Guaranteed Rent Schemes

Are Rent Guarantee Schemes all they are cracked up to be?

Rent Guarantee Schemes (RGS) have become very popular over the last 10 -12 years. For those of you who may not be too familiar with them it's where the agent agrees to pay the landlord an agreed rent for a fixed period normally 3-5yrs. The rent is guaranteed throughout the fixed period whether the property is occupied or not. The company providing the Rent Guarantee (RG) do not let the property themselves rather they sub-let the property to other tenants.

Please note there are many type of (RGS) for the benefit of those who read this article I'm only going to talk about one type of (RG) that's in the world of Serviced Apartments or Service Accommodation (SA). This is the high end of the rental market with these type of agreements companies take on Corporate / Leisure Tenants which is where they can charge more rent over and above the underlying rent agreed with the landlord and also make a profit. The property needs to be in a good location, ultra modern with high tenant demand. Central London is a good example where SA can work as it attracts Tourists all year round and it's also a hub for Corporate Tenants.

Therefore, SA will always demand higher rents and prime locations are the pre-cursor for that. One bed flats perform better when it comes to occupancy rates than two bedroom flats. It can also work very well for HMO's again where the tenant demand for Corporate Tenants fits the bill. The company taking on the risk has quite a lot on its hands to make it work as they must account for lean spells like void periods, expenses like utility bills which they are responsible for and the day to day management. Which can prove a challenge due to the large number of tenants moving in/out of the property.

What Happens When The Market Takes A Down Turn ?

SA can take a big hit during a recession and many companies cannot survive the downturn or provide the (RG) to the landlord which effectively means they cannot afford to keep them. Which is exactly what has been happening as many companies have  provided notice during lockdown.

Are SA More Susceptible During A Recession?

I think so SA are unsustainable during a recession especially one in which we are facing now. Many top flight apartments in Central London where the profit margins were good enough to guarantee the rent and make a good profit as holiday lets has now died down.

In fact the Prime Central London market has been hardest hit. Since the Tourist Industry for Short Term Accommodation stopped in its tracks back in March when lockdown began. It hasn't recovered and its not likely to either until maybe next summer. It just goes to show that (RG) aren't as bullet proof as people imagined them to be.

Many landlords seem to think that its quite an attractive proposition to offload their property to a company in this way. Yes you can mitigate risk with any void periods, eliminate expenses which normally a landlord would be contractually obliged to pay under a normal AST agreement. And do away with the headache normally associated with every day management plus landlord pays no fees for setting up a rent guarantee scheme.

It might be an attractive proposition to the landlord, but there is a better alternative, no fancy stuff required or for your property to be in Central London. We can take care of the day to day management. No sublet agreements with intermediaries thank you very much!! By the end of the day if you are going to go for a quality tenant that keeps paying you the rent even in an economic downturn why change the formula?

Which is exactly where Lets Find A Home come in we believe in providing a stress free service from start to finish by finding good quality tenants and providing a secure tenancy over a long term period which is better than SA or whatever else you like to call it. Standard AST agreements perform better over the long term than SA.

Feel free to drop me a message or email and let’s arrange a time to chat about your personal goals when it comes to buy-to-let … because what have you got to lose? Maybe 15/20 minutes of your time to get great insight and inside track is worth it. Remember, the choice is yours!

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