Guaranteed Rental Scheme Vs Traditional Letting
Are you a landlord or becoming a landlord by putting the house on rent? Well, in that scenario, you come to know two ways of renting: guaranteed and traditional renting. And now you are confused about which way of renting is best and suits you. Well, in this article on AF Residential, we will discuss the Guaranteed Rental Scheme vs. Traditional Letting and which method you should choose.
Guaranteed Rental Scheme
A Guaranteed Rental Scheme is the way in which an individual or a company will handle all the responsibility of the landlord. Additionally, they get the particular rent even during the vacancy period. In the Guaranteed Rental scheme, there is the third party, which is also known as 'Rental' or 'Middleman', who rents the property and manages all tenant issues.
Traditional Letting
In the traditional renting method, the landlord covers all the renting aspects, such as searching for the right one, renting the property, collecting the rent, inspecting it, and doing maintenance.
How the Guaranteed Rental Scheme Works
The Guaranteed Rental Scheme is the method that was introduced in the 20th century. According to this, the landlord makes a contract with someone or a property management company to manage the property and tenant. Further, the company will sublet the house to someone else. The key element of this contract is that the agreement will be signed for 1-5 years, and the landlord opts to get the particular income even in the vacancy period. Moreover, once the lease is signed between the house owner and the management company, the tenant will become a landlord so that the tenant will interact with that company, not the actual homeowner. This scheme is beneficial for the landowner because it does not require worrying about any tenancy-related things.
Pros and Cons of Guaranteed Rent
Here are some Pros and Cons which makes you understand what kind of benefits a landlord gets from guaranteed rent
Advantages of Guaranteed Rent
Here are some general advantages that a property owner gets by taking the guaranteed programme.
Steady Income
In the guaranteed rent scheme, the landlord gets the steady and expected income even in the vacancy period; the management company pays the rental in that case.
Reduced Risk
This also minimises any risk related to the tenant or market. As the company takes the responsibility to pay the steady income, this reduces the financial risk.
Less Management
The property owner has no concerns with managing the property, especially on the tenants request. Management company will do the inspection and do repairs.
No Tenant Issues
As the landlord does not have any direct link with the tenant, they do not even rent the house directly. So, the property owner has proper peace of mind in this case.
Disadvantages of Guaranteed Rent
Guaranteed rent provides numerous advantages, but it also comes with some disadvantages.
1. Lower Rent
In Guaranteed, the management company deducted the portion of rent because of the risk of vacancy, which the company has to pay back to the landlord on its own, as well as management expenses and other services.
Less Control
The house owner has limited control of the property for a particular period, which is mentioned in the lease agreement. Further, the owner does not interpret the selection of tenant, rent amount or other factors.
Management Fees
In the Guaranteed Rental Scheme, the owner needs to pay a large portion of the income for managing the property.
Long-Term Commitment
Here in this programme, landowners are required to make long-term commitments, on average for 1-5 years or more.
How traditional renting works
In the traditional way of renting, property owners directly handle the tenant and do the lease agreement. This landlord is responsible for listing the property, tenant screening and renting it. Furthermore, doing the maintenance on leaseholder requests and managing tenant-related issues such as late payout, tenant disputes and vacancies. But in the end, the landlord gets full rental income.
Pros and Cons of Traditional Renting
As traditional renting is most acceptable among landlords still now. So, here are some pros and cons which help you to figure out why this is happening.
Advantages of Traditional Renting
Landlords choose traditional renting because of its advantages; here are some common plus points.
Higher Rent Potential
In traditional renting the landlord gets the high rent prices which are set according to the market. Additionally, he has the right to be flexible in rental prices.
Full Control
Landlords have complete control over property maintenance, tenant selection, and decisions.
Long-Term Investment
The maintenance of the property and the tenant's long-term stay work as long-term investments for the property owner.
Direct Relationship with Tenants
As there is no third party involved between the landlord and tenant. So, they are directly linked with each other.
Disadvantages of Traditional Renting
Here are some disadvantages that make the property owner choose a guaranteed rental scheme.
1.Vacancy Risk
If the property is unoccupied for some time, the landlord does not get the Rent, which creates financial trouble.
2.Tenant Issues
The landlord faced many tenant issues, such as tenant complaints, disputes and late payments.
3.Property Management
Handling maintenance, such as repairs and inspections are time-consuming and costly factors in traditional renting.
4.Time-Consuming
Managing the tenant and other maintenance issues takes time and effort and if the landlord is working on it, to build-up the second source of income then it becomes difficult to deal with it.
Key differences between guaranteed rent and traditional renting
| Aspect | Guaranteed Rent | Traditional Renting |
| Stable source of income | Get the decided income | Income will be fluctuate |
| Landlord control | Limited control according to contract | Full control |
| Maintenance | Maintenance handle by property management company | Maintenance will be landlord responsibility |
| Management | Managing by third party | Directly managing by landlord or third person |
| Payment | Fixed payment according to contract | Fluctuate according to rent |
| Risk | Typically low risk or no risk for landlord | High risk because of a vacancy period or other dispute. |
| Tenant Costs | High due to involvement of company | Depend on the market place |
| Tenant interaction | No direct interaction between tenant and landlord. | Tenants directly interact with the landlord. |
Which method of renting should you choose?
- Both methods facilitate as well as having some disadvantages. Well, deciding which method a property owner chose is dependable on some factors. Such as if the property owner rented the house to build-up a second source of income and wanted to have some steady income each month or if an owner has multiple properties on Rent and does not want to deal with tenant related issues or any emergencies then a guaranteed rental scheme is the best option.
- On the other hand, if the property owner wants to become the landlord of their own multiple properties, can deal with any tenant-related issues, has no problem with vacancies, or does not directly affect the finances, then traditional renting can work out in that case.
Conclusion
In the end, both traditional and guaranteed Rent provide some unique benefits along with some challenges. Guaranteed Rent gives an option of a passive source of income, but it limits the rights and deducts the high amount from rental income. On the other hand, traditional renting is the option in which a property owner actively deals with all circumstances as well as get the full rental income without any deduction.
Frequently Ask Questions (FAQ's)
Can I choose the tenants in the Guaranteed Rent Scheme?
No, in the Guaranteed Rent Scheme, property owners have limited rights, such as not being able to choose the tenant. The management company does the inspection and rents out the house to the right one.
Will I get the Rent even if the property is vacant in the guaranteed rental scheme?
Yes you will, like in the Guaranteed Rent Scheme the landlord receives a fixed rent payment every month. No matter whether the house is rented or not.
Are there any fees that are associated with the Guaranteed Rent Scheme?
Yes, management companies charge fees for the services, which are typically deducted from the rental income and reduce the overall income.
What are the risks that relate to traditional letting?
Well, here are some main risks which make the landlord select the guaranteed method and these are late rent payments, difficult tenants and repairing.
Is traditional renting more flexible than the guaranteed rent scheme?
Yes, traditional renting is more flexible than a guaranteed rent scheme in terms of rent adjustment, lease terms, and tenant selection. A traditional landlord has all rights.