What is guaranteed rent?
The challenging nature of letting a property, and its inherent unpredictability can be a real source of stress for residential landlords. Government legislation over recent years hasn’t exactly helped matters: namely, increased stamp duty, the introduction of Section 24, and increased Bank of England interest rates. Government regulation has given a clear message, aiming to restrict buy-to-lets in the housing market.
With many landlords under pressure, the search for a solution to secure their rental income has never been more resolute. Guaranteed rent services provide landlords with a hands off approach to maintaining a reliable and fixed rental income. But, what does guaranteed rent actually mean?
How do guaranteed rent schemes work?
A guaranteed rent scheme is where a landlord, looking to reduce the risk attached to gaining a reliable rental income, rents their property to a third-party such as a guaranteed rent company, a council, or a letting agent. The third-party effectively becomes the landlord’s sole tenant, paying a fixed amount of rent over a contractual period, typically ranging between 1 and 5 years. This third-party will then rent the property to other occupiers, while achieving higher rent through updating the property and improving its condition.
What are the benefits of a guaranteed rent agreement for landlords?
A guaranteed rent scheme comes with wide-ranging advantages for residential landlords, particularly with regards to financial returns and relief of time-consuming property management. Let’s take a closer look at the key benefits.
Perhaps the most obvious benefit of guaranteed rent for landlords is that your rental income is guaranteed for the length of the contract, even if the property becomes empty or the tenants don’t pay their rent. You may have considered guaranteed rent insurance options; while the premium paid does cover you, if for any reason you lose out on rent, it isn’t the most secure way of guaranteeing your rent. During the coronavirus pandemic, for example, many insurers haven’t been paying out due to force majeure. Even outside of the current situation, it’s also possible that you won’t receive the sum that you had hoped for. Insurance companies typically avoid paying out unnecessary costs where possible. With a guaranteed rent company, you can rest assured that your rent will always be paid on time, for the duration of your contract.
Increase in rental income
You’ll also receive more rent than you typically would. In the South West, studies have shown that the typical tenancy length is just 9 months, due to changes in personal circumstances. Given that average void periods are 20 days, this represents a significant loss of rent each year, accounting for a 4.9% decrease in landlords’ income, on average. With a guaranteed rent scheme, you avoid the fiscal consequences of void periods, and therefore command higher aggregate rent.
Property upkeep, including repairs and servicing, is the largest of all running fees, typically representing 30% of landlords pre-tax running costs. Unlike guaranteed rent insurance, or using the service through a letting agency, guaranteed rent companies take care of any damage to the property, and cover the costs of all maintenance and improvements. So not only will your property be returned back to you in the same condition, you also won’t have to pay out on excessive maintenance fees.
So, how much does a guaranteed rent service cost? If you choose to commit to a guaranteed rent agreement with a letting agent, you could be subject to letting, management and renewal fees. Letting agent fees on average constitute an incredible 26% of landlords running costs, making this the second largest of all expenses. With a guaranteed rent company, you won’t pay a penny.
One point of contact
Even if your property is a House of Multiple Occupation (HMO), your guaranteed rent provider becomes your one and only tenant. It is then their responsibility to manage tenant queries and complaints, so the burden of multiple strands of communication is taken completely away from you.
Similarly, rather than dealing with multiple tenants in an HMO, and their multiple contracts, you have one sole tenant for a fixed duration of your choosing. You won’t have to worry about changes to the property’s occupancy composition, or month notice periods. This saves your time searching for new tenants, and simplifies your budget management, knowing that you can rely on an agreed rental value for 365 days of the year.
You’ll no longer be burdened with the painful administrative side of property management. It’s the third party’s responsibility to market the property, find tenants, and put together all of their contracts. You simply hand over all property and tenant management, whilst guaranteeing your rental returns.
So, what’s the catch? The service may sound too good to be true, and that might be the case if you choose the wrong provider. Before entering into any contractual agreement, you need to do your research. Unfortunately, there are some dishonorable companies within the industry that have been known to conduct scams. Ensure that they have robust compliance and referencing measures in place and are qualified within the industry, to ensure that they don’t exploit you, or prospective tenants.
It’s even worth weighing up credible sources, to ensure that you receive the highest return on investment. While securing guaranteed rent through a letting agent among other reputable sources may feel like the safest option, they will often only pay below market rent, as assurance that they can let the property out at market rate and still make a profit.
Guaranteed rent with Evolve Living
Evolve Living provides guaranteed rent in Bristol and the surrounding South West region. We understand that managing property can be a real challenge, and can take up more time than its returns deliver. We work with landlords, offering our experience and knowledge of the market, so that you can make the most of your property.
- Market rent. We pay market rent, so you can be sure that you aren’t losing out when using our services.
- Exceptional spaces. We make our profits from making the ordinary into the exceptional. We increase the desirability of properties so that tenants will pay more and stay longer, in turn securing your income.
- Unlocking potential. We invest money into your property, and take every opportunity to make your property stand out from the competition.
- The best in the industry. Through our extensive local market knowledge, we only have the best contacts in design and construction, so that your property will receive the highest quality service and materials.
- Compliance. You won’t have to worry about any legal expenses or potential risks. We manage all licensing and regulations related to your property.
- Referencing. We have a rigorous referencing system in place, so that our tenants are of the highest quality. This includes credit checks, employment checks, and previous landlord checks.
- Accredited. We’re certified within the industry, and work closely with regulatory bodies such as ICO, PRS, RICS, and the NLA.
If you’re wondering how you can get guaranteed rent for your property, get in touch to discuss your specific requirements.