It’s not quite as simple as it sounds—but having said that, it does precisely what it suggests.
A landlord, or property owner, is guaranteed a contracted amount of rent, every month, whether the property is occupied or not. A contract can last for a minimum of 6–12 months up to 5 and 10 years.
Simple really, isn’t it?
So, how does guaranteed rent work?
Letting a property comes with a whole host of responsibilities and operations.
If an owner holds a portfolio with more than a couple of properties, looking after them, and their tenants, can soon turn into a full-time job.
If you enter into a guaranteed rent scheme or a rent-to-rent scheme, as it’s also known, everything associated with being the landlord becomes someone else’s responsibility. Your only job is to bank the payments. What’s not to like?
Consider the various responsibilities:
- Finding tenants / advertising / marketing
- Property maintenance and upkeep
- Rent collection
For a guaranteed monthly payment, you can stop worrying about all of the above. Think of the resulting free time you could generate from such a set-up.
Where’s the catch with guaranteed rent?
The only real catch is that you’ll probably earn a little less than the market value of the property.
The company or agency taking over the landlord duties will use the difference between what they charge their tenant and what they pay you to make a profit.
How much do agents charge for guaranteed rent?
When you consider that the difference has to cover any insurance, maintenance, advertising and upkeep, for as little as 10–20% it’s quite a task to undertake.
For a property with an annual rent of £60k, your income could still be as much as £54k. Without having to lift a finger. Without having to pay insurance premiums, advertising premiums or even covering the cost of redecorating. And almost without risk.
An empty property has no income—it’s a landlord’s biggest burden
If you’re in cahoots with a great letting agent, then perhaps guaranteed rent isn’t right for you—but if you haven’t? Here’s what you’re guaranteed:
- No more sleepless nights delivered by an empty property
- No more shortfalls in income
You’re going to get paid whether there’s a tenant or not.
Another way of dodging a shortfall in rent is by taking out rent guarantee insurance.
A rose by any other name…
We’re often asked, “What is rent guarantee” and “How does a rent guarantee scheme work?”
There are myriad variations for what we call guaranteed rent—but they all add up to being the same thing. Rent-to-rent schemes, guaranteed rent, guaranteed rental systems or guaranteed rent services; the one term, however, that isn’t covered by that far-reaching umbrella is rent guarantee insurance.
So, what is rent guarantee insurance?
You don’t want to get the 2 things confused. Guaranteed rent and rent guarantee insurance are entirely different things.
You could be forgiven for thinking it’s a policy that covers an agent entering into a guaranteed rent arrangement. It’s not.
Rent guarantee insurance, or rent protection insurance, is a policy that covers a landlord for unpaid rent. This isn’t for periods when a property falls empty, but to tenants falling into rent arrears. These are the unexpected periods that they are unable to pay their rent.
How much does rent guarantee insurance cost?
We can’t state point-blank what the market charges, nor would we dare to suggest a one-size-fits-all figure.
So, how much is rent guarantee insurance?
To offer a ballpark, typical insurance policy cost, they can often be as little as £100–200 per year, with a maximum claim amount of around £25k.
This type of policy can be a veritable lifesaver if your tenants suddenly fail to meet their rent payments.
It could only take a few months without payment to create a real hole in your budget. Those shortfalls extend faster than you think when you also have the associated complication of removing a problem tenant from your property.
How does rent guarantee insurance work?
The general rule of rent guarantee insurance is when a tenant falls behind in their rent payments by over a month you can make a claim.
Your insurance will then cover the missing payments. Generally, they keep paying out for a fixed term, around 6–12 months.
Risk reduction on risky renters
It’s an excellent facility for landlords relying on the rental income to pay a mortgage.
It reduces the risk of taking on new tenants and opens the market to tenants with slightly less stable incomes, for example, those who are unemployed or in temporary contract work.
Wouldn’t you prefer to live without all the hassle?
Finding the right tenants
Among the long list of duties to keep a property rental in prime condition and permanently occupied, a landlord needs to find suitable tenants.
Tenants for holiday let properties
If your property is a holiday let, it means finding enough visitors to fill your calendar—52 weeks of the year.
You need to find guests who are looking for a property just like yours and in your area, so filling every week of the year could be quite a challenge.
There are websites and agencies you can use to advertise your property, but they all take their cut of the profit. Factor in the value of your time and those profits will look much smaller than you might have anticipated.
Tenants for long-term leasing
If your let is for a home or long-term property lease, life will often get in the way of smooth-run business. People change jobs, move towns, get married, get divorced, have families, have even bigger families. All of these events can mean that moving house is inevitable.
Once again, finding new tenants becomes a priority.
You could be expected to find new tenants every 6 months or less. It all takes effort and valuable time.
Marketing and advertising
A trustworthy rent-to-rent management service will save you time and stress.
If their ability to find tenants is their strength, and it isn’t yours, they could even save you money.
It’s the agent’s responsibility to make sure your property is presented to the highest standard at all times. They’ll even arrange to have professionally taken photography to ensure they promote the property at its best. All of their endeavours are aimed at impressing the correct class of tenant.
Bills, bills, bills…
You can say goodbye to unexpected bills and financial surprises. Your agent, or the acting landlord for your property, will be responsible for all additional work.
Any agent worth their salt will cultivate strong interiorss=”Highlight” style=”padding: 1px; box-shadow: rgb(229, 229, 229) 1px 1px; border-radius: 3px; -webkit-print-color-adjust: exact; background-color: rgb(255, 255, 102); color: rgb(0, 0, 0); font-style: inherit;”> design to achieve the highest possible rates. They’ll also take care of any repairs and rejuvenation to boost those potential profits.
The payoff to the property owner, as you can see, can be extensive when taken care of in the correct manner.
It’s certainly a program that many property owners should seriously consider during the current climate.