Are rental guarantee schemes worthwhile?

Anyone who has had experience of evictions and tenants going into arrears will know how damaging this can be to finances. If you are prepared to wait and do not rely on the income from the property to pay the mortgage, then perhaps rent guarantee insurance is worthwhile for peace of mind. Rent guarantee insurance is a policy you can take out with a specialist property lender that can pay out if your tenant is more than one month in rent arrears. Rent guarantee insurance should not be confused with rent guarantee schemes.

Rent guarantee schemes allow landlords to hand over the management of their property to a company or estate agent in return for a pre-agreed payment. In these cases, the landlord will be paid even if the property is vacant or the tenant does not pay rent. Rent guarantee, rent guarantee schemes or rent guarantee insurance could have a big impact on the best way to rent your property. With lower demand for rental housing in the UK's major cities, and job losses and financial insecurity on the rise due to the pandemic, landlords are increasingly concerned about the possibility of prolonged evictions and rent arrears.

This is leading to increased interest in guaranteed rent schemes and their supposed advantages, with providers claiming that they offer a guaranteed regular rental income and remove landlords' risk of vacancies, arrears and evictions. In a guaranteed rental scheme, also known as a rent-to-own scheme, a landlord lets out his or her rental property to a company, institution, letting agent or individual for a specified period of time in return for a guaranteed monthly rent (regardless of whether the property is occupied or not or whether the tenants are in arrears). For an example of a local authority's guaranteed tenancy scheme, details of Lewisham's scheme can be found here. There are many letting agents (usually small chains or independents) and assured tenancy services available on the market offering commercial rent-to-own agreements.

Unlike council-run schemes, these are for-profit services that source tenants from the private rented sector through conventional property marketing channels. In a rent guarantee scheme, the landlord has no direct relationship with the occupier and the intermediate tenant is responsible for paying the rent, regardless of whether the property is vacant or the tenant occupying it is in arrears. The intermediate tenant is also responsible for recovering arrears and recovering vacant possession from their sub-tenant. The value proposition of guaranteed tenancy schemes can be particularly attractive to landlords with previous experience of arrears and evictions.

However, while an understandably attractive option for anyone who has had to deal with the stress of a nightmare tenancy, these schemes are by no means the 'risk-free' rental alternative that the providers claim them to be, as we will see below. If you do not confirm with the relevant suppliers that you have permission to use a guaranteed rental scheme to rent your property, it is very easy to run into a lot of problems in the future. Companies have limited liability, and many agents and services offering assured tenancy schemes are small businesses or individual investors with little financial backing. If the company is unable to let the property at a sufficiently high monthly rent, or the property remains unoccupied for long periods of time, there is a real risk that they will be unable to meet the guaranteed monthly rental payments.

It is not easy to give a definitive answer to this question, as there is little transparent pricing information on guaranteed rent schemes. Most private companies providing rent-to-own services claim that they do not charge any commission and that there will be no upfront payment. However, if you are looking to generate the best possible return on your home-buying investment, you will not achieve your goals with guaranteed rental. The business model on which this service is based only works when landlords are willing to sacrifice most of their potential profit margin.

To get the most out of your asset, you will need to rent your property directly to the tenants who occupy it, while finding alternative ways to reduce costs and mitigate risks. The resurgence of interest in assured tenancy schemes can probably be explained, at least in part, by a lack of trust in traditional agents. This is understandable, as the industry has a reputation for charging exorbitant fees and offering poor service. Instead of using a rental guarantee scheme, let us take care of your asset while you enjoy the full return on your investment.

Ultimately, rent guarantee insurance can be useful, but it is an expense that some landlords can avoid by carefully selecting tenants. Still, those who need that peace of mind may want to go ahead with it despite the cost. For landlords, non-payment of rent by tenants is a constant concern. All too often, landlords feel as if they have little or no recourse when a tenant lets them down.

However, with rent guarantee insurance, landlords have at least some protection against these events. In addition to rent guarantee insurance, landlords who want to protect their income can check if there is a rent guarantee scheme for landlords in their area. Rent guarantee schemes are slightly different from rent guarantee insurance, but have the same purpose, to protect landlords if they lose access to vital income. It should be noted that landlords often have to apply for rent guarantee insurance on a lease-by-lease basis, which can be cumbersome.

Although providers promise to spare landlords the problems of cancellations, delays and evictions, significant pitfalls remain for any landlord entering into a commercial rent-to-own agreement. Rent guarantee insurance is a type of insurance for landlords that will pay out if their tenants fall into arrears. With a rent guarantee scheme, the landlord will assign their property to a management company or letting agent, who will sublet the property and pay a guaranteed fixed monthly payment to the landlord. The money is made from the difference between the rent paid to the landlord and the rent received from the subtenant.

There are several guaranteed tenancy systems on the market, each with its own terms, conditions, requirements and restrictions, so it can seem confusing. A guaranteed tenancy is a contract in which the landlord transfers control and management of his or her property to a third party. Rent guarantee insurance can help landlords avoid getting into a difficult financial situation when tenants are unable to pay. In addition, to be eligible for such a policy, the tenant must have a stable job and earn enough to comfortably pay the rent for the property they wish to rent.

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