What actually is a rent guarantee?
A number of property managers offer rent guarantees but there can be huge variances between what they actually cover – with some guarantees essentially being useless. One property manager we came across offers a rent guarantee whereby they guarantee that they will pass on the rent they collect from tenants on time each month. You would like to hope your property manager at least does that given that is their legal obligation.
Certain rent guarantees focus on arrears. If a tenant falls behind on their rent the property manager may make the payment on their behalf to the landlord and then try and recoup it from the tenant. If they are unable to recoup the payment, they may seek the return of the funds from the landlord or deduct it from the rent of the next tenant. Alternatively, some property managers may purchase a form of landlord insurance on your behalf that covers arrears.
These policies are often very cheap and should not be a factor when considering a property manager. The other issue to consider is that it outsources the risk to a third-party. Arrears are often the first sign that something is wrong. You may find that arrears become a consistent issue or that the property is no longer as well maintained as it otherwise would be. Conversely, many policies dictate that arrears must reach a certain threshold before they are paid out.
Some property developers will also offer rent guarantees if you purchase an investment property. Sometimes these guarantees are at above market yields for a period of time after the purchase of the property and then reset to whatever the market rent is when the guarantee ends. Whilst getting above market rent for a period of time is always nice its worth considering what the long term cashflows from the property will be after the guarantee ends – especially if you intend to hold the property for many years.
Certainty Property is the only property manager in New South Wales that offers a rent guarantee that covers vacancies, arrears and protects you from market fluctuations in rent. When we are managing your investment property, we will keep paying the rent from the date it is vacant until a new tenant is found. It takes 37 days on average for a tenant to be found in the current market. That’s over five weeks without rent. We keep paying the rent for that five-week period so that we have a very strong incentive to quickly find you a suitable tenant. Our rent guarantee also covers arrears and are paid out of our own pocket to demonstrate how seriously we take getting the best outcome for you.
Our rent guarantee also covers fluctuations in market rents. For the first time in many years, landlords have seen rents fall substantially as a deluge of new supply has come onto the market. This is particularly pronounced in areas such as Zetland, Chatswood and Ryde where there have been thousands of new apartments. Our rent guarantee allows you to lock in the rent you are receiving today for up to 5 years. If a tenant leaves and the market rent has fallen, we keep paying the higher rent. It means our clients get consistent and predictable cashflows which is how property management should be.
If you’d like to know more about how Certainty Property’s rent guarantee can improve your cashflow simply send us a message via our online chat and a member of our team will answer all of your queries.