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  • Property-a-holics

    Sub-letting/Rent 2 Rent vs. Guaranteed Rent vs. Guaranteed Rent Insurance

    There was a discussion on here earlier that was developing along interesting lines when, for some reason, the original poster deleted it.

    I therefore wanted to resurrect the topic to bring clarity to these different strategies/products.

    Sub-letting/Rent to Rent

    ... is where a tenant rents a property from the landlord and then sub-lets it, either as a whole dwelling, or renting out individual rooms.

    In some cases, the sub-tenants may think the Head tenant is the landlord! In some cases the landlord will not even be aware of a sub-letting going on, until a property inspection reveals partitioned walls and multiple strange tenants!

    There is a lot of argument over how to set up a Rent to Rent agreement within the law.

    Read our various related discussions to find out more:

    What the lenders say about sub-letting and Rent to Rent

    What the portals say about sub-letting/Rent 2 Rent

    Professional landlords reputations damage by Rent2Rent and sub-letting

    Some people call Rent to Rent "guaranteed rent". If the person offering the guaranteed rent is of poor financial circumstances and they are relying on letting out the rooms to pay the landlord, then their guarantee should be considered worthless.

    A guarantee should come from a credible person/company with a track record and assets behind them that can guarantee the rent.

    The onus is on the landlord to inform the lender of the arrangement.

    The rent paid to the landlord would typically be less than market rent.

    Guaranteed Rent

    .... is where a person or organisation guarantees the rent, whether the property is tenanted or not. This is set up as a business agreement between the landlord and the guaranteed rent scheme. The guaranteed rent scheme operator then takes over complete running and management of the property and finds tenants ... usually a single occupancy scenario.

    As above, the guarantee should come from a credible person/company with a track record and assets behind them that can guarantee the rent.

    In the case of the Northwood Guaranteed Rent Scheme, their documentation has been approved by Trading Standards and the Property Ombudsman.

    The onus is on the landlord to inform their lender of the arrangement.

    The rent paid to the landlord would be below market rent, but the landlord would not have any additional costs ... no letting agent fees, no repairs etc.

    It is a "let and forget" solution for landlords who want to be completely "hands off" and enjoy peace of mind.

    See this short video for more information:







    Related discussion: Guaranteed rent for landlords

    Guaranteed Rent Insurance

    ... is an insurance policy that you can claim on if the tenant stops paying the rent.

    There is no guarantee that the company will pay out the full rent, there might be delays, you will need to provide documentation etc to support your claim.
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    [Image: 4995468760_6be86655d4_t.jpg]
    general operations director, site owner and moderator - propertytribes.com

    Nick,

    I just posted on hte "PT Exclusive: What the lenders say about sub-letting and Rent2Rent" thread the following scenario:

    Hi All

    Thought I would contribute further to the debate on R2R subletting and breach of lenders T’s& C’s.

    I am providing an example of rent guarantee agreement we provided to an accidental landlord who emigrated.

    Mortgage provider: one of UK’s biggest banks

    Mortgage type: residential

    We asked the accidental landlord to get written consent from the lender that they could let their residential dwelling, which they obtained: The terms were as follows:

    TERMS AND CONDITIONS

    We consent to the letting of the property providing the agreement does not result in the tenant
    having the benefit of any security of tenure over and above the contractual term of the
    tenancy, and the following conditions are met.

    1. The tenancy agreement creates a valid and properly constituted:
    - assured shorthold tenancy, or
    - a company let (i.e. a letting which does not fall within the provision of the Housing Act 1988
    as amended by the Housing Act 1996)

    The bank does not require sight of the agreement. However, if any other type of tenancy
    is entered into, the bank will require sight of the proposed agreement for approval,
    prior to commencement.

    Whichever type of tenancy is created, the bank must be able to obtain vacant possession at the
    end of the term if required.

    2. The term of the agreement, including any extension periods contained within the agreement,
    must not exceed 12 months.


    Outcome

    Accidental landlord then went and obtained relevant Landlord’s insurance

    A commercial agreement (company let) was then entered into between the two parties

    Accidental Landlord then emigrated

    We found a tenant on an AST, carried out full inventory registered deposit with DPS and provided prescribed information within 30 days of receiving bond.

    Tenant pays us monthly

    We pay landlord of the agreed date every month

    We make monthly positive cash flow

    Tenant has a nice house with a good landlord

    Accidental landlord still maintains an interest in the UK housing market and has his mortgage paid every month.

    Lender happy, Accidental landlord happy, tenant happy, we are happy.

    Simples!
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    Rooms In Cardiff info@highyield.property | Guaranteed RentLow Cost Management £50/month |Pay As You Go HMO Management | Cardiff Letting Agents & Property Managers | Delivering Double Digit Net Property Returns

    Rent Smart Wales Agent Licence Number: LR-37010-29907

    The Property Ombudsman: E1405 

    ICO: #ZA276375

    We operate Client Money Protection


    Very helpful post, thank you so much for your contribution Mark.
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    [Image: 4995468760_6be86655d4_t.jpg]
    general operations director, site owner and moderator - propertytribes.com

    Nick,

    Not a problem, there is such a stigma attached to Rent 2 Rent, rent guarantee and subletting because nobody is willing to put their neck on the line and shed light and provide transparency on subject.

    I think the main reason for this as there are a lot of people who claim to be practising these techniques that are only providing the talk but not walking the walk and probably a lot of people who are providing Rent 2 Rent etc. are not 100% confident they are doing correctly so don’t want to be cross examined on forums like PT.
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    Rooms In Cardiff info@highyield.property | Guaranteed RentLow Cost Management £50/month |Pay As You Go HMO Management | Cardiff Letting Agents & Property Managers | Delivering Double Digit Net Property Returns

    Rent Smart Wales Agent Licence Number: LR-37010-29907

    The Property Ombudsman: E1405 

    ICO: #ZA276375

    We operate Client Money Protection

    Rent2Rent companies are using the wrong letting contracts


    Whilst I have never been a fan of the Rent2Rent scheme I have to accept that a lot of investors are using Rent2Rent as part of their strategy. As it is the mission of Property118 to share best practice, helping these investors to get their paperwork right fits within our mission, regardless of any the other misgivings I might have personally have about the scheme.

    For more details please see >>> https://www.property118.com/rent2rent-let...cts/41231/
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    Regards


    Mark Alexander - Property118.com
    Twitter: @iAmALandlord
    As Nick mentioned our Guaranteed Rent Service I thought it would be useful for me to join this discussion.

    I know that these schemes can work really well, but it is essential that the landlord is informed of any possible issues with their mortgage lender and insurance company and that they are encouraged to make the necessary checks before entering into an agreement of this type. With our service, we are very up front about the fact that the property will be sub-let and the agreement between the parties reminds the landlord that he should check the conditions of his mortgage and insurance.

    Also, we do not make any structural changes like partition walls/changing a lounge to a bedroom etc. to the property to optimize rental income - the property is let as it is (unless any redecoration/minor improvement work has been agreed with the landlord) to a tenant or tenants who are suitable for that particular type of property.





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    Helpful new infographic from Northwood explaining the difference between RGI, Guaranteed Rent, and Rent 2 Rent:

    [Image: guaranteed-rent-infographic-med-low-res.jpg]

    To view it full size, please click >>> here.
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