What is the Advanced Rent Option and is it Right For Letting Agents?
The lettings world is competitive, with many lettings agents fighting it out for the available pool of landlords. In these conditions, you need to offer something different to stand out from the crowd. Something tempting to get those landlords through your door so you can persuade them to list their properties with you. One UK letting agent believes it has found the answer, and many others will want to be the first in their local market to offer the same. It is the Advanced Rent Option (ARO).
But is offering the ARO right for all lettings agents? Keep reading to find out what the Advanced Rent Option is and how it works.
What is the Advanced Rent Option?
The Advanced Rent Option involves a letting agent paying a landlord’s rent for up to a year in a lump sum at the start of the tenancy. The agent then recoups the money by collecting the rent on a monthly basis from the tenant in the property.
The first agency to offer the ARO was Choices, based in the South East of England. The firm was looking for an innovative way to attract new business and hit on the idea of offering landlords a lump sum advance that they could use more flexibly than monthly instalments.
The ARO works thanks to Choices’ Primary Tenancy offer, where the letting agent becomes the landlord’s tenant, and then sublets to the occupier. This system takes away some responsibilities from the landlord and allows the agent to provide the ARO.
With Choices, the ARO sees the agent work out the annual rent. It then deducts the usual management fee, set-up fee for the new tenancy, and a £750 contingency for maintenance over the year. The company also takes away an additional 3.75% if the landlord opts for the rent guarantee which means there are no repayments to make if the renter stops paying.
Choices began offering the ARO in August 2019, and a number of other letting agents are trailing similar products at the moment.
Positives of the Advanced Rent Option
The main positive of providing landlords with the Advanced Rent Option is that you offer them peace of mind that they have their rent paid. They have it in their bank account and can do with it what they wish.
In a market with more serious investors around, being able to provide them with a lump sum is a real advantage. Many of these landlords want to expand their portfolios quickly. With a year’s rent in their account, they can pay more deposits more quickly and build their empire. Alternatively, they can plunge the money back into improving the property. Replacing the appliances, decorating the rooms, building an extension or whatever else they want to do.
If they don’t want to use it for their business, they could have a personal reason for wanting the advanced rent. It could pay for a luxury holiday, a new car, or anything else that they want or need the money for.
Being able to provide these options for your landlords is a huge selling point for your business. If you can tempt landlords in by promises of freedom and flexibility, you have a real advantage over your rivals.
Negatives of the Advanced Rent Option
One of the main issues with providing the ARO is the fact that you need a lot of capital to be able to offer it to all of your landlords. You might have to limit who you offer the product to, depending on your reserves.
It also means that you take on all responsibilities for evictions. You are effectively the tenant and are directly responsible for the renter to who you technically sublet.
Is it Right For You?
It is definitely the case that providing landlords with their rent up to a year in advance is a headline-grabbing offering. In a busy market, it could well prove the difference between signing up a landlord and missing out on them. By selling the many benefits to them, you stand a great chance of marketing their property.
Admin-wise, you need to have everything in place and watertight, as it would see you renting properties in a different way from normal, which brings risk with it. You have to balance the potential downsides with the upsides to work out whether this approach is right for you.
If you have any questions about property management, talk to us today. We provide two different outsourcing options for your business and we would love to talk about your requirements today.