Guaranteed Rent – A Warning for Landlords
Published 13/03/2013 
A growing number of Landlords are falling for a “Guaranteed Rent” scam which enables a landlord or an agent to sublet a property.
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 - mark@property118.com
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Steve Elliot says:
13/03/2013 at 17:37
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Mark Alexander says:
13/03/2013 at 17:53
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Paul Barrett says:
14/03/2013 at 04:16
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OnTax Dunfermline Accountants says:
14/03/2013 at 12:45
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Antony Richards says:
14/03/2013 at 16:34
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Steve Elliot says:
14/03/2013 at 17:49
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Mark Alexander says:
14/03/2013 at 19:08
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Annette says:
14/03/2013 at 20:08
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Francis Dolley says:
15/03/2013 at 13:33
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Francis Dolley says:
15/03/2013 at 13:43
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Mark Alexander says:
15/03/2013 at 14:23
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Paul Barrett says:
16/03/2013 at 08:02
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Francis Dolley says:
16/03/2013 at 13:07
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Paul Barrett says:
16/03/2013 at 13:15
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Mark Alexander says:
18/03/2013 at 15:58
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Pamela Johnston says:
21/03/2013 at 10:29
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Mark Alexander says:
21/03/2013 at 13:19
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Pamela Johnston says:
21/03/2013 at 13:42
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Mark Alexander says:
21/03/2013 at 14:04
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Pamela Johnston says:
21/03/2013 at 14:29
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Mark Alexander says:
21/03/2013 at 15:04
Leave a commentHello Mark,
What you’ve explained about Guaranteed Rent schemes being offered by estate agents is quite true and the number of operators are growing.
We do not do that. But, if we eventually go into that, things like the type of sub-tenant and inspection would be issues that should be agreed with the landlord prior, as there is no point in thinking you are going to save money if that money or more will be used to repair damages or dilapidation later on.
Also, I want to point out that as online agents, I think it would be fair to give your readers the chance to try out our services -which could be cheaper for them than your agent.. At the moment we are offering FREE letting service. The properties will be listed on the same sites you mentioned except RM.
We want more choice!
Hi Steve
As a matter of interest, how much do you charge for tenant referencing and RGI?
Also, I appreciate that Rightmove are expensive but if you don’t use them the landlords who advertise with you are missing out on a huge section of the market for potential tenants and may experience rental voids as a result. I’m sure more landlords would be interested in your free service if it include listing on Rightmove, without it, it’s a big risk for landlords to take, even though your service is free.
Others may think differently of course, that’s just how I look at it as a landlord.
Best of luck with your business.
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Mark Alexander recently posted…Letting my house without telling the mortgage company
Surely ANY LL can achieve the same as these GRC.
I am quite capable of offering my properties at below market rent.
Why would I pay a company to do that!!!!??
With me doing it at least I control who becomes a tenant.
I reckon I am more than capable of sourcing a tenant at BMR………………………………ANY fool can do that!!
This sounds like another scam to fleece dopey LL!
We agree with Paul, any landlord can achive the same outcome. Essentially this scheme appeals to landlords laziness. It should not surprise us that being lazy also has a hidden cost, such as being completely ripped of!
quite right Paul. Trouble is there are plenty of people wanting something for nothing.
Antony Richards recently posted…£450pcm – PENDEEN – P1110
Hello Mark,
Referencing fee is charged to tenant, and follows the rental price.
RGI is charged to the Landlord, and also varies depending on the rent and length of tenancy. For example, for a six months’ tenancy at a rent up to £1000, it is £56 and for a twelve-month contract at the same rent, it is £87.
Concerning the Rightmove issue, we get more tenants from the combination of the portals we use. Combined, we reckon the advert reach is greater than Rightmove’s. From experience, this enables us to expose our properties to more prospective tenants at less the cost when we are with RM. This translates into better value for our landlords, as the properties will be rented quicker and they could further save more money if they choose our FREE rental package.
Like they say, it’s all in the results!
Hi Steve
I spoke to a Letting Agent only yesterday who told me that he receives around 50% of his new tenant enquiries from Zoopla / Digital Propertry Group these days and that he’s very impressed with that. My point was that I can’t see why landlords would settle for 50% exposure to the market when they can have 100% exposure. I do appreciate that if you are not charging enough costs need to be cut somewhere but as a landlord, I would personally pay a bit more as the risk of a 1 week void far outweighs the bit extra I would have to pay to gain full exposure on ALL major portals.
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Mark Alexander recently posted…From Bridging Loan to Development to BuytoLet in six weeks
Paul is absolutely right. There is nothing new in this and it is really just a bit of a twist on what developers were doing a few years ago which was offering you a guaranteed rental return for two years if you bought into their development. Some people found their flats had very heavy usage and repair bills after the two years, others found the furniture had not even been unwrapped. I always let my flats at a little BMV to hopefully do away with voids but I would never get involved with something like this as it is unlikely to benefit a landlord
Most of the above is true of R2R – it ‘could’ happen.
It ‘could’ and in fact does happen daily to a multitude of businesses – there has been and always will be unscrupulousness people who will take advantage.
On the flip side of the coin there are good, honest, ethical people who are running R2R as a legitimate business helping struggling LL’s.
7 of the properties we operate were owned by LL’s who were REALLY struggling to keep their heads above water, and were very grateful for our intervention. With all the new student blocks being built on campus, their jaded properties were left sitting empty.
We encourage a good working relationship with the LL’s and assist them with upgrades of their properties. We usually help furnish the properties. With such an investment of time and money why would we walk away or try to ‘scam’ the LL? Re insurances we inform the LL’s insurer of the names of all tenants to validity his insurance. We also have the other usual insurances in place.
This strategy enabled us to increase our cashflow by £5k net pcm over a 5 month period. It was hard work setting it up. Now we have systematised everything – and do indeed run courses helping others to get going. But a “course on how to become a property millionaire with none of your own money” we are not. You need a little money (or JV partner) to get started and it will entail w-o-r-k.
The reason R2R has become so popular is because there is a growing need for it. We depend on our LL’s as they depend on us. We look after our professional tenants and they look after us! Everyone wins.
Not everyone is out to rip everyone else off :-/
Francis Dolley recently posted…Super Conference 2012
Who wants this service?
1. A guy who joined the Army and needed someone to take care of his student HMO for 6 years – happy to take a reduced rent.
2.House in Bristol – owner in London – squatters in house and nonchalant agents = needed help. house now running smoothly.
3. Older gentleman with big Victorian house and had ‘lost control’ – was struggling and needed some help – very happy for reduced rent = he can sleep again
4. Very switched on guy wants to retire but keep an interest in his 3 properties = reduced rent and we take control.
There are lots of scenarios why a LL would want to pass the reins to another person. I see us as offering a much need service to the industry.
Find out more here; http://www.multiletcashflowsystem.com/events/
Francis Dolley recently posted…Super Conference 2012
I will share with you now an example of something I heard about. It was a guy who was selling a franchise including a training course and ongoing mentoring with a promise that if his business model was followed that he would refund all of the money paid to his company (note Limited Company – NewCo, no asetts) if his franchisees were not making £10k per month net within 2 years. The fee was £10,000 for the 4 day course, plus £500 pcm for ongoing mentoring.
This is the worst case scenario I’ve come across so far.
The methods he was adopting were, quite frankly, appalling in my opinion. I will try to summarise his master plan to keep this as brief as possible:-
1) Find private landlords and new letting agents advertising via local newspapers and free property portals who are advertising properties at circa £750 a month for a three or 4 bed house
2) Visit the property and negotiate a discount in return for 6 months rent up front and wherever possible a five year lease.
3) Note that as six months rent is paid up front the landlord can do nothing about subletting as this creates a premium tenancy
4) Advertise the properties by the room to single DSS tenants under the age of 35 and foreigners at £350 pcm. Use lounge and dining rooms as bedrooms in order to maximise rental income.
No mention of HMO licencing!
No mention of insurance!
What will happen when this blows up? Well the guru will be nowhere to be seen and the landlords and the gullible will be left to pick up the pieces of course!
Interestingly, I have received a few emails and telephone calls from established letting agents who advertise “Guaranteed Rent” as part of their business model.
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They thought I was criticising their business model without naming them directly and seemed to be completely oblivious to the practices I have mentioned above. I feel for them as I can see that they will be dragged through the mud and the potential reputational damage for them, which will inevitably come from this this mess, is potentially devastating. I’ve witnessed this before when Sale and Rent Back became regulated. The rogues completely wrecked a scheme which was created to benefit people. Check out this story of my experiences of Sale and Rent Back >>> http://www.property118.com/index.php/the-history-of-buy-to-let-sale-and-rent-back/397/
Mark Alexander recently posted…Can landlords roll over losses for tax purposes?
Still don’t get the concept.
Surely if you do not wish to be involved in running your property; like the army guy ; you just instruct a LA and request that if they struggle with the market rent to knock 50 quid of the monthly rent.
That should source sufficient tenants.
That way you are not stuck with premium tenancies etc; etc.
I don’t see what is wrong with the normal LA business model for LL who don’t or can’t be bothered with doing it themselves.
A LL can always state to the LA not to accept anything less than a certain amount of rent.
Getting involved in company agreements is fraught with problems as MA has highlighted.
I reckon in this game it is best to keep it simple; LL and LA as a max with standard AST’s
All of our R2R properties were set up and once run as student lets. They were also fully or partially furnished. One of our LL’s tried re-letting as a single let – he removed all the furniture, door closers, did a few more upgrades only for the new tenants to move out again after 6 months. He couldn’t let the property as it was in ‘student row’ and so eventually reverted back to a HMO, still didn’t let as he has missed the student year – and we met him when it had been sat empty for months.
On the face of it, it is simple to let your property for maximum profits if you are a driven professional. But as you know a lot of owners are either accidental LL’s, incidental Ll’s or as previous post, lazy. Good HMO LA’s are few and far between. We also work with LA’s who are only too pleased that we will take the properties and take a bit of the pressure off them.
Another factor is that in Bristol (and UK) the Uni’s are building lots of dedicated student blocks = the big old Victorian student properties, that were once easy to fill, now sit empty. Owners don’t know what to do with them.
Francis Dolley recently posted…Super Conference 2012
Don’t worry they will up soon fill up the rooms when the hundreds of thousands of Bulgarians and Romanians flood here this year.
I agree that the more complex letting situations merit companies like you to deql with them.
HMO type properties require dedicated attention which most LL don’t want to concern themselves with, so people like you are needed!
Perhaps these LL will have to accept less cashflow and rent to ‘normal tenants’.
Property Tribes TV have posted a very interesting video interview with a solicitor on You Tube today on this very subject, please see >>> http://m.youtube.com/#/watch?feature=em-uploademail&v=-fxZUaQB8wg&desktop_uri=%2Fwatch%3Fv%3D-fxZUaQB8wg%26feature%3Dem-uploademail
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Mark Alexander recently posted…How to secure massive discounts from property developers
I’m glad Francis was able to clarify what his service and his training entails. Mark, I have to say the tone of your article was alarmist and over generalised.
As with Sale and Rent Back, it is helpful to advise of possible pitfalls and specifics to be alert to. It is not necessary to decry an entire business model as though the possible pitfalls are a foregone conclusion. A little balance would have seen an example of good practice included in your statement.
We all know people in trusted positions have abused trust and their position, teachers, police officers, scout leaders, priests etc etc etc, we don’t warn against going to school and state the worst outcome as the inevitable outcome.
As with ‘stranger danger’ it’s far more helpful to advise what behaviour should be objected to than having a false sense of security by staying away from ‘strangers.
Don’t forget, there are some shocking examples of poor practice by letting agents, that is the reason for increasing calls for regulation.
Shocking examples of poor (Sharp) practice by Sale and RentBack providers resulted in increased regulation.
Shocking examples of poor practice in journalism led to calls for regulation.
No apologies for ranting, you are capable of writing with more balance, I feel sure Mark!
Hi Pamela
I acknowledge your critique which resonates with my “conscience attack) a day or so after writing this article. This lead to my later comments acknowledging a couple of complaints from alarmed letting agents who are operating a model very close to the one in my initial article. I feel for them. However, in all of the examples you have quoted, the innocent parties (e.g. teachers, priests, ethical SARB providers etc.) do cop for the fall-out of the bad guys. That’s just part of life. Sometimes I’m reluctant to tell people that I’m a landlord these days since the media and Shelter campaigns resulted in large swathes of the general public thinking we are all “rogues”. Vilification is sadly rife. That said, I stand by my decision to alert people to the potential dangers of these schemes under their various guises – to name but a few, “guaranteed rent, Rent to Rent, Rent 2 Let, etc.
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Mark Alexander recently posted…How I doubled my money in three seconds on a property deal
I have no problem with alerting people, whatsoever. I do think your alerting was one-sided. If, as a result of your comments, decisions are made to avoid this option, there are many who would be disadvantaged. It would be equally valuable to caution folk against decision-making based on your summary? It is just the lack of balance I have issue with. As you say, many portrayals of Landlords are similarly one-sided and negative, two wrongs don’t make a right in my book.
Hi Pamela, “two wrongs don’t make a right”. I totally agree, however, I can assure you my reasons for producing this article were not what you seem to be implying. The scams I’ve highlighted really are happening and people need to to be warned to watch out for them, if that affects the business models of some for a short time then so be it. The cream will always rise to the top, it always does. To continue with that analogy, you clearly see me as the one shaking the bottle, that’s not the case. The cream of agents who are operating ethically clearly didn’t know what had been going on in the real world and the affects it could have on their business models. If they did, I can only assume they wanted to keep a lid on it as it might muddy the waters for them. If the latter was the case that would be very short term thinking on their part as the problem will get worse if people are not aware of it and on their guard. Mark my words, this will hit the national press within two years if the problem isn’t stamped out now. That’s when the talk of regulation will occur yet again. I will be yet another example of regulators thinking about how to close the barn door well after the horse has bolted. All good for the politicians though as it will provide yet another excuse to divert the attention of the general public away from the real issues facing the country and to vilify the PRS even further I suppose!
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Mark Alexander recently posted…Student Landlords/Agents – When do you register a “new” deposit?
I did not imply anything, just to clarify. I said everything I wanted to say. I definitely did not and would not guess at your reasoning for this article, I’m only commenting on the article.
I agree cream will rise to the top, I also agree with consumer ratings etc to inform would-be clients/customers/tenants.
my difficulty is that one-sided arguements lead to knee-jerk regulation and legislation.
SARB is a very good example. Personally, my SARB tenants had run out of options and I won’t list the benefits here but SARB was a very good option for them -and me. After 4 years, they’ve just moved on to rent from a Housing Association as it’s cheaper. Today, they would have a hard-luck story of repossession, moving in with family, humiliation among the neighbours if SARB was not an option.
I’m not sure it helps to confirm certain scams REALLY are happening – we know that I’d think?
Some Lawyers can’t do there jobs for toffee, we know that, some car dealers sell lemons, we know that, some Landlords mistreat their tenants and may even be crooks, we know that.
At the risk of repeating myself, it’s the lack of balance in your writing Mark. I don’t assume any other motivation or agenda at all.
Francis gave examples of those who used and /or welcomed his service,by not citing examples such as his, it seemed you only communicated the negatives as you’d heard from a 3rd party. That was why I said (Rhetorically) perhaps there is cause for caution in acting based on your alerts.
It is a positive to be able to access information regarding actual experience from various parties but 3rd party information should be balanced.
I do understand the point you are making Pamela, we will just have to disagree on some points
On a separate note, I too have plenty of positive personal stories to share about SARB. However, the fact that I was sucessfully operating Sale and Rent Back, however it did not prevent me from writing this article >>> http://www.property118.com/index.php/the-history-of-buy-to-let-sale-and-rent-back/397/
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