Agencies offering rental guarantee

Makes perfect sense to me,

You have to take out insurance through their recommended landlord protection insurance. This is not a new thing and I have seen similar offerings around.

As for if it is legal, read the management agreement as for "when and how" we can use/disburse your money. For example my agreement includes a clause that I can pay outgoings on your behalf then pay myself back from future rent. Some might call it a loan.

Regards
ComPropAgent

 

So really there is no guarantee there is just an insurance policy which covers your rent. The insurance you pay for anyway. They havent really created anything new here.

 

The business is making a business choice to pay Lessors rent owed when the Tenant has not paid, on the assumption they'll be able to claw it back from the Tenant in one way or another (tribunal, insurance claim, begging, etc). It's not a great way to run a business, and a reflection of how competitive the industry is when some are willing to take on such a risk.

 

I have to admit, I think that's a cool guarantee. The agency is paying for the cashflow shortfall caused by arrears, though of course they're expecting to get it back at some stage from insurance. That said.... I think they're mad offering it, unless it brings them in a lot of business...?

 

We have spent quite a lot of time doing a full analysis of this from both a landlord and business perspective and have decided it’s brilliantly competitive and are more than willing to implement it based on our findings.

From a landlord perspective (being landlords ourselves), we love the added protections that it provides and from an agency perspective, we are constantly striving to better our service and product with policies and procedures that are genuinely what investors want and that make us more competitive.

This guarantee (in addition to other guarantees we now provide - namely a communication guarantee, letting/tenant guarantee and service guarantee), provides certainty that many agencies simply won’t even entertain. We love it and it's available to PMC clients as of today!

- Andrew

 

I think its more of a slippery sales tactic than anything.

 

Usually, it is for the new H&L package or for the OTP stuff.

 

We will reply to this properly tomorrow but just to make a quick point, the sort of rent guarantee being discussed here is VERY different to a rental guarantee offered by a developer which you should avoid like the plague! Yes, those are just slippery sales tactics used to sell apartments that are essentially built into the purchase price and we do not like those at all!

It makes a good point though, the terminology could cause confusion so it’s best we elaborate a little as to what it is and how it works.

Will be back tomorrow...

- Andrew

 

Hi all,

As Andrew mentioned, there is a fair amount of confusion around what this exactly is. Perfectly understandable given the name of it and what the industry is used to in that context. To be very clear, what we are talking about here IS NOT a rental guarantee as offered by developers and the like on new properties where you receive a year or two of guaranteed rent at a minimum amount.

This concept and guarantee is very different in that it provides the owner rent (and thus cash flow) surety in the event the tenants get behind on their rent. It is important to understand that this does not replace your landlord insurance, and in fact it is a requirement to have it. It covers the period until such a time that the owners landlord insurance can be claimed on. As most of us know from experience, there is a highly variable delay from went rent stops being paid to when insurance reimbursement can occur.

Whilst it is not something that occurs routinely when looking at the issue of rent default on a statistical basis, when it does it can cause significant stress on the owner. It is easy to say "well every investor should have a cash buffer to protect themselves when this happens", and we certainly support that, but it is not always the case and murphy's law dictates that it will be when a repair bill and council rates etc are due also that this will occur. This puts the owner in a "double hit" scenario of not having expected rent disbursed whilst also having to contribute additional funds to cover expenses. This naturally can cause a significant amount of stress for the owner and the property manager.

Delivering an enhanced service provision to owners and investors is the main reason for implementing the guarantee, however there are also a number of benefits to the agency. The guarantee will expose the agency to an element of risk, but it also provides a level of internal accountability. In addition, the stress of the circumstances described above can make communication between the owner and property manager strained or more difficult. This guarantee assists in removing the additional stress added to the owner through lack of planned rent disbursement so the parties can engage in a more effective way to make decisions and plans to address the issue.

I imagine there will be some ongoing questions happy to address them here.

Cheers,

- Luke