How does a Rent Guarantee Scheme Work?

Looking for ways to guarantee your landlord rental income? Read on as we answer the question, ‘how does a rent guarantee scheme work?’, exploring what you can expect from a rent guarantee scheme, how they work in practice, and the differences between a rent guarantee scheme and rent guarantee insurance.

For private landlords, one of the most challenging aspects of life has to be making sure rental payments are made on time. When there’s a tough economic climate, tenant rent arrears become more commonplace, leaving landlords in the precarious position of being unable to pay bills and make mortgage repayments, and generally cover their own costs of living.

If this is something that’s been troubling you as a landlord, and you are looking at ways to make sure you get paid on time every month, you may be wondering, how does a rent guarantee scheme work?

Rent guarantee schemes explained

Through a rent guarantee scheme, instead of renting your property directly to tenants, you let to a rent guarantee letting agent, who effectively becomes your tenant.

You enter into an agreement with the agent for a set period, often somewhere between three and seven years. During that time, the agent will pay you an agreed monthly rent. You’ll be paid on the same day every month by standing order, even when the property is between tenants. So costly void periods no longer pose a problem.

Rent guarantee agents work with local authority housing departments and registered housing providers, letting the properties they take on from private landlords to the local tenants they have on their books.

Most rent guarantee schemes will involve the agent taking over the day to day management of the property. This suits landlords who are looking to take a hands-off role with their investments, ideal for those who are located abroad, or who have other interests they wish to focus on.

What is included in a rent guarantee scheme?

With a rent guarantee scheme, the landlord receives a fair rent every month. Whilst this may not necessarily match what they could achieve if they were to let directly to tenants, it’s important to take into account what’s included. From day to day property management and tenant sourcing, to regular property inspections and rent paid during void periods, there is a lot that could otherwise be draining a landlord’s bottom line.

Some rent guarantee agents will also include the management and costs of repairs and maintenance, and will assure that your property is returned to you its pre-let condition at the end of the agreement, allowing for fair wear and tear.

Are there criteria to meet for renting property through a rent guarantee scheme?

Something that landlords often query when asking, how does a rent guarantee scheme work, is whether their property will qualify for the scheme.

Requirements for properties in terms of type will vary from one rent guarantee agent to the next depending on demand in the local area. In general, however, providing the property meets safety and compliance standards, it will usually be accepted for the scheme.

Landlords will need to provide evidence that safety standards are adhered to, so will have to provide the likes of an Energy Performance Certificate (EPC), a Landlord Gas Safety Record (LGSR), and an Electrical Installation Condition Report (EICR). There may be other documents required too, depending on individual circumstances and local authority requirements.

Is a rent guarantee scheme the same as rent guarantee insurance?

Rent guarantee insurance is a type of landlord insurance provided by specialist insurers. It kicks in when a tenant fails to pay their rent. Some landlord insurance policies will include this cover, but usually at an additional premium.

Loss of rent cover is a different type of insurance. It covers landlords when they can’t let their properties because of damage covered on a buildings insurance policy, for example fire or flood.

Neither of these policies are the same as landlord guaranteed rent schemes, however.

To claim on a rent guarantee insurance policy, it’s normally necessary to have to wait until the tenants are behind on payments by a month, and then you will normally only be covered for up to 12 months. In a lot of cases, there will be a claims limit, which may not fully cover the rent you would usually be charging. There may also be an excess to pay, and other limitations and conditions that need to be met.

A rent guarantee scheme, on the other hand, assures the landlord that rent will be paid every month by standing order, for the entirety of the agreement. This includes times when the property may be between tenancies, when the landlord would otherwise not be drawing an income.

Looking to guarantee your rent in London?

City Borough Housing offers a rent guarantee scheme to landlords in London and parts of Kent and Surrey. The scheme is backed by an exclusive service promise and fully inclusive professional property management, so that as well as reassurance that your rent will be paid every month, you’ll also know that your property is in the safest hands.

Property management, day to day repairs and maintenance, regular property inspections and a guarantee 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 included.

If you’d like to learn more about how our rent guarantee scheme could take the pressure off you as a landlord, you are welcome to get in touch with our helpful team. Why not request your free rental valuation today?