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Guaranteed Rent: Music to a Landlord’s Ears

How Can I Get Guaranteed Rental Income?

Signing paperGuaranteed rent. Two words that would make any landlord’s heart sing. The concept of guaranteed rent has become a reality from a host of new companies springing up throughout the U.S.

Almost every landlord has their stories about unreliable tenants who consistently didn’t pay their rent on time, shorted the rent payment or didn’t pay at all. These tales usually end with a vacant unit, loss of income and possibly, the pain and expense of an eviction.

Now, a number of ingenious plans to help property owners maintain their monthly income have been gaining momentum. Each one may have its own business model and variations, but as a group, they may be just what landlords need now that eviction moratoriums are expiring. Welcome to iRenting.

Technology meets rental property owners

Zillow, OpenDoor, RedFin and other iBuying real estate companies revolutionized the homebuying market with their algorithms and high-technology services. Now the residential rental field is being transformed by the iRenters.

Nomad is an example of an iRenting company that will bring to the property owner a pre-screened tenant who will actually be the sub-tenant. Nomad signs the lease, collects the rent from the resident and forwards it to the landlord each month minus a fee, usually a percentage of the monthly payment.

Explained Nomad founder P. J. O’Neil in a recent interview with Rental Housing Journal, “The one-year lease can range anywhere from two percent to five percent of monthly rent, and the three-year can range anywhere from seven percent to 10 percent of monthly rent. And then the two-year falls in between.

“We are the ones collecting rent from the resident,” he continued. “The way it’s structured is we sign a master lease with the landlord, so we are technically the landlord’s tenant and that’s how the landlord thinks of us, and then the resident is our sub-tenant. (The tenant pays) us rent every month.” 

Guaranteeing Rentals with a Twist

Tech start-up Doorstead developed its own twist on iRenting by originally specializing in single-family homes and then expanding to multifamily properties. Currently operating in the San Francisco Bay Area, Los Angeles and Orange County, the company presents the property owner with a proposal that includes the minimum guaranteed rent amount and a promise to rent the home with a certain number of days. If they do not find a tenant within the agreed-upon timeframe, they begin paying the rent to the landlord.

Doorstead prepares the property for the marketplace by managing repairs, cleaning, photography, listing, showings and tenant screening. Once the home is leased, they will collect and distribute the rent, conduct annual inspections and deal with evictions, if necessary.

In an interview with TechCrunch, Ryan Waliany, Doorstead’s co-founder and CEO, noted, “At Doorstead, we have an opportunity to completely redefine the housing value chain by creating a new class of property management that eliminates unnecessary vacancies.”

Wholesale Rentals

Another variation of guaranteed rent is the wholesale rental. This method is utilized when a property manager contracts with a property owner to provide them with a guaranteed sum in return for the right to rent a unit. The owner receives the fixed monthly amount over the term of the contract without the financial risks involved with collecting rents from tenants and trying to keep the property occupied. The risk lies with the property manager who is still obligated to pay that promised amount of money even if the home becomes vacant during the course of the contract.

Rezi is an iRenter that leases apartments wholesale from landlords and rents them to tenants at current market rates. Property owners begin receiving rent as soon as they sign with the company and don’t have to wait for the unit to be rented. Rezi will also pre-lease upcoming vacancies in order to minimize the time that an apartment is empty. REZI CEO, Sean Mitchell, who was honored by Goldman Sachs as one of the 100 Most Intriguing Entrepreneurs of 2020, has suggested that the company’s automated system can enable tenants to find, tour and rent an apartment in as little as five minutes.

Rent Guarantee Insurance

Rent guarantee insurance differs from landlord loss-of-rent coverage, which protects your income if your tenants have to move out due to insured damage to your property, such as that caused by a flood or fire. On the other hand, rent guarantee insurance covers a landlord for lost revenue for a preset period of time if and when a tenant defaults on their rent. Although this type of protection can be costly, the premium might be passed on to the tenant, particularly if they have a record of bad credit. A downside to this type of insurance is that it does not cover an entire building. An application must be submitted for each individual lease and the premium must often be paid in full at the time of issuance.

LeaseGuarantee

While not technically a monthly rent guarantee program, LeaseGuarantee provides payment of all unpaid rent, damages, legal fees and costs owed by a tenant to their landlord in the event of a court judgment in favor of the property owner. The LeaseGuarantee contract, which is valid for one year and covers all individuals on the lease agreement, can be paid for by the landlord, qualified tenant or both and the protection is renewable.

Guaranteed rent programs, especially those backed by a thorough tenant screening report, are a great way to help ensure rent is always paid, no matter what. They can provide peace of mind for landlords and tenants alike. There are both pros and cons to leasing with a rent guarantee program, so it’s important to do your research about options offered in your area before signing any agreements.