When letting a property, landlords seek to mitigate risks, particularly the risk of non-payment. Two common strategies are asking tenants for rent in advance or securing a guarantor. Both options offer financial security, but they come with different advantages and drawbacks. Understanding the difference can help landlords make an informed choice based on their circumstances and the tenant profile.
Rent in Advance: A Short-Term Solution?
Rent in advance means the tenant pays a lump sum upfront which provides the landlord with immediate security, ensuring a set period during which rent is guaranteed.
On the surface, a tenant paying twelve months’ rent upfront can seem like the perfect solution. After all, this provides financial security for the landlord by removing any concerns about potential late or missed rent payments during that period. This is particularly important when a tenant has weaker or inconsistent income such as students and self-employed.
However, this provides limited long-term security. Once the upfront rent period ends, the landlord faces the same risks of late or missed payments as they would with a traditional monthly payment model. If the tenant’s savings are depleted, how will they pay rent moving forward? This scenario can quickly become problematic for landlords. So, while rent in advance provides a short-term cushion, landlords should consider provisions to avoid issues once that upfront payment has been used.
Securing a Guarantor: A Long-Term Safety Net
A guarantor is a third party—often a relative or close associate of the tenant—who agrees to cover rent payments if the tenant is unable to pay. The guarantor typically must meet strict financial criteria, such as earning significantly more than the tenant or owning property and must pass credit checks.
Requiring a guarantor rather than rent in advance opens the option for tenants who may not have large savings to cover the rent in advance which can lead to a wider pool of tenants. With a guarantor in place, the landlord has a financial safety net for the entire duration of the tenancy. This is particularly important if the tenant is slightly below the affordability criteria or if they have a minor credit issue. If the tenant defaults on payments, the guarantor is legally obligated to cover the rent.
While having a guarantor offers some peace of mind, the process of claiming rent from them can be both costly and time-consuming. If the tenant defaults and the guarantor refuses to pay, landlords may need to take legal action, leading to significant delays in recovering the owed rent.
A Belt-and-Braces Approach
At M A S O N S, we always recommend a ‘belt-and-braces’ approach when considering tenants who don’t meet the referencing criteria. In these cases, having a guarantor is essential. Additionally, we advise either rent in advance or rent guarantee insurance to provide extra security. If opting for rent in advance instead of rent guarantee insurance, you should also ensure that the tenant agrees to pay the next twelve months of rent well in advance of it being due, giving you appropriate time to serve notice if necessary. These strategies provide solid protection for landlords even in the worst-case scenario.
In Conclusion
Both rent in advance and securing a guarantor offer valuable risk mitigation strategies for landlords. Rent in advance provides immediate financial security but may only serve as a short-term solution, while a guarantor offers long-term assurance that rent payments will be covered throughout the tenancy. By combining the long-term assurance of a guarantor with the immediate financial security of rent in advance or rent guarantee insurance, landlords can adopt a comprehensive approach that safeguards against potential payment gaps. This strategy protects landlords from financial disruption and helps avoid lengthy eviction processes. Planning ahead and putting these measures in place ensures continued security for you and your investment.
M A S O N S is a leading letting agent in Hitchin, covering rental and buy-to-let properties in Hertfordshire. Founded on award-winning lettings experience, we specialise in property management, buy-to-let in Hitchin, and residential lettings – drop us a line at [email protected] or call us on 01462 557477.
