Many homeowners want to rent their property to have a regular income source without the hassle of finding tenants and maintaining the property.
This isn’t possible with the traditional rental method, but a guaranteed rent scheme makes that possible.
Guaranteed rent is a rental property business where landlords rent their property to any institution or letting agents for a specific period in return for a contracted amount of rent paid monthly, even if the property is unoccupied.
For example, you own a two-bedroom apartment in Birmingham. You want to rent that property for a fixed regular income.
In traditional renting, your property may have void periods when no tenant exists. But, when you enter into a guaranteed rent agreement with a letting agent, they pay you a fixed rent every month during the agreement period and take over tenant sourcing and property maintenance responsibilities.
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Guaranteed rent London works differently for landlords and property investors. Landlords are the original homeowners and property investors are the renter with permission to sublet the property.
Landlords sign a Guaranteed rent agreement with renters, usually institutions, letting agents, or property investors. The contract sets terms like monthly payment amounts, contract duration, and responsibilities of both the renter and the landlord.
Landlords rent out the property for a specific period during which the renter pays them monthly rent, no matter whether tenants occupy the property or remain void.
The property investor or the renter taking a lease of the property becomes the temporary landlord of that property. They have permission to sublet the property to tenants and earn rental income.
These renters are responsible for sourcing and managing tenants, marketing, taking care of the property, handling daily management tasks, and paying a fixed rent to the original landlord monthly throughout the agreement period.
Both the parties signing a guaranteed rent scheme benefit from it.
The best part of the guaranteed rent scheme is you get a fixed monthly rent whether your property has tenants. You sign an agreement with the third party who promises to pay rent during the contract period.
The mid-renter takes over the duty of property management from tenant sourcing, repairs and maintenance, and performing day-to-day activities to ensuring legal compliance. All the inconveniences happening within the property will be handled by the renter. Plus, you don’t need to pay utility bills, and maintenance and repair costs.
You don’t need to worry about sourcing tenants for your property. The third-party agency advertises your property to get a regular flow of tenants instead of keeping empty property and hurting their cash flow.
Managing a rental property requires landlords to abide by different legal duties, which can be tiring, especially for new landlords. For example, you need gas safety certificates, Energy Performance Certificates, etc. By signing such agreements, you hand over most of your legal responsibilities to the renter.
You can hire a trustworthy company for Guaranteed rent property management in the UK and do everything on your behalf. They know all the laws and regulations you need while renting properties in the country.
Landlords often suffer from rent arrears where tenants don’t pay rent for months. You don’t have to face such difficulties, and the third party will pay you rent whether their tenants are paying rent timely or the property is left void.
Though landlords protect themselves from rent guarantee insurance, it requires money, and you don’t need to spend anything on them with a guaranteed rent scheme.
You don’t need a lump sum to purchase a property for rental income; instead, rent out someone else’s property in return for a fixed monthly amount.
When the market conditions are favorable, and the rental demand is high, you can earn higher rents. But you pay a fixed rent to the landlord, so your profit margin may rise.
These agreements are usually for the short term, so if you don’t want to continue the business, you can quit once the contract term is over. You can change locations and landlords and sign a separate contract to make more profits.
You can rent properties at different locations and expand your portfolio so that when the returns from one property aren’t fruitful, the other can fill up the losses.
Though the guaranteed rent scheme relieves landlords from legal responsibilities it isn’t always so straightforward. For example, if the property becomes an unlicensed HMO, is overcrowded with tenants, or isn’t fired or gas safe, the local authority can charge a fine to the landlord.
Once you hand over your property to a third-party agency or a letting agent, you lose control over your property management and operations for the contract period. It means you have little say on whatever is going on within your property, including repairs and renovations.
The renter is responsible for choosing the sub-tenants for your property, and you have no say in their decisions. Also, that third party is responsible for covering the repairs and renovations caused by tenants. If they don’t properly check the tenants, you can suffer from longer-term property damage like water leaks or wall cracks leading to dry rot or subsidence.
As your monthly rent is fixed at the time of signing the contract, you set a price that is suitable at that time. Later, the rental demands and rents may rise, but your rental income is fixed. Therefore with a guaranteed rent scheme, landlords make lower rental income than you could do with traditional rent-to-rent models.
Though the Guaranteed rent scheme sounds good for landlords, it might not be for your property. Factors like the property’s location and size might make it difficult for the letting agent to get quality tenants. It potentially leads to renting out property to an undesirable sub-tenant who can damage the property.
Also, if the letting agent isn’t doing the maintenance tasks, repairs, and renovations properly, your property can be damaged.
Once you sign the agreement, the landlord is no longer responsible for sourcing tenants. So, your biggest risk is longer void periods when you don’t find tenants. Over that, you must keep paying rent, utility bills, maintenance charges, etc.
Chances are high that your tenants may not be paying rent for months, and you need to keep chasing them for payments. On the other hand, you must pay rent to the landlords as per the contract. It leads to cash flow issues.
You have permission for property repairs and maintenance but cannot design it according to your choice. You need to ask the landlord for permission for certain replacements and renovations.
As you sign the agreement, some legal responsibilities are transferred to you. Property managers must comply with all local laws and regulations, including health and safety certifications.
The guaranteed rental scheme agreement is usually one to five years long. However, the exact length of the agreement depends on the terms negotiated between the landlord and the third-party property management company or letting agent. These terms are negotiable depending on the landlord’s and renter’s preferences and concerns. During this period, the renter will pay a fixed monthly rent to the landlord.
Guaranteed rent scheme agreement offers the exact monthly rent to be paid to the landlord for a set duration and agreed terms of the lease contract.
The agreement also comprises the name of the parties involved and guarantors, details of the property (full address and brief description of the property), deposit amount as security, conditions under which the deposit will be returned, permissions on how to use the property, maintenance responsibilities, payment of utilities and council tax, conditions to terminate the agreement, and signature of all the parties including witnesses.
It is necessary when you are willing to put your property for rent through a third-party agent or an institution. By entering into such an agreement, you are handing over control of your property and the entire rental process to someone else in exchange for a guaranteed monthly income for the contract period.
Though the Guaranteed rent scheme and rent guarantee insurance sound confusing, they work differently.
A guaranteed rent scheme is an agreement between landlords and renters with permission to sublet the property further and pay fixed, regular rents to the landlord.
Rent guarantee insurance is a financial protection policy that covers landlords for unpaid rent.
Rent guarantee insurance isn’t applicable when your property remains empty, but the insurance company only pays when tenants fall into rent arrears. But, for a guaranteed rent scheme you get a fixed monthly income whether your property remains empty or tenants are not paying rents.
Pluxa Property offers guaranteed rent services in the UK, which has helped hundreds of busy landlords successfully transition into profitable landlords and property investors find the best properties and generate better ROI. As a trusted rent-guaranteed company, we provide landlords with regular rents, taking over the responsibility of sourcing quality tenants, spending on advertisement, conducting regular property checks and maintenance, evicting non-paying tenants, and fulfilling legal responsibilities.
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