Guaranteed Rent vs. Traditional Leasing: A Side-by-Side Comparison

Pluxa Partners

April 4, 2024

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Key takeaways:

  • Go through guaranteed rent vs. traditional leasing differences for better clarity.
  • Associate with professionals who can help you achieve your desired returns without facing the hassles of going through the complexities.

Do you own a rental property?

But have you chosen between guaranteed rent vs. traditional leasing approach?

If not, then don’t worry.

We got you covered. 

Choosing a successful approach to generate a steady income flow through your rental property can be overwhelming.

So, we have tailored a guide that can help you make an informed decision and help you achieve your ROI goals.

Understanding How Guaranteed Rent Works

If you own a property in the United Kingdom, you can take advantage of the rent guarantee scheme, also known as a rent-to-rent scheme.

In these schemes, you sign a contract with a company or an operator, who then becomes responsible for the property. 

This operator will pay you a fixed monthly rent, regardless of whether the property is occupied.

Consider you have a two-bedroom flat in London. You opt into a guaranteed rent scheme with a property management company. The agreed monthly rent is £1,500. Under this agreement, the management company might rent out the property for £1,700 per month, keeping the £200 difference as their fee. 

You get £1,500 every month without fail, even if the property is vacant for a couple of months. 

That’s a decent guaranteed rental amount.

The setup will save you from the hassle of finding tenants, handling emergencies, and dealing with maintenance issues. You can enjoy a consistent income while the management company handles the daily operations.

A win-win situation for both, right?

But what if you choose the traditional leasing approach?

Understanding How Traditional Leasing Works

Traditional leasing is a common approach for landlords if they prefer to maintain direct control over their rental properties. 

In traditional leasing, you rent out the property, from selecting tenants to managing day-to-day operations. 

It can get hectic if you don’t love the process.

The approach enables you to tailor your leasing experience to their preferences and needs. 

But it also comes with a range of responsibilities.

Here’s the list of responsibilities you have to take care:

  • Tenant selection
  • Lease agreement
  • Rent collection
  • Maintenance and repairs
  • Legal responsibilities
  • End of lease

Imagine if you own a one-bedroom flat in a desirable part of Bristol. You advertise the flat on local rental websites and conduct viewings for interested parties. After selecting a tenant based on their stable income and clean rental history, you draft a 12-month lease agreement with a monthly rent of £900.

You are responsible for collecting the rent directly from the tenant. Say the boiler breaks down six months into the lease.  

You must quickly arrange for repairs to ensure the tenant has hot water and heating.

So, what are your options?

Nothing. As you are legally bound to ensure smooth living conditions. 

By the end of the lease term, you evaluate the market conditions and decide whether to offer the tenant a lease renewal at a potentially adjusted rent rate or end the tenancy.

Tabular Comparison: Guaranteed Rent vs. Traditional Leasing

Although you now understand guaranteed rent and traditional leasing for a landlord, here’s an overview of the comparison table for easy understanding. 

CriteriaTraditional leasingGuaranteed rent
Rent collectionRent is paid by the scheme operator, ensuring consistent income regardless of occupancy.The landlord collects rent directly from tenants.
Vacancy riskNo vacancy risk as the operator pays rent even if the property is unoccupied.The landlord bears the risk of vacancy and potential lost rent.
Tenant managementThe scheme operator handles tenant management and issues.The landlord is responsible for finding tenants and management.
MaintenanceOften covered by the operator, reducing landlord responsibilities.The landlord is usually responsible for maintenance costs.
Contract lengthTypically longer-term contracts, providing stability.Lease terms can vary, often shorter.

Income predictabilityHigh predictability of income due to fixed rent payments by the operator.Rent income can fluctuate based on tenancy and market rates.
Legal responsibilityThe operator deals with most legal aspects, including evictions, if necessary.Landlords must handle legal issues and tenant disputes.
FlexibilityLess flexibility in terms of contract termination or changes.More control over property and leasing terms.
Profit potentialGenerally lower than traditional leasing as the operator takes a margin.Potential for higher returns if market conditions are favorable.
Setup complexitySimple setup with the operator handling most logistics.Requires more effort from the landlord to set up leases and manage properties.

So, which strategy is ideal for you?

Dilemma?

You can associate with professionals to streamline your planning for rental property.

Pluxa Partners Has Got You Covered

Choosing our professional property management services can minimize the burden of managing your rental property. 

We, at Pluxa Partners, offer a comprehensive approach to cover everything from effective marketing strategies to ensuring your property reaches potential tenants.

From guaranteed rent to traditional leasing, we can assist you with all,

You can also list your serviced apartment with Pluxa and simplify your property management. We also take care of the day-to-day operations of your rental property.

Contact us now. 

FAQs

Who is a guaranteed rent programme ideal for?

A guaranteed rent programme is ideal for landlords who prefer a hands-off approach to property management. It suits those who value consistent income without the hassle of managing tenants, handling maintenance, or worrying about vacant periods.

What are the benefits of guaranteed rent programs?

The benefits of guaranteed rent programs include:

  • Steady income: Ensures regular rent payments, even during tenant vacancies.
  • Reduced management responsibilities: The company managing the program handles tenant issues, maintenance, and other operational tasks.
  • Lower risk: Reduces the financial risks associated with vacancies and non-paying tenants.

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