay typically be charged 10-15%+ VAT.
In both cases you still run the risk of no guarantee to the property being rented. You will have Voids!
With a guaranteed rent company there are typically no fees.
Depending on the condition of the property you may be asked to provide a rent free period to allow the guaranteed rent provider to complete design and decoration works on the home. We believe this is a small consideration in exchange for an increase in the property value.
As a guaranteed rent company, there is a duty of care that should be followed to both the managing landlord and corporate tenants. The landlord should liaise appropriately with the management company to ensure the property is compliant and there are no outstanding maintenance issues.
We support the guidance provided by the Property Redress Scheme (PRS) that all providers should be registered with a Redress Scheme such as the PRS or the The Property Ombudsman (TPO).
In the last 12-18 months, there has been a significant rise in guaranteed rent companies being started by those with limited experience. We recommend doing your research and ensuring you find a reliable provider that you can trust who will ensure your property is taken care of.
At Nuovo Lettings we pride ourselves on being a reputable and compliant guaranteed rent service provider. This guide should have allowed you to gain a good understanding of the different type of guaranteed rent services. If you have any further questions or are interested in our services, please complete our simple contact form or call us now!
Nuovo Lettings is trading a Limited Company registered in England trading as The Property Nerds Limited. Registration No. 11942883. Registered Office: 20-22 Wenlock Road, London, N1 7GU
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