Guaranteed Rental Companies – any pitfalls?

Be very careful of Rent to Rent, the contracts used and the fact you are still ultimately held responsible legally.

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Firstly you won't get market rate for the area. Also, rent guarantee schemes rely on good availability of tenants. The schemes being backed up by rent guarantee insurance. The problem is that to achieve this, the agent may not be too fussy about what tenants reside at the property. There is a shortage of property for benefits tenants and so you may find the agent dips into this pool. This may have implications on you property insurance and if relevant, mortgage agreement. It is important to understand the terms and conditions offered. Some agent will maximise income by cramming in as many beds as possible. It could become a licensable HMO. If there is an Article 4 restriction or an HMO is not licensed, you will be the person paying the fines etc. They may modify your property to fit more beds in. Due to Covid 19, some rent guarantee insurers have stated that they will not cover rent arrears due to covid, resulting in the end of any perceived rent guarantee arrangement with the landlord - be very careful and get legal advice on any terms offered! It's a mine feild!!

Main pitfall I have seen is the the "Guarantee" is not a "Guarantee" its a promise to pay not backed by anything.

I've been approached lots of times about handing over some of my properties for "guaranteed rent" "no maintenance" etc etc I ask ONE question; "what is the guarantee backed by?"

Strangely I have yet to receive an answer!

I’d suggest if a year’s rent is paid in advance then the rent is guaranteed. If it’s not then it’s not guaranteed.

Reply to the comment left by John Mac at 26/06/2020 - 12:19
Good point John.
I receive a letter from someone wanting to manage my HMOs on average about twice a week. (They get the data from the council as they are all licensed) (Aha! So THAT is what we pay the licence fee for!1😁). I have explored one or two to see what they offer and as you say, no guarantee at all, and below market rent.
Have suggested personal guarantees by the (usually a husband and wife team) but very little enthusiasm for that of course!

Yes there have been some unscrupulous people who have taken properties on from other landlords, and have managed the properties poorly, and in some cases, simply just ran off with the rents. However, there are some really good companies and organisations who offer this "guaranteed rent" service.

Most councils offer this service, and there are many private companies and private landlords who offer this service. In fact, many estate and letting agents now offer this in the larger towns and cities all over the UK e.g. Northwood. Virtually all estate/letting agencies in London offer a guaranteed rent type service. Does this mean all estate/letting are doing something dodgy? Of course they aren't!

The guaranteed rent solution can be supported by an insurance based product, but more often it's simply a verbal guarantee by the company, person, or organisation offering the service. They have the intention of being able to guarantee the rent, by being able to use their skills and knowledge to find good tenants and collecting the rent on time. They have the intention of using their own funds to cover the rent to the landlords until such time they have built up sufficient received income from the tenants to pay the landlords, so they don't have to continue using their own funds to do so. Most who offer the service are honourable and their word can be trusted, but as in all walks of life there are some who fall short and their word counts for nothing. It all comes down to trust.

Regarding the comment about not getting market rent...of course you won't get market rent. How could any intelligent landlord expect another private company or private landlord/investor or even councils to take on all the multitude of tasks involved with finding suitable tenants, collecting rents, dealing with repairs, being unpaid social workers and dispute resolution officers for the tenants, and do this all for free? These companies, individuals and organisations have to spend their time, energy, and effort making sure the properties are looked after and the rent comes in on time. They have their own bills to pay, never mind trying to make a profit, so of course they are not going to be able to take on the full management of other people's properties just for the fun of it and receive no financial compensation in return. The only way they can do this is by offering a lower rent, but it can be a win win for both the landlord who for whatever reasons doesn't want to manage their own properties any longer, and the service provider as they can generate an income.

Not all who offer this service want to cram as many tenants as possible into a property, or will be happy to take anyone just to bring in rent. Why on earth would they? If they bring in bad tenants, it's they who will be missing out on the rent, as the landlord will still receive their rent. This is the guaranteed part, the landlord will still receive their rent irrespective of the property being fully tenanted or not, or indeed if the tenants are paying or not. Also, the operator will have the hassles and headaches of having to get rid of the non paying or disruptive tenants, not the landlord.

Regarding the comment about wanting a year's rent in advance, if someone is willing to pay such a large amount in advance, then the alarm bells should be ringing very loudly. I would only be happy getting a large sum of money in advance from either a council supported service, or a company who wanted to house employees who have relocated and the company can be checked out properly before any contract is agreed. I would not accept a year's rent in advance from any other source because of all the horror stories of money being taken in advance and it later transpires the property has been used by gangs for growing drugs or somewhere for prostitutes to operate.

I am a property investor and landlord. I don't personally provide this service, nor do I use this service from a guaranteed rent service provider (I use managing agents). However, I know many property landlords who do use such a service, and I know many landlords who actually offer this service to other landlords. It seems to work equally as well for both groups. If it didn't, why would so many landlords be happy to hand their properties to other companies, individuals and councils to manage the properties on their behalf?

Part of the problem is people who do not do, do not know. Many who don't operate this service don't do it because they don't know how to do it properly or compliantly. Therefore, if they don't personally do it, then it's wrong or illegal or there's some other excuse for why it shouldn't be done.

We all know property investing isn't straightforward and simple. However, I would urge people who don't fully understand how others operate their businesses, to not be so quick to judge them or the services they offer.

If you don't think a guaranteed rent service is for you then great, you can make your own decision not to get involved with it. However, for some it can be a great solution. Therefore, don't just judge all who offer this service equally.

For all those who might be interested in a guaranteed rent type service, make sure and do your own due diligence on the company or person before entering into a medium to long term business relationship with them. Get references and speak with other landlords who are using them, and then make your own mind up.

if anyone knows any reputable organisations/companies, individuals that deal with Birmingham City Council direct then please let me know.