November 19, 2022
Are Rent Guarantee Schemes Worth it?
If you have been thinking about securing your rental income as a private landlord, you may have been wondering are rent guarantee schemes worth it? The truth is that it depends on the type of scheme you enter into, and how much you actually want to be hands-on as a landlord. Join us as we take a closer look at the value of a guaranteed rent scheme.
Being paid on time by tenants is one of a landlord’s biggest headaches. Even the best referenced tenants may stumble upon difficult times and become unable to pay their rent temporarily. And then there are those costly void periods between tenancies when you’re looking for new tenants. With no income, it can be difficult to manage all the regular outgoings.
It is no wonder then that so many landlords are looking to guarantee their rent. But are rent guarantee schemes worth it, and how do they work?
How do rent guarantee schemes work?
Through a rent guarantee scheme, instead of renting your property directly to tenants, you let it out to a specialist letting agent, who effectively becomes your tenant.
For an agreed period, usually around three years plus, you are paid a set rental rate by monthly standing order. This is yours even when the tenants aren’t paying their rent, or there are no tenants in place. So no more voids, and no more late or missing rental payments.
The agent will usually take responsibility for sourcing tenants, so that’s another task off your to-do list.
The agent will either be working through local council housing departments and housing associations, letting to tenants in social housing, or privately.
Are rent guarantee schemes worth it?
If you are the type of residential landlord who wants to take a back seat role with your buy-to-let investment, a rent guarantee scheme could prove beneficial. This is because most schemes will include full property management, which means you won’t have to deal with tenants day-to-day, or organise repairs and maintenance.
Some schemes will go even further, covering the costs of everyday repairs and maintenance, as well as providing regular property inspections to keep a close eye on your property. You may even find a guaranteed rent scheme that will return your property in its pre-let condition, less fair wear and tear. Naturally, you will need to check the specific terms of the agreement being offered, but there are certainly schemes available that will allow you to go completely hands-off as a landlord.
So, if you are thinking, are rent guarantee schemes worth it, in terms of saving you time and reducing your workload and pressure, they definitely can be, yes.
If a guaranteed rent scheme doesn’t pay full market rent, is it really worth it?
It is true that rent guarantee schemes don’t generally pay full market rent, but they do pay a fair rental rate.
When considering are rent guarantee schemes worth it in this respect, you should think carefully about what is included in the service. If you were renting directly to tenants, you may achieve possibly 10% more rent. But you have to factor in your costs.
With a guaranteed rent scheme, depending on the nature of the agreement, you may not have to deal with tenants or spend valuable time organising repairs and maintenance. You may not have to pay for repairs and maintenance. You probably won’t have to pay to source tenants, or for regular property inspections, or refurbishment at the end of a tenancy.
If you add up what all of this could potentially cost you during the full term of the tenancy, it is likely that it would exceed that 10% more rent you would have achieved by renting directly to tenants.
And it’s not just about the bottom line when thinking about are rent guarantee schemes worth it. Managing tenants day to day can be very time consuming, and calls are rarely welcome in the middle of the night, or when you’re on holiday.
A guaranteed rent scheme may not pay full market rent but, for many landlords, it will actually end up saving both time and money in the long run.
What about rent guarantee insurance, is that worth the investment?
Rent guarantee insurance is not the same as a rent guarantee scheme. Rent guarantee insurance is a specialist type of insurance cover that a landlord can claim on when a tenant fails to pay their rent.
Usually the tenants will need to have been in arrears for a month before the payments kick in, and most policies will only pay for 12 months. There is also usually a claims limit, which may not match the missing monthly rental payment, and an excess will sometimes apply as well. Rent guarantee insurance doesn’t cover void periods either.
Loss of rent cover is another type of insurance still. This covers landlords when their properties have been damaged to the point where they are not habitable or safe for their tenants to remain in, for example following a flood or a fire.
Neither of these policies includes all the added extras that come with a rent guarantee scheme, however, such as maintenance and repairs, property management and regular property inspections.
Looking for an all-inclusive rent guarantee scheme?
Are rent guarantee schemes worth it? To make that decision, it’s important to consider the specific offering from your chosen rent guarantee scheme provider.
City Borough Housing offers a guaranteed rent scheme to landlords in London and parts of Kent and Surrey. Our property management guaranteed rent program comes with a unique promise of service and is fully supported by thorough professional property management.
Property management, everyday repairs and maintenance, quarterly property inspections and a promise that your property will be returned to you in its pre-let condition at the end of the agreement, allowing for fair wear and tear, are all part of the rent guarantee package, potentially saving you considerably in terms of both time and money.
To learn whether our guaranteed rent scheme is worth it to you as a landlord, you are welcome to get in touch with our helpful team. Why not request your free rental valuation today?