Guaranteed Rent – or rent-to-rent as it is also known – is way to make money from property that is becoming more and more popular.
Online gurus and property courses have pushed the model as a way to make money from property that you don’t own.
In the rent-to-rent property model the landlord leases the property to another party who then takes over the running of the property for the agreed term.
That person sources tenants and takes on all the management of the property.
It differs from using a property management firm because the landlord is paid a fixed rent regardless of if the property is occupied or not – hence the term “guaranteed rent”.
The landlord also has no contact or contractual relationship with the tenants.
So far, so simple right?
Well it’s not quite as simple as that. With so many people using the model as a way to get into property there are common mistakes that need to be avoided.
Here’s the main ones:-
Not checking out the middle tenant carefully
Going into a rent-to-rent arrangement gives the middle tenant a lot of control over your property and can be very hard to get out of. It’s important you fully check them out. No landlord would let anyone rent their property who could not pay the rent but they are often prepared to let a middle tenant have control over it without the same checks
Not checking your mortgage terms
Your mortgage might only give you permission to grant assured shorthold tenancies for no more than one year. If you breach your mortgage terms, the lender can take possession of the property. Make sure you check the terms.
Not checking your insurance terms
Landlord insurance does not always cover you for a rent-to-rent arrangement. Check your policy!
Using an AST agreement
You can only have an assured shorthold tenancy (“AST”) where the tenant is actually living in the property so using one between the landlord and the middle party makes it useless. An AST will not contain all the terms you need.
Using a standard company let
Most standard company lets you can download aren’t designed for rent-to-rent and won’t cover all the issues that it needs to and some even prohibit the tenant granting sub-tenancies.
Ignoring HMO licences
Don’t assume the landlord or the middle tenant are looking after the HMO licence. If the property needs a HMO licence and doesn’t have one then the council can prosecute both of you.
Ignoring right-to-rent checks
It is usually standard practice for the landlord to be responsible for right-to-rent checks for the middle party, and then that person is responsible for right-to-rent checks for their sub-tenants. Make sure you know who you are responsible for checking and that this is in the written agreement otherwise you could be liable for a fine or even criminal conviction.
Assigning the whole lease
This is a legal mistake that the the middle tenant can make. If you find a tenant who is happy to rent for the entire term of your lease with the landlord it can be tempting to assign them the whole of the lease. However if you do this the landlord can now claim rent directly from the sub-tenants. Instead ensure any sub-tenancies are for at least one day less than the tenancy you have with the landlord.
Not knowing what you are responsible for
Ensure your agreement makes it clear who is responsible for bills, repairs and maintenance. Make sure you know what you are singing up for.
Using section 21 notices
You can’t use section 21 notices to terminate a rent-to-rent arrangement as they only apply to ASTs. The tenancy will end at the end of the lease or by notice if rent continues to be paid after that date.
Buying a property with a rent-to-rent arrangement in place
If you buy a property and there is a tenant in place make sure you check what the tenancy arrangement is. If they are already in a rent-to-rent arrangement this can be a nightmare to get out of and sort out.
When done well the rent-to-rent model can work for both parties – the landlord gets a stress free return on his property while the middle tenant can make a monthly profit without having to own a property.
However if you don’t do things properly they can end up fast becoming a source of stress and end up costing your time and money.
Contact us today to discuss your needs.