As a landlord wishing to put your property with a ‘managing agent’, there are essentially two main options: a long term ‘guaranteed rent option’ and a traditional ‘high street’ lettings agent. It is important that landlords understand the two models and are aware of the pros and cons of each.
There are variations on the long-term guaranteed rent theme, but a common arrangement that a landlord may come across, is often referred to as ‘Rent to Rent’. In this arrangement an individual or company will approach the landlord and offer to rent their property from them, ‘guaranteeing’ the rent over a certain period of time and managing the property throughout this period, including dealing with maintenance. The rent offered is often close to or at the market rent level. The tenant/agent will then sublet the property – often to a number of individuals, thus operating it as an HMO – to generate a higher net rent then they pay the property owner, enabling them to make a profit.
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Self-managing landlords will understandably be attracted to this proposal. On the plus side, there is the promise of guaranteed rent and a very much ‘hands-off’ arrangement for the landlord.
The second big plus for the landlord, is the potential for much reduced maintenance charges (depending on the fine detail of the contract in terms of what is and is not covered in terms of maintenance). However, there are also some downsides and potential issues with this arrangement. Firstly, the landlord loses control of the property and in particular, how the property is used. This is particularly relevant if the ‘agent’ then lets the property as an HMO.
This may not be permitted in the terms of the landlord’s mortgage and may also fall foul of the terms of the insurance for the property. The second potential issue, is around the guaranteed rent. The viability and security of this is very much dependent on the financial circumstances of the agent themselves. They will be required to pick up much of the maintenance and the cost of any voids during the rental period, irrespective of whether they are successful in sub-letting the property. Landlords are advised to thoroughly check the financial circumstances of the renting company or individual before entering into these arrangements, to make sure they are able to afford to pay the agreed rent.
The more traditional route for many landlords is to use a ‘high street’ or other letting agent. The advantage of this route for the landlord, is that they remain in touch with how the property is being used and who it is being let to. A good letting agent will always involve the landlord in the decision in choosing an appropriate tenant. It is also likely, that the landlord will have the appropriate mortgage and insurance in place to cover this arrangement. The obvious downside is that the landlord – at least on paper – will be liable for higher costs, such as management fees and maintenance costs.
It is down to the individual landlord to decide which arrangement is right for their circumstances, but our advice is to properly consider who you use to manage your property and only pick reputable agencies and individuals who have a well-established track record in tenancy management and understand the market and legislation.
