Rent Guarantee

A rent guarantee is an act of commitment made by property management companies to make sure that the property owner receives rent periodically. It is often agreed on monthly terms and guarantees rental income irrespective of whether the property is vacant or occupied.

This arrangement helps the owners mitigate the risks of renting out properties. This not only ensures that the owners have a fixed income but also brings peace of mind. Property management companies actively maintain the property to their optimal condition.  The approach helps owners get relief from the protection of their property.

A rent guarantee is an arrangement between a property management company and a property owner. It shields the owner from non-payment of rent by the tenant and provides a proper framework for the eviction process. The arrangement guarantees a consistent stream of income irrespective of whether there are occupants in the property or vacant. 

The property management companies provide a guarantee on rent to property owners, and the agreed amount depends on varied factors. The location of the property, tenant's track records on rent and the levels of security or protection chosen. These rent guarantee companies mandate landlords to do tenant checks and include credit scores, income sources and renting behaviors of the past.

The next step would be to activate the policy. After which if a tenant reneges on the agreed amount of rent, landlords can file a claim after the waiting period as designated is over. The landlord after verification and acceptance of the claim, the remittance of the rental sum will be by the insurer. The owners are thus relieved of the non-collection strain of rent income. The insurer will then seek the rent owed from the tenant who defaults it.

The whole process suggests that the homeowners are at an advantage here. They get fixed income and can predict their cash flows better, leading to the management of funds. They can make better investment choices with it. 

Let us look at some of the examples to understand the concept better.

Example 1# - A hypothetical example

Suppose Dan, an individual, owns two houses. One was meant to be his vacation house, but unfortunately gets transferred from his job across the country. He gives one house for lease and another to rent guarantee companies. He chose this option because, under a lease, the damage to property had to be either recovered from the tenant by him or spent from his pocket. But in this case, he did not want to do either of these. The property management company would take care of all these things, and he would get hassle-free income. 

Example 2# - A real-life example of the rent guarantee scheme

According to this article published in 2023, around 100 landlords have joined the Milton Keynes City Council's new incentive scheme to support local families and address homelessness. The rent guarantee scheme offers a 100% rent guarantee and cash bonuses. Landlords are set to receive up to £6,680 when they provide longer tenancies (six months-2 years) to the families that stayed in private rentals that were sold. The council guarantees rent even if the tenant defaults on the payments through the tenancy period. The council also helps the landlords with tenant placements and direct benefit payments. They also provide free property inspections to make sure the housing standards are met.

Given below are some of the pros and cons of the arrangement

Given below are some of the pros of the arrangement:

• It brings a fixed monthly income to the property owners. 
• The owners are aware of the cash flows and, hence, can plan their finances better to achieve their financial goals. 
• The tenants will be subjected to actions from the management company and, hence, will be making timely payments. 
• Some arrangements provide clauses for legal actions to be taken, and this saves the property owners a lot of trouble, time and effort. 
• It helps the property owners live a relatively stress less life as the rent is guaranteed. 
• The property managers manage the property, and hence, they ensure that the property is maintained well and in good condition. 

Given below are some of the cons of the arrangement:

• If the tenant selection process is not done properly, it can increase the maintenance and repair costs. 
• The landlord can incur additional costs due to certain excluded factors. They might be property or legal fees, which could be costly for the landlords. 
• The rental rates on property often depend on the market rates, which tend to fluctuate, and hence, a fixed amount cannot be anticipated. 
• Property management companies can be unprofessional. 

The differences between both the concepts are given as follows. 

• Rental guarantee is the commitment to pay rental income to property owners monthly. Rental insurance or renters' insurance is a policy that covers the damage incurred by tenants. 
• Guarantee on rent majorly benefits the property owners. Renta insurance majorly benefits the tenants. 
• The goal of a rent guarantee is to provide rent irrespective of the occupancy status of the property. The goal of renters insurance is to protect the belongings of the tenants.
• The rent guarantee does not require payments from the property owners. In rental insurance, the tenants have to pay to cover damages from their pocket.