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Where is the catch in guaranteed rent?

Where is the catch in guaranteed rent?

If you chance to search google or Facebook for “property management” you will soon come across many advertisements by property management companies who will mark you as an interested party. Soon, you will begin to be bombarded with all sorts of 100 percent guaranteed rent promises. What if there is no tenant? No worries, the property management company guarantees to pay the rent so that the property owner can rest assured, fully secure. Seemingly this is the dream of any property owner.

However, anyone with experience in property management, and anyone with a head for business, will soon realize that these companies, who invest a great deal of money in advertisements intended to hunt down property owners, lose nothing and certainly don’t undertake any risks by committing to provide the property owner with a guaranteed rental income. So what’s the catch?

Time for an explanation:

In fact these companies who offer a guaranteed rental income actually enter the apartment as tenants, and they sign a lease contract with the property owner which permits them to sublease the property. So far, so good…

However, for their property management services they charge a fifteen percent fee, supposedly for the risk they take in the event the apartment ends up vacant (nearly double a standard lease fee of 8%).

Moreover, these companies also rent the property from the owners at a rate that is far lower than the market value. That is how they make sure they will be able to pass the property on to sublease. In this way the property owner pays twice – he both pays a very high 15 percent management fee, and the remaining 85 percent are from a much smaller sum than he could have secured had he rented his apartment at the going market rate. In fact, the rental market in the City of Prague, or any other central city, is lively and demand generally outstrips supply. Therefore you don’t really need to worry about not finding a tenant for your property – so long as you price it right, it will be leased relatively quickly. In addition, the rent guarantee contract generally does not include management obligations on the part of the company. Rather, it is a lease contract between the property owner and the “property management” company which enters as a tenant with the special right to perform subleasing. The moral of the story? When someone makes you an offer in which he seemingly undertakes all the risk – check for the catch. There is always a catch.

If you want to get a solid, attractively priced property management quote – without any guaranteed rent or any other false promises, check out our price quotes.

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