Analysts who are studying the UK housing market closely suggest that 2023 will be a tough year. The first few months will decide how stable the market will remain throughout the year.
Nevertheless, as a landlord, you have to keep up with the changing trends of the real estate market. After all, it is only then that you will be able to manage your property portfolio better.
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Also, it is best if you understand different options for generating income on your property. One of these options is a guaranteed rent scheme. City Borough Housing’s guaranteed rent scheme can be a game changer for you.
Along with giving you a fixed rent, they even take care of all the in-repair and maintenance expenses, and all this with zero fees, commission, or hidden costs.
Understanding a guaranteed rent scheme
A guaranteed rent scheme is a contractual agreement between a landlord and an institution, company, letting agent, or individual. The landlord agrees to give all their control to the next party against a fixed monthly rent for a specific period.
In simple words, an institution, company, letting agent, or an individual is renting the property from the landlord and giving an agreed monthly rent, and then subletting the property to different tenants.
The tenants don’t come in direct contact with the landlord, and just ‘one main tenant’ handles the full process. A fixed rent scheme lessens a lot of responsibilities of a landlord.
This scheme is especially beneficial for:
- New landlords with zero experience.
- Landlords that live far from their properties.
- Landlords who own multiple properties, estates, or HMOs, and property management is an overwhelming task for them.
5 Steps of a guaranteed rent scheme
- The ‘main tenant’ (a company or an individual) will evaluate the property and determine its current market price.
- Landlord and the main tenant will negotiate the terms of the deal, and agree upon a fixed rent amount.
- Landlord will temporarily surrender control over the property against this regular income.
- Pre-agreed rent will start coming in, irrespective of whether the property is tenanted or not.
- Landlord gets the property back in the same or better condition once the term of the contract ends.
Benefits of a guaranteed rent scheme for a landlord
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The first and biggest advantage of the fixed rent scheme is the landlord is free from all the responsibilities of managing and tenanting the property.
The main tenant will manage the property, sublet it, collect maintenance, and take care of the day-to-day repair works of the property.
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Besides, the following are additional benefits of the scheme:
- The landlord gets the rent irrespective of the fact that the property is tenanted or vacant. This is a great advantage as no matter what the real estate market condition is, the landlord gets the rent.
- The fixed rent scheme ensures that the landlord will have a predictable cash flow.
- Someone who has multiple properties can generate an effortless handsome income every month. Also, the risk of dealing with different tenants is reduced.
- If the landlord goes for a longer-term agreement, this will mean long-term security.
- Zero damage risk for the landlord. The main tenant is responsible for any damages to the property and is supposed to return the property in the same or improved condition.
- The landlord is free from paying any letting or renewal fee. The main tenant will pay all of it when he/she sublets.
Major drawbacks of the guaranteed rent scheme
Even though the benefits associated with the scheme are great, it does not make it full-proofed. Just like any other concept, there are certain drawbacks associated with a fixed rent scheme as well.
- It does not give the highest possible profit: The main aim of the scheme is to provide a steady and regular income. It is not aimed at giving the highest rental income to the landlord.
- The landlord has to surrender all his/her rights associated with the property for a decided term. This sometimes can make the landlord feel powerless.
- It is not exactly risk-free. In case the main tenant goes bankrupt, they will not be able to pay back the agreed rent timely.
- There is certain legal liability for which the landlord is always held responsible. For instance, if the property does not have proper fire and gas safety provisions, the landlord will have to pay the fine, not the main tenant.
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If you are intending to collect the highest possible rent for your property, this scheme will make no sense to you. Keep in mind, the main tenant is looking forward to generating an income as well.
Besides, the main tenant is doing all the hard work and thus expects to earn a good amount. That being said, he/she will pay you a fixed rent, but not the highest rent.
However, still, a guaranteed rent scheme is without a doubt an ideal option for someone who is not interested to be hands-on, doesn’t have to worry about any mortgages, and the rent is not the primary source of income for them.