There are several examples of how this works, below is a relatively “clean” one, I will share a much nastier example of how landlords are being stung as comments begin to appear in the forum thread below this article:-
1) Landlords see or hear an advert offering guaranteed rent whether the property is let or not and whether or not a tenant pays on the due date. Seems like a compelling offer doesn’t it?
2) The person selling the contract explains that they will need a period of time (we have seen examples of up to two months) to let the property and as soon as the first tenant moves in the landlord will be paid his rent on the same day of the month for at least 12 months whether the tenant pays or not and even if they move out.
3) The landlord is asked to sign an agreement allowing the property to be sublet.
4) The rent offered to the landlord is below the normal market rental value, which under the circumstances might appear to be reasonable. After all, everybody needs to make a profit somewhere don’t they?
5) What the landlord does not usually realise is that their property could be rented to asylum seekers, large families claiming benefits or even sharers. At the end of the contract landlords exposed to this scam are responsible for putting right any damage, NOT the person of business who took on the “head lease”. We have seen examples of where the cost of the damage has been more than they have received in rent! How easy is it for the landlord to recover the costs of damages do you think? If the “head lease” is signed by a company that’s now in liquidation there’s also very little point. Furthermore, subletting to such groups of people may well be in breach of buy to let mortgage conditions and could result in mortgage companies insisting that loans are repaid.
6) In the case of landlords offering this scheme there is of course zero protection, particularly if they are operating as a limited company. If they get into difficulty they simply stop paying the landlord who is then left to pick up the pieces. There is no point liquidating the company as it will never have any assets. Franchises and training courses for this business model are being sold by “wealth creation guru’s” in the hundreds if their sales pitches are to be believed. The franchisor or company delivering the training rarely carries any responsibility for the actions of it’s franchisees/trainees who sign landlords up on Guaranteed Rent. The only real risk to the franchisors/trainers in the event of a franchisee failing is that of a tarnished reputation.
Many Guaranteed Rent schemes are fraught with risks to landlords, hence our words of caution if you are looking into them. These schemes are often touted as “Let to Let” too so if somebody tells you that you can buy a course on how to become a property millionaire with none of your own money, chances are this might well be the business model they are pitching at you.
An Alternative to Guaranteed Rent Schemes
Please note that Guaranteed Rent should not be mixed up by Rent Guarantee Insurance offered by legitimate insurance companies. These policies are provided to landlords whose tenants pass rigorous referencing and financial underwriting. These policies pay rent if tenants fall into arrears and continue to pay rent to landlords until the tenant is eventually evicted, the legal costs of which are funded by insurance companies. We are not aware of insurance companies that will underwrite lost rental income on properties which are not under occupancy by tenants. If you know of such an insurer please let us know.
This article is not a name and shame and was not written to undermine any particular business. By all means comment but please do not use this forum to “name and shame”, otherwise I will have no choice but to moderate comments or ban repeat offenders.
If you are looking for an agent to help you find tenants, reference them and arrange rent guarantee insurance though a reputable insurance company, below is a contact form to allow me to introduce you to the firm I use. They charge me a one off fee of £97 plus VAT for this service which also includes advertising my properties on all the major property portals including Rightmove, Zoopla, Prime Location and Gumtree.
About Mark Alexander
Mark and his family have been investing in property since 1989, initially in the Norwich area but more recently across the length and breadth of England. Mark created Property118.com as a social network for landlords with a vision of becoming the UK's best respected online property community. Mark is also a freelance internet marketing consultant to law firms Email - firstname.lastname@example.org