If you own a residential rental property, you have surely contemplated what will happen if your tenant does not pay rent.
You will have to remind the tenant that the rent is due, they will come up with excuses, and at some point if the rent is still unpaid, you will need to begin the eviction process.
Depending on the state, that will involve sending out or serving notice to the tenant, and then some type of court hearing, and possibly a follow up visit from a constable or sheriff’s deputy.
While the process is not impossible to navigate, it presents several problems for the landlord. It wastes your time, it costs money to get an eviction attorney involved, and even if the best case scenario, you typically lose a couple of months of rental income (while still having to pay your mortgage on the house). This can eat away at your cash reserves very quickly.
What is Nomad?
Nomad is a rental real estate company that offers 3 primary services: marketing and leasing whereby they find a tenant for your property, full-service property management, and a rental guarantee where they step in and pay the rent if the tenants stops paying.
You can choose whether you want Nomad to just guarantee the rental income or if you want that plus the additional services they offer. While there are typically dozens if not hundreds of companies in any major market that can find you a tenant or manage your property, the rental guarantee is Nomad’s unique selling proposition.
Because of the way the fees work, your best bet is probably to pay the $1000 one time fee plus 4% monthly fee for marketing and leasing plus the rent guarantee. If you happen to already have a tenant identified, you can save $500 off the upfront fee by just using Nomad to guarantee the tenant. However, the tenant must pass Nomad’s screening criteria.
How Does the Process Work?
Let’s assume you want the rental guarantee but none of the other property management services (you feel confident you can find your own tenant or you already have one lined up). You go to the nomadlease.com website and input information about your rental property. Typically within 24-48 hours, they come back with a guaranteed rent offer. This offer includes their estimate of the average market rent, the initial list price, and the guaranteed minimum rent.
If everything looks acceptable and you sign up with Nomad, they will then guarantee that the rent is paid on-time each (on the 1st of the month) and every month for the duration of the lease. But not until after they pre-screen the tenant to make sure they are worth the risk that Nomad is taking on.
With the marketing and leasing service, Nomad guarantees you that THEY will find a tenant within 60 days. If for some reason they do not have a tenant by the, on day 61, the property will be considered leased and Nomad will be on the hook to pay you the monthly rent while they continue to market the property.
How Much Does it Cost?
The cost for the rental guarantee only service is 4% of the rental income plus a $500 upfront fee. Adding in marketing and leasing increases the upfront fee to $1000, but the monthly 4% fee stays the same.
For instance, if a property rents for $2500 per month, Nomad will deduct $100 as their fee, then pass along the remaining $2400 each month.
But Other Property Managers Have Made the Same Guarantee and Gone Out of Business…
This is a very valid question. If Nomad or any other property management company guarantees you something, but then goes out of business, the guarantee may end up worthless. There have been other property managers that have made various guarantees, only to involuntarily or voluntarily exit the business.
While I wouldn’t consider Nomad to be a risk-free proposition, they aren’t your typically mom-and-pop local property management company. From 2020-2022, they raised around $25M from major venture capital firms and prominent angel investors. So they do have capital in place that very few others have in the property management niche.
What Happens in an Eviction
Because of their strict screening process, evictions of Nomad tenants are very rare. However, they can happen. If the tenant needs to be evicted, Nomad will continue to pay the rent as if nothing happened. Nomad will be on the hook for the attorneys fees and the lost rent.
Nomad will take control of the eviction process so you won’t have to waste your time and emotional energy getting involved.
Who Can Benefit From Nomad’s Rent Guarantee
The rent guarantee is not free; it costs you at least 4% of your rental income or more. And at the end of the day, if you just sign up for the rental guarantee and not full property management, then you still have to find a renter and manage the property yourself. You are basically making an “insurance”-like fee to avoid the worst case scenario of an eviction and the lost income that it will entail.
So who could really benefit from Nomad? While all kinds of landlords could benefit from Nomad, a few different types of people come to mind.
One is military homeowners. Frequently military homeowners don’t build up a lot of equity in the 2-3 years they live somewhere. If they buy a house, they often have to rent it rather than sell when they move. Because they aren’t high income earners that can afford to bring in zero rent for 2+ months, coupled with the fact that they are hundreds or thousands of miles away, an eviction can be potentially devastating. A rental guarantee makes a lot of sense.
Another group that comes to mind is people whose time is extremely valuable. If even a few hours spent dealing with an eviction could cost them hundreds or thousands of dollars in missed income, having the rental guarantee forces Nomad (and not you) to deal with evicting and re-tenanting the property.
Even if they have deep enough pockets to afford a missed month of rent collection, some landlords cannot stomach the drama of a tenant that doesn’t pay or is habitually late. Having the rent guarantee mitigates this risk. You still will get the same tenant tales about medical bills, their checking account being compromised, lost income, late child support payments, an unforeseen layoff, a raise or new source of money being right around the corner, etc., but will have your rent from Nomad so you don’t have to deal with the tenant’s emotional roller coaster.
Nomad also offers a 6 month cash advance program where they front you several months worth of rent (minus a fee). If you don’t have a mortgage to worry about paying the next 6 months, and simply want to raise cash fast for some other opportunity, that would be another benefit of using Nomad. Of course there are a number of other ways to raise $25,000 or more in 7 days.