In a cost-of-living squeeze, how to guarantee rent from a tenant is a key question for private landlords. The risk of letting to a tenant who fails to pay their rent – or having the rental home stand empty – could have a serious impact on your monthly income, made worse by rising interest rates on buy-to-let mortgages.
But what if there was a way to guarantee your rent every month? The good news is that we can think of four methods of reducing the impact of a tenant who defaults on their payments or leaves you high and dry.
Four options for ensuring your rental income
If you’re wondering how to guarantee rent from a tenant, read on:
1. Private rent guarantee schemes
Private rent guarantee schemes – also known as rent-to-rent schemes – involve an intermediary finding tenants for you and taking over the day-to-day management of the property. In exchange, you will receive a guaranteed monthly rent, during the period of your contract. Privet rent guarantee schemes can be managed by companies or individuals but are usually run by letting agents or property management businesses.
The benefits for landlords are that there’s no dealing with tenants, no managing repairs or maintenance and, most importantly, peace of mind you will receive a rental payment each month, even if there is no tenant in the property. The rental home is returned at the end of the contract, vacant and in the same condition as when the agreement started.
The downside is that you may not achieve the same level of rent as if you were managing the property yourself. But for many landlords, the absence of risk and knowledge they will receive guaranteed rent each month throughout the contract, makes up for this. If you’re an east London landlord, our ABC Gone guaranteed rent scheme may interest to you – read more.
2. Council rent guarantee schemes
These schemes are similar to private rent guarantee schemes. However, a local authority rather than a letting agent or company is responsible for finding a tenant and guaranteeing the rent. The schemes tend to operate in areas with high levels of homelessness and a shortage of social housing and are designed to find properties for people in need. You should receive a market rent for your property – although, as with private schemes, this may be less than you’d receive if you found tenants yourself.
You won’t have a say in the tenants who live in your home, however, you will be helping to tackle homelessness. In some areas councils operate their own schemes – or they may work with a local letting agent. Read more about council schemes in our blog.
3. Rent guarantee insurance
Rent guarantee insurance is different to a guaranteed rent scheme, in that it is a landlord insurance policy that covers your monthly rent if your tenant defaults on their payments. It may also cover the legal costs to recover possession of the rental home. You need to take out the policy at the start of the assured shorthold tenancy and meet its conditions in order to make a successful claim.
There are clauses to the policies, and they may not pay out straight away, so it’s important to check the small print. Guaranteed rent schemes promise regular rental payments for the duration of the contract regardless of whether or not you have tenants in the home.
4. Guarantors
Landlords with a traditional assured shorthold tenancy, who are concerned that their tenants may not be able to meet the monthly rent, can ask them to provide a guarantor. Guarantors are often used when tenants are students or young people without a strong credit rating or history of renting property.
The guarantor signs the tenancy agreement, agreeing to meet the rent if the tenant defaults. They are often family members and frequently homeowner themselves – with the assets to back up their credentials. You could still be caught out and find your guarantor isn’t able to pay up but, in most cases, guarantors offer extra assurance that the debt will be met.
And Finally
If you’re a landlord with a property in east London or Essex, contact us to find out more about our ABC Gone scheme in Harold Wood, Chelmsford, Dagenham, Hornchurch, Romford, Rainham, Harlow, Thurrock, Colchester, Southend on Sea, Upminster and across Essex. The benefits we offer include guaranteed income, no fees or hidden extra, all maintenance issues dealt with – and we can find you tenants in as little as seven days.