What is a guaranteed rent fee?
The new definition of a rental guarantee is a product offered by an insurance company to a landlord to protect him or her, for a fee, from a tenant not paying the rent. The rental guarantee product is simply an insurance policy. The cost of a rent guarantee insurance policy or scheme can range from £49 to £69 per month. Compared to the potential loss of income, this is a small price to pay to secure your future peace of mind.
Nevertheless, it is an additional monthly expense. The good thing is that you can claim this cost as a deductible expense. While this may only have a small impact on your net rental income, it is still a positive. Such a transaction is similar to the leaseback arrangements more commonly used by property developers.
Through a wholesale agreement, a property owner can receive a guaranteed sum during the term of the contract. This takes away the risk of renting out the property himself, often at a financial discount. Depending on how the contract is structured, the property owner can also pass on more or less of the owner’s costs, maintenance, repairs and other obligations to the purchaser during the contract period. A possible disadvantage is that by selling the tenancy to a third party, the homeowner loses some control over how the property is managed during the contract period, although this can also be negotiated and agreed in the contract.
Through a wholesale contract, a property manager can acquire new stock to manage on a retail basis, increasing their income. If purchased at the right price, such contracts can also increase profit margins. By purchasing the weeks during the contract period, the manager has more control over how the property is managed. One potential disadvantage is the increased risk of a guarantee – if the property does not rent as well as predicted in the retail market, the manager is still obliged to pay the property owner the agreed sum.
Wholesale rents can be negotiated directly between property owners and property managers. Such contracts can be good if the parties trust each other and the figures are easy to agree on. Property owners and property managers can also agree on wholesale rent markets. In such marketplaces, property managers compete with each other and bid up the price offered and ultimately paid to owners.
By creating a fair market price for property rental weeks, such marketplaces often make it quick and easy for property owners and managers to reach agreement and sign wholesale rental agreements. Payouts under a rental guarantee insurance policy can cover your expenses for more than 40 weeks, depending on the policy. In some cases, an agent wants to rent out a property but does not own it and needs the help of a landlord to achieve their financial goals. Even using an agent to whom you pay a percentage of your profits will usually result in higher income than a guaranteed rent – as long as your tenants continue to pay you.
For agents, guaranteed rent comes with a number of risks – most notably not finding tenants or not making as much money as expected. We have developed a property management system that removes the worry and guarantees the rent so that ANY landlord can become a long-term investor. This means that if a tenant has a history of falling behind with payments, an application for a rent guarantee is likely to be rejected. Self-employed landlords are often left with the cost of unpaid rent, sometimes until the eviction process is complete, which in itself can be a lengthy and costly process.
The cost of insurance can be included in the monthly rent paid by the tenant so that the landlord does not have to pay for the costs. The difference between the rent the tenant pays to the landlord and the rent they receive from the subtenant is monetised. Rent deposit insurance, a relatively recent invention from the United Kingdom, is now being offered in the United States to meet these particular requirements. With the recent changes in how landlord tax is calculated, landlords are looking for ways to offset their regular expenses to minimise their tax bill while keeping as much of their rental income as possible.
The increase in government regulations and the squeeze on revenue have slowed rental growth. Landlords who fear falling behind on mortgage or tax payments, savings or other bills paid with income from their rental properties often take out rental deposit insurance as a safety net to ensure that their income-generating asset does not become a costly liability or, worse, lead to foreclosure or ruined credit. If tenants default or do not earn as much as expected, they still have to pay the landlord the rent due.
