How to Guarantee Rent from a Tenant?
HOW TO GUARANTEE RENT FROM YOUR TENANT?
Is there a way landlords can guarantee rent from tenants? If you have a property that needs to create guaranteed rental income, there are ways to ensure that your portfolio delivers. How? Stick around to find out more.
1. GUARANTEED RENT SCHEMES
A Guaranteed Rent Scheme (sometimes also known as Rent-to-Rent) entails a contractual agreement between a landlord and a company, an institution, a letting agent, or an individual. For a specified term, the landlord agrees to relinquish their control and management over their property (with conditions & clauses for opt-out) in exchange for a guaranteed monthly rental income.
Thus, that company / institution / letting agent or individual rents the property from you, the landlord, and then sub-lets it to tenants while managing the full process.
HOW DO THEY WORK?
Here are 5 high-level steps:
- Potential ‘main tenant’ evaluates the property at its current market value.
- Landlord and ‘main tenant’ negotiate the guaranteed monthly rent and term.
- Landlord temporarily relinquishes control over the property with a contractual agreement in return for consistent income.
- Pre-agreed monthly rent will come in advance, whether the property is tenanted or vacant.
- Landlord is hands-off in the lettings process and has their property returned to them in the same or improved condition at the end of the term.
We recommend entering such contractual agreements with well-researched or well credited such as guaranteed rent letting agents, estate agents, or guaranteed rent companies that have the financial backing in case things go sour. Do your research and use credible partners. If the companies are serious and have the expertise, they will be insured themselves for rent, which is another way to guarantee rent yourself.
2. rent guarantee insurance
A landlord can take rent guarantee insurance to cover their rental income if tenants cannot pay their rent. Even the most reliable tenants can experience financial difficulties which can result in arrears.
As well as covering rent for the term, a policy could also cover legal expenses and a pre-agreed cover for any disputes related to the recovery of rent arrears, repossession or eviction, and access to legal advice.
This entails insuring you receive rent even if your tenant cannot pay you. This is different from rental income protection which covers you in case you can’t rent out your property in the first place for reasons like damage or hazards.
PROs of Rent Guarantee Insurance:
- Peace of mind and cover in case the tenants fail to pay.
- Landlords retain control of their property and choice of tenants.
- The premiums are often affordable, between 6-12% of monthly rent.
CONs of Rent Guarantee Insurance:
- No cover for void periods and no income stream.
- Lengthy claim processing times.
- Stringent restrictions and conditions to minimize risk on the insurance provider’s part. Like any insurance policy, there will be excess and exclusions.
A guarantor is an institution or an individual with enough financial backing to vouch for tenants and pay their rent and damages if they are unable to. The guarantor is also required to sign the tenancy agreement, so the landlord has direct contractual ties and can legally seek funds for any tenancy breach.
This system is widely utilized by the landlord base in the UK when there are no successful criteria or possible certification that a tenant is dependable such as for students and renters with poor credit history. It’s often the case that guarantors need to be homeowners as it’s a sign of financial stability and it provides an asset to seek financial compensation against.
The advantages entail a guaranteed source of compensation for the entire tenancy term, but it can be very impactful with 1 in 5 cases in Southeast England where tenants can prove that funds but cannot secure a home without a guarantor. Not only that the method isn’t great as it often encourages discrimination, and it reduced the pool of available and viable tenants.
Moreover, not all guarantors are made equal and as with everything there is risk associated with this method. There is an increased effort in chasing the debt down and if the guarantor’s circumstances have changed it can be a long legal battle.
Hopefully, this helped bring some light into ways you can reduce risk in receiving that monthly rental income. And if you think a Guaranteed Rent Scheme works for you, or you’d like to find out more we offer guaranteed rent in London: Guaranteed Rent Scheme Estate Agents in London – Wentworth
guaranteed rent e-book
Guaranteed rent, guaranteed Insurance, rental income protection… which one is which?
No wonder you are confused about what brings the most value to you and protects your property portfolio.
Learn what to pay attention to by spotting false promises and deciding what’s right for you, straight from the experts.
See what’s inside the guidebook:
- What Is Guaranteed Rent
- What are the benefits?
- What are the disadvantages?
- What should you consider?
- Is Guaranteed Rent right for HMOs?
- Is Guaranteed Rent right for you?