We’re often asked what is a rent guarantee? It’s an incredibly fair question because there is not really a set answer. Fundamentally, a rent guarantee involves the promise to pay a guaranteed level of rent irrespective of what the tenant pays.
The value of a rent guarantee depends entirely on the terms of such a rent guarantee and who it’s being issued by. Rent guarantees have often received a bad rap with many not being honoured when called upon, or otherwise being superficial and having little value.
Here, we cover some of the different types of rent guarantees and their potential value to you.
Developer’s rent guarantee
Rent guarantees are most often associated with developers used as a tool to market apartments. The value of such guarantees varies greatly. In many cases they guarantees offer above market rents and for a specified period. These can be great for investors who receive rental income above what they would otherwise receive.
Issues arise if the entity offering the rent guarantee goes into administration when it comes time to pay out the rent guarantee. Investors who bought based on such a guarantee find that the entity offering the guarantee has no backing and they have no recourse to the agency or developer that sold them the property.
Our strong recommendation is to check who is contractually offering the rent guarantee and assess how likely they are to be around for the length of the guarantee term. With such guarantees you are normally obligated to use the developer’s preferred property manager, which can create issues if they offer a substandard service.
- Builder’s rent guarantee
Builder’s rent guarantees are offered by the builder with certain house and land packages. They are often provided on the bases that you utilise the builder’s in-house property manager or a property manager they have partnered with.
Many of these guarantees are offered on a yield basis. For example, several major builders in Brisbane and Sunshine Coast offer a rent guarantee equivalent to 4% yield. The issue is that this yield is in fact below the market rent that would otherwise be achieved on the open market, and the fees charged are higher than what you would otherwise pay.
We recommend doing your own research and working out what the guaranteed yield converts to as a weekly rent. If this is below what you would otherwise achieve, the guarantee has little value to you and can result in you paying higher fees. Generally, rent guarantees have greater value in low demand markets than in high demand markets.
- Property manager’s rent guarantee
A few property managers offer guarantees of various value. Some of these guarantees are truly meaningless, such as ‘satisfaction guarantees’ and ‘guaranteed rent payment’ which is perhaps the most comical. This guarantee involves the property manager guaranteeing to pay you the rent they’ve collected, which is generous considering it would be a crime if they did not.
Another one is a cashflow guarantee or arrears guarantee. This is essentially where the property manager pays the rent when the tenant falls behind. The property manager makes up the shortfall until they’re able to claim from your insurance and are then generally made whole.
In our view such a guarantee has little value to you as an owner because the amount of additional income likely to be received by you and therefore the risk the property manager is taking is nil or close to nil.
- Our rent guarantee – Rent Certainty
Rent Certainty is Australia’s most comprehensive rent guarantee. We are the only property manager that:
- Pays the rent when your property is vacant
- Pays the rent when your tenant is in arrears
- Tops up rents when they fall below the amount we’ve guaranteed
We also pass-through rent increases so you always receive market rent or better. The purpose of our rent guarantee is not to act in substitute of an insurance policy, or to increase your income per se.
Instead, by having ‘skin in the game’ and a direct financial stake in the success of your investment property we have little choice but to provide the highest levels of service and be the best property manager in Australia. Our different property management philosophy means we back ourselves in a way that other property managers simply do not.
If you want to take advantage of Australia’s most comprehensive rent guarantee, we’d love to discuss further. Leave your details here and a member of our team will be in touch before close of business today.