Guaranteed Rent – A Warning for Landlords

by Mark Alexander - Founder of Property118

15:48 PM, 13th March 2013, About 12 years ago 25

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A growing number of Landlords are falling for a “Guaranteed Rent” scam which enables a landlord or an agent to sublet a property.

There are several examples of how this works, below is a relatively “clean” one, I will share a much nastier example of how landlords are being stung as comments begin to appear in the forum thread below this article:-

1) Landlords see or hear an advert offering guaranteed rent whether the property is let or not and whether or not a tenant pays on the due date. Seems like a compelling offer doesn’t it?

2) The person selling the contract explains that they will need a period of time (we have seen examples of up to two months) to let the property and as soon as the first tenant moves in the landlord will be paid his rent on the same day of the month for at least 12 months whether the tenant pays or not and even if they move out.

3) The landlord is asked to sign an agreement allowing the property to be sublet.

4) The rent offered to the landlord is below the normal market rental value, which under the circumstances might appear to be reasonable. After all, everybody needs to make a profit somewhere don’t they?

5) What the landlord does not usually realise is that their property could be rented to asylum seekers, large families claiming benefits or even sharers. At the end of the contract landlords exposed to this scam are responsible for putting right any damage, NOT the person of business who took on the “head lease”. We have seen examples of where the cost of the damage has been more than they have received in rent! How easy is it for the landlord to recover the costs of damages do you think? If the “head lease” is signed by a company that’s now in liquidation there’s also very little point. Furthermore, subletting to such groups of people may well be in breach of buy to let mortgage conditions and could result in mortgage companies insisting that loans are repaid.

6) In the case of landlords offering this scheme there is of course zero protection, particularly if they are operating as a limited company. If they get into difficulty they simply stop paying the landlord who is then left to pick up the pieces. There is no point liquidating the company as it will never have any assets. Franchises and training courses for this business model are being sold by “wealth creation guru’s” in the hundreds if their sales pitches are to be believed. The franchisor or company delivering the training rarely carries any responsibility for the actions of it’s franchisees/trainees who sign landlords up on Guaranteed Rent. The only real risk to the franchisors/trainers in the event of a franchisee failing is that of a tarnished reputation.

Many Guaranteed Rent schemes are fraught with risks to landlords, hence our words of caution if you are looking into them. These schemes are often touted as “Let to Let” too so if somebody tells you that you can buy a course on how to become a property millionaire with none of your own money, chances are this might well be the business model they are pitching at you.

An Alternative to Guaranteed Rent Schemes

Please note that Guaranteed Rent should not be mixed up by Rent Guarantee Insurance offered by legitimate insurance companies. These policies are provided to landlords whose tenants pass rigorous referencing and financial underwriting. These policies pay rent if tenants fall into arrears and continue to pay rent to landlords until the tenant is eventually evicted, the legal costs of which are funded by insurance companies. We are not aware of insurance companies that will underwrite lost rental income on properties which are not under occupancy by tenants. If you know of such an insurer please let us know.

This article is not a name and shame and was not written to undermine any particular business. By all means comment but please do not use this forum to “name and shame”, otherwise I will have no choice but to moderate comments or ban repeat offenders.

If you are looking for an agent to help you find tenants, reference them and arrange rent guarantee insurance though a reputable insurance company, below is a contact form to allow me to introduce you to the firm I use. They charge me a one off fee of £97 plus VAT for this service which also includes advertising my properties on all the major property portals including Rightmove, Zoopla, Prime Location and Gumtree.

How to save money and stay protected

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Tags: Buy to let, buy to let mortgage, discussion, Forum, guru, Landlords, mortgage, Prime Location, Property, Rent Guarantee Insurance, RGI, Rightmove, zoopla

Comments

17:37 PM, 13th March 2013, About 12 years ago

Hello Mark,
What you've explained about Guaranteed Rent schemes being offered by estate agents is quite true and the number of operators are growing.

We do not do that. But, if we eventually go into that, things like the type of sub-tenant and inspection would be issues that should be agreed with the landlord prior, as there is no point in thinking you are going to save money if that money or more will be used to repair damages or dilapidation later on.

Also, I want to point out that as online agents, I think it would be fair to give your readers the chance to try out our services -which could be cheaper for them than your agent.. At the moment we are offering FREE letting service. The properties will be listed on the same sites you mentioned except RM.

We want more choice!

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Mark Alexander - Founder of Property118

17:53 PM, 13th March 2013, About 12 years ago

Hi Steve

As a matter of interest, how much do you charge for tenant referencing and RGI?

Also, I appreciate that Rightmove are expensive but if you don't use them the landlords who advertise with you are missing out on a huge section of the market for potential tenants and may experience rental voids as a result. I'm sure more landlords would be interested in your free service if it include listing on Rightmove, without it, it's a big risk for landlords to take, even though your service is free.

Others may think differently of course, that's just how I look at it as a landlord.

Best of luck with your business.

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4:16 AM, 14th March 2013, About 12 years ago

Surely ANY LL can achieve the same as these GRC.
I am quite capable of offering my properties at below market rent.
Why would I pay a company to do that!!!!??
With me doing it at least I control who becomes a tenant.
I reckon I am more than capable of sourcing a tenant at BMR....................................ANY fool can do that!!
This sounds like another scam to fleece dopey LL!

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12:45 PM, 14th March 2013, About 12 years ago

We agree with Paul, any landlord can achive the same outcome. Essentially this scheme appeals to landlords laziness. It should not surprise us that being lazy also has a hidden cost, such as being completely ripped of!

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Antony Richards

16:34 PM, 14th March 2013, About 12 years ago

quite right Paul. Trouble is there are plenty of people wanting something for nothing.

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17:49 PM, 14th March 2013, About 12 years ago

Hello Mark,
Referencing fee is charged to tenant, and follows the rental price.

RGI is charged to the Landlord, and also varies depending on the rent and length of tenancy. For example, for a six months' tenancy at a rent up to £1000, it is £56 and for a twelve-month contract at the same rent, it is £87.

Concerning the Rightmove issue, we get more tenants from the combination of the portals we use. Combined, we reckon the advert reach is greater than Rightmove's. From experience, this enables us to expose our properties to more prospective tenants at less the cost when we are with RM. This translates into better value for our landlords, as the properties will be rented quicker and they could further save more money if they choose our FREE rental package.

Like they say, it's all in the results!

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Mark Alexander - Founder of Property118

19:08 PM, 14th March 2013, About 12 years ago

Hi Steve

I spoke to a Letting Agent only yesterday who told me that he receives around 50% of his new tenant enquiries from Zoopla / Digital Propertry Group these days and that he's very impressed with that. My point was that I can't see why landlords would settle for 50% exposure to the market when they can have 100% exposure. I do appreciate that if you are not charging enough costs need to be cut somewhere but as a landlord, I would personally pay a bit more as the risk of a 1 week void far outweighs the bit extra I would have to pay to gain full exposure on ALL major portals.

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Annette Stone

20:08 PM, 14th March 2013, About 12 years ago

Paul is absolutely right. There is nothing new in this and it is really just a bit of a twist on what developers were doing a few years ago which was offering you a guaranteed rental return for two years if you bought into their development. Some people found their flats had very heavy usage and repair bills after the two years, others found the furniture had not even been unwrapped. I always let my flats at a little BMV to hopefully do away with voids but I would never get involved with something like this as it is unlikely to benefit a landlord

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13:33 PM, 15th March 2013, About 12 years ago

Most of the above is true of R2R - it 'could' happen.

It 'could' and in fact does happen daily to a multitude of businesses - there has been and always will be unscrupulousness people who will take advantage.

On the flip side of the coin there are good, honest, ethical people who are running R2R as a legitimate business helping struggling LL's.

7 of the properties we operate were owned by LL's who were REALLY struggling to keep their heads above water, and were very grateful for our intervention. With all the new student blocks being built on campus, their jaded properties were left sitting empty.

We encourage a good working relationship with the LL's and assist them with upgrades of their properties. We usually help furnish the properties. With such an investment of time and money why would we walk away or try to 'scam' the LL? Re insurances we inform the LL's insurer of the names of all tenants to validity his insurance. We also have the other usual insurances in place.

This strategy enabled us to increase our cashflow by £5k net pcm over a 5 month period. It was hard work setting it up. Now we have systematised everything - and do indeed run courses helping others to get going. But a "course on how to become a property millionaire with none of your own money" we are not. You need a little money (or JV partner) to get started and it will entail w-o-r-k.

The reason R2R has become so popular is because there is a growing need for it. We depend on our LL's as they depend on us. We look after our professional tenants and they look after us! Everyone wins.

Not everyone is out to rip everyone else off :-/

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13:43 PM, 15th March 2013, About 12 years ago

Who wants this service?
1. A guy who joined the Army and needed someone to take care of his student HMO for 6 years - happy to take a reduced rent.
2.House in Bristol - owner in London - squatters in house and nonchalant agents = needed help. house now running smoothly.
3. Older gentleman with big Victorian house and had 'lost control' - was struggling and needed some help - very happy for reduced rent = he can sleep again
4. Very switched on guy wants to retire but keep an interest in his 3 properties = reduced rent and we take control.

There are lots of scenarios why a LL would want to pass the reins to another person. I see us as offering a much need service to the industry.

Find out more here; http://www.multiletcashflowsystem.com/events/

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Guaranteed Rent – A Warning for Landlords

An Alternative to Guaranteed Rent Schemes