Guaranteed Rent: How it Works

According to the Office for National Statistics the number of private rented households has experienced a 63% increase from 2007 to 2017. That’s about 1.7 million households in just ten years. Whether you’re a landlord or a tenant, you’re part of a large ecosystem that keeps on evolving every day.

Letting a private property on your own can have its advantages. However, it also has its pitfalls. After all, managing a property can be stressful. That’s where Guaranteed Rent schemes come in.

But what exactly is a Guaranteed Rent scheme, and how does it work?

What is Guaranteed Rent?

Simply put: a landlord lets a third party manage the property. The landlord relinquishes control of the management of the property to an  agent. The agent will then handle the responsibility to sublet, maintain and search for tenants to occupy the property. In return, the agent pays a fixed monthly rental income to the landlord for an agreed-upon period.

It sounds too convenient to be true, doesn’t it? Well, let’s list some pros and cons to see whether entering a Guaranteed Rent scheme is worth it.

Pros:

1.  Stress-free property management

It can be overwhelming to manage a property on your own. However, with a guaranteed rent scheme in place, all that stress goes to the third party. Things such as utility costs, property maintenance and financial delinquency of tenants will now fall under the agent’s care.

As such, you will get the benefits without all of the headache. A guaranteed rent scheme can especially be beneficial during these uncertain times.

2.  Fixed rental income

One of the most important provisions of a guaranteed rent scheme is the promise of a timely fixed monthly payment to the landlord. Even if the tenants are unable to pay the agent, the landlord will still receive income according to the contract. If you think about it, it’s almost a passive income.

There are even instances where even if the property isn’t occupied, the agent still has to pay, as long as it’s within the established period of the contract.

3.  Legislative compliance

Part of managing a rented property is compliance with relevant legislations, such as health and safety standards, building codes and rented property guidelines. This responsibility normally falls on the landlord. However, with an agent in the middle, the owner is freed up of this task. It is now the middleman’s duty to maintain their knowledge of statutory guidelines and ensure that the property is compliant at all times.

You may think that with all these benefits, the guaranteed rent scheme is too good to be true. Naturally, this arrangement also has its own disadvantages. This includes the following:

Cons:

1.  Relinquishing control

By giving a third-party agent full control of the property, the landlord effectively loses the capability to make decisions related to its management. This means that within the duration of the contract, the landlord can be powerless. This becomes an issue when dealing with problems that may affect the property.

2.  Property mismanagement

Since the landlord does not have any control, they also lose the power to prevent property mismanagement. For example, if the management agent does not properly maintain the house, or sublets to undesirable renters, the market value of the property may suffer in the long run. Instead of gaining a profit, the landlord might lose money for things such as future renovations.


3.  Lesser income

You may be thinking, what does the agent gain by entering a guaranteed rent scheme? They make a profit by paying the landlord a lesser amount than normal. This is in exchange for taking out all the stress in managing the property. It’s then up to the owner to weigh the options when entering into the contract.

4.  Potential scams

Choosing the right letting agent or third-party entity to enter into a contract with is the most important part of this equation. As with any other convenience services, there are those who take advantage of the system. For instance, they may breach the contract and refuse to pay the landlord. Not all agents have the financial capability to pay for every property out there.

To sum it up

A Guaranteed Rent scheme is an attractive and practical choice for owners who don’t have the time or energy to manage their properties. However, it may also lead to disagreeable results. For landlords, it is best to conduct due diligence and ensure that you trust the agent before completing any contractual agreement. This includes research on the agency, such as credit and financial history, previously rendered services and even testimonies.

It is also wise to thoroughly review the contract to prevent any issues that may arise in the future. Ask yourself this: is this beneficial to you in the long run?

If you have any more questions or are interested in receiving a guaranteed rent on your property, please feel free to get in contact on 0191 486 2386. We can help remove the pain and uncertainty of renting your property.

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