Guaranteed Rent – A Warning for Landlords

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.
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/

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.

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

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.

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!

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.