The current UK rental market is booming and property sales prices are continuously growing, which is particularly good news to property investors following the financial crisis that hit in 2008, after market values for their properties dropped significantly.
Many investors, however, still have some doubts about the market, and are very hesitant when it comes to improving their property portfolio. This is because during disruptions to the economy or the market, it can be hard, costly or time consuming for them to sell any assets. Thankfully, there are specific schemes that can be offered to investors to help keep their peace of mind.
A rental guarantee ensures that a landlord of a rental property will be paid a specific amount of rental income over a selected period of time by the management company or the developer, between a period of one to fifteen years. Throughout this period of time, the landlord is guaranteed to receive their rental income, even if there is no current tenant or if the tenant that they do have doesn’t pay their monthly rental fee. A rental guarantee is usually offered as a method of enticing investors to invest in off-plan blocks of flats or hotel rooms.
As many people will assume, a management company doesn’t tend to provide a rental guarantee just so that the investor can sleep at night. A rental guarantee is usually offered if the management company are very confident that they can achieve a higher price in rental income from the tenants than they are paying to the investor through the rental guarantee. If they can, it means that the investor gets a guaranteed rental income, and the management company get to keep the difference between the income and the fee they have guaranteed to the investor.
An immediate risk of rental guarantees is that rental prices in the area may increase, leaving the investor with the same amount of money as agreed in the terms, with the management company taking home a larger proportion than they originally were.
Despite the investor owning the property, the terms of the rental guarantee would mean that they miss out on any extra money that could be made and any additional money therefore going to the management company. This should be compared to the cost of marketing your property and any potential periods of time where you may not have tenants, as it could be much more beneficial to miss out on some extra rental fees than to not have any rental income at all for select periods of time.
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