This document is designed to outline an example scenario where an agent offers a ‘Rent to Rent’ scheme, guaranteeing an amount to the owner of the property while normally receiving a higher rent again from the tenant(s). The difference then becomes either a buffer for non-payment by the tenant (allowing the agent to offer the guarantee without risk of using other client funds), or the equivalent of a fee owed to the agent if the buffer already exists. This offering is normally in lieu of a regular percentage or fixed amount management fee, both of which would be set at 0 on LetMC.
To set this up correctly you need two landlord profiles – one as a ‘holding landlord’ profile to receive the full rent funds from the tenant (and to hold any buffer) and a second profile for the ‘owner’, where the lower amount would be transferred across to, and then shown as paid out from.
How the agent needs these to show on paperwork will determine how they would name each profile – the ‘holding landlord’ profile is the one that would appear on the tenancy agreements and any notice documents, and the ‘owner’ will be the one receiving statements and any other financial paperwork.
Scenario: Tenancy of £1000pcm with a Guaranteed ‘Rent to Rent’ of £800pcm owed to Landlord
- Tenancy is set up on the system, with your holding landlord as the property owner.
- Tenancy is signed on LetMC and rent arrears of £1000 become due on tenant account.
- Tenant pays £1000, funds are reconciled on LetMC against bank statement entry and allocated to tenant account.
- Funds move from tenant to holding landlord, with no deductions at this stage.
- Holding landlord profile builds up funds as they are moved across from tenant, showing a credit balance.
- An Auto Transfer can then be set up to go from the holding landlord profile to the owner profile, at the lower £800 amount. This would be set to repeat on a set date in the future, e.g. once a month on the 1st of the month. Whatever reference the client enters here will appear on the owner’s statement every time a transfer takes place, so it might include the property or tenant details in it, but wouldn’t include any date information.
- This transfer will take place regardless of the tenant paying any funds in, and can end up leaving the holding landlord profile showing in arrears if no available funds are showing. This is why most agents will tend to leave a buffer of the first rent(s) received, so in theory no other client funds would then be used to pay the guaranteed rent to the owner.
- The owner then appears under Landlords in the People in Credit list with £800 credit, and can be paid out in the normal way. A statement for the owner can be produced and sent at this point if needed.
- Once enough funds have built up, the agent can choose to ‘pay’ the holding landlord profile, again through the Landlords list in People in Credit. In real terms this payment would normally be a movement of funds from the client account to the office or trading account.