Member Article

Guaranteed rent doesn’t guarantee you’ll be trouble free, property expert warns

A leading property expert has advised landlords to be cautious of companies promising them guaranteed rents, warning “the rent may be guaranteed, a trouble-free life isn’t”.

Guaranteed rent agreements often see property owners signing over their homes to third parties in return for a set monthly income, sometimes significantly below their real rental value. The agent then sublets the property for a higher rent.

Other “guaranteed rent” schemes are also based on insurance policies including exclusions and exemptions which may mean landlords do not have the protection they think they do.

Critics have claimed the practice is “fraught with risk”, and Ajay Jagota of North East property firm KIS believes alternatives like landlord insurance policies and deposit-free renting are far more likely to give nervous landlords the peace of mind they seek.

The company manages properties for over 700 landlords from branches in Sunderland, South Shields, North Shields and Welwyn Garden City. KIS was named Letting Agent of the Year at the 2013 Landlord and Letting Awards and has recently branched out into sales.

Ajay said: “The promise of making a guaranteed income out of your property without any of the hassle of actually finding tenants and managing their tenancy is a seductive one. But while the rent may be guaranteed, a trouble-free life it isn’t.

“These sort of agreements often involve literally signing your property over to a third party for several years, and it can be very difficult to get your property back within that period and even harder to evict the tenants they install – and as it’s not their property they could be a lot less choosy than you would be.

“In a nightmare scenario, they firm you’re dealing with could vanish and you could be left unable to rent out your own property.

“At the same time you don’t escape your legal responsibilities as the property owner. If that property ends up overcrowded, unlicensed or unsafe you’ll be the one facing fines or jail, not those who are actually responsible. Call that peace of mind?

“Even comparatively secure guarantee schemes rely on warranties which can never offer the protection of an insurance product as they are not regulated by the FCA. If the company goes into administration or decides not to pay then there is no-one to complain or seek compensation from.

“A reputable lettings agent will take all of that hassle out of renting out a home – and new thinking like our deposit-free renting can make it much easier to find good tenants, while our landlord insurance policy means our landlords are protected from every eventuality.

“With changes announced in the recent budget meaning that pensioners will soon be able to draw out money as opposed to being forced to purchase annuities, there is a good chance an increasing number of people will look to property as a source of income in later life. They will be relying on a guaranteed income, but need to take the right decisions to guarantee they get it.”

This was posted in Bdaily's Members' News section by Ajay Jagota .