Guaranteed Rent schemes are gaining considerable interest by landlords due to a range of benefits. There has been a noticeable increase in financial insecurity over the last few years following the pandemic, which has hugely affected the housing market.
The average rent across the UK has soared as a catalyst of mortgage rates increasing, resulting in a shortage of affordable properties. Meanwhile, tenant arrears have been on the rise and void periods are lengthy due to less people being able to afford to privately rent. A void refers to a period where a landlord does not have a tenant paying rent. Thanks to Guaranteed Rent schemes, this situation is entirely avoidable.
What is a Guaranteed Rent scheme and how does it work? In this article, we explain the difference between traditional letting agents and guaranteed rent, as well as details of this type of scheme and why it’s so popular with landlords.
What is a Guaranteed Rent scheme?
A Guaranteed Rent scheme is an arrangement where a landlord receives a fixed rental income for their property, regardless of whether or not tenants are living there. The landlord hands over their rental property to a letting agent or property management company for a specified period of time, who take over the responsibility of finding tenants and managing the property. In this scenario, the property management company essentially becomes the tenant who then sub-lets the property. This allows the landlord to maximise their investment and minimise their day-to-day problems with managing properties and tenants.
What is a Traditional Letting Agent?
Traditional letting agents help landlords find tenants and arrange the letting of their property. They may offer additional services for an extra fee, including advertising the property to potential tenants, arranging viewings of the property and referencing tenants to help landlords decide whether the tenants are a good fit for the property.
Guaranteed Income vs Variable Income
A major desirable benefit of Guaranteed Rent schemes is a consistent stream of income. The scheme allows landlords to receive a fixed monthly payment, regardless of tenant occupancy. This allows for better financial planning as well as peace of mind that there won’t be late or missed payments.
When it comes to letting agents, a landlord’s income relies on the property being occupied. Income can vary due to tenant turnover, arrears and voids. This can make financial planning more challenging for landlords.
Management and Maintenance
Some property management companies, including Elliot Leigh, offer a maintenance service as part of their Guaranteed Rent scheme. This can include a number of in-house specialist contractors such as gas safe engineers and electricians as well as multi trade operatives, painters and cleaners. This stands as a huge benefit to landlords as it’s an efficient service that minimises costs.
Other aspects handled by Elliot Leigh as part of our Guaranteed Rent scheme is full property management, including finding tenants, property maintenance and paperwork at no additional cost, which massively reduces hassle for landlords.
With letting agents, more hands-on involvement is required from the landlord and they still have full responsibility and liability, even if they hire a letting agent to handle their property management. Letting agents will also charge a management fee.
Fixed term vs flexible term contracts
Guaranteed Rent schemes include a fixed, long-term contract that provides stability for landlords as they offer a higher level of certainty about rental income for a specific period. This is important to landlords as it means they can maintain a steady income stream without the risk of vacant periods. However, as the landlord is bound by the terms of the contract, this can limit flexibility.
Letting agents contract terms can be shorter, allowing flexibility but also increasing risk of voids.
Risk
If you’re deciding between Guaranteed Rent and traditional letting agents, it’s important to know that Guaranteed Rent is lower risk for landlords as the scheme eliminates voids and tenant defaults. Property inspections are also conducted regularly to reduce risk of damage to the property.
Landlords bear the risk of tenant defaults, damages and void periods under a traditional letting agent and property inspections are not as regular or as common.
Interested in Guaranteed Rent? Here’s what you need to consider
Although there are many benefits to Guaranteed Rent schemes for landlords, there are also some aspects to consider. When a landlord joins a Guaranteed Rent scheme, they have less control over property management such as the tenant selection process, as the company manages all aspects.
Guaranteed Rent offers landlords a more secure income stream but often at the cost of a lower rental yield. Traditional letting agents provide flexibility in terms of services but expose landlords to the risks associated with tenancy.
Overall, Guaranteed Rent schemes are massively beneficial to landlords and this type of service has increased in popularity over the years. If you’re a landlord seeking financial security, get in touch today! Our specialised team of property management experts are here to help and talk you through your options.
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