The 3 Types of Guaranteed Rent
Updated: Jan 26
Landlords who don’t want to face the daily responsibility of managing the property and the tenants will often hire a letting agent, to save them the hassle. Guaranteed rent also benefits letting agents, they get to make financial gain from managing and renting out the property, without ever needing to own a property themselves.
The basic principle of guaranteed rent is fairly simple, the landlord and letting agent enter into an agreement which effectively makes the letting agent the landlord’s tenant. However, there are different products, policies and schemes which can be backed by letting agencies, councils and insurance. Read on to learn more.
Council Guaranteed Rent
This is the most common guaranteed rent scheme, and it is also the one that has been around for the longest. The affordable housing crisis has been going on for a number of years in Britain, this crisis has meant many councils have had to start working within the private sector, renting homes from landlords to help house the councils local community.
Having the council as your tenant is reliable and often comes with minimal risk. But, as with any scheme, there are pros and cons.
The pros are guaranteed income, relatively hassle free experience (depending on the council), and perks such as exemption from council fees and free accreditation as well as reliable income in times of low economic growth.
The cons of council guaranteed rent is that it offers lower income in comparison to other schemes, and that it can be a relatively long process to organise.
Guaranteed Rent Insurance
Like most insurance, guaranteed rent insurance is more about peace of mind then it is about guaranteed income. A guaranteed rent policy covers landlords for the duration of the tenancy, at a cost of roughly 10% of the monthly rent. You take this policy out to cover yourself if the tenant is in arrears, but there will be small print about how much cover you’ll get, and how long you’ll have to deal with.
The biggest question is if you can afford to pay for guaranteed rent insurance, without knowing if you’ll ever need to cash in on the policy.
Guaranteed rent is usually affordable, and it gives you more control over the tenants and maintenance. However, you won’t receive coverage during vacancies, there are also strict guidelines to protect underwriters, and claims can take a long time to process which can be a financial burden when tenants are in arrears.
Guaranteed Rent Schemes
Guaranteed rent schemes enable a landlord to reduce risk and responsibility. The landlord lets the property to the letting agent who takes on the burden of finding and managing tenants. Most schemes last from 3 to 10 years.
The benefits of a guaranteed rent scheme is that, as the name suggests, the rent is guaranteed, even if the property is vacant. It is generally hassle free, as long as the letting agent and the landlord are on the same page, and it offers peace of mind that the rent will be paid every month, with very little effort involved from the landlord.
The cons are that the contract periods are generally quite long, so it is not a flexible option. Also, the landlord gets very little say as to who lives there, how the property is managed and how the contracts are arranged.