RENT-TO-RENT
It’s one of the hottest topics in property – and it’s spawned countless training courses and even more heated online debates.
Is rent-to-rent a great way to make money from property? Are the claims of the course providers exaggerated? Is it even legal? At the end of this article, you can decide…
WHAT IS RENT-TO-RENT?
It seems like the clue is in So where do both of those “rents” come from? Well, basically:
•You rent a property from a landlord…
•To rent it out yourself, to a tenant
Effectively, you’re taking control of the property and acting as if you’re the landlord – just like you would if you owned the property yourself.
Now, of course, this is all pointless unless you make a profit from the arrangement – otherwise you’ve got all the hassle of property ownership with none of the benefits!
That’s why in rent-to-rent you normally give the landlord a guaranteed rent which is lower than you’ll be able to charge to your tenants.
The landlord is happy because they have a guaranteed income, without any of the effort that renting out a property normally involves.
You’re happy because you’re making a profit – which is effectively your reward for taking on the effort and risk of managing the property.
Win-win!
At least…it can be a win-win.
NO NEED FOR MORTGAGES
You’re not buying the property – you’re just renting it. That means, obviously, that you don’t need to worry about getting mortgages.
Now, mortgages can be brilliant: leverage is one of the best things about investing in property. But if you can’t qualify for a mortgage – perhaps because you don’t own your own home, you have shaky credit history, you have limited earnings or you’re new to the country – rent-to-rent gives you a way of generating an income from property while bypassing the need to go anywhere near a lender.
NO NEED FOR DEPOSITS
When you buy a property with a mortgage, you’ll need a deposit of at least 20%. With rent-to-rent, you’re (obviously) not buying the property – so no need for a mortgage or a deposit.
That’s what makes rent-to-rent a popular strategy for people with limited funds. For example, if you’ve got £10,000 in savings that’s not going to be anywhere near enough for a deposit on a property – but it could be enough to set up a couple of rent-to-rents.
NO LEGAL COSTS OR STAMP DUTY
Again, you’re not buying the property – so there’s no Stamp Duty to pay. And while you might pay a solicitor to put an agreement together for you, it’s not going to be anywhere near the cost of regular property conveyancing.
(And as a side-point, you don’t have to contend with the time it takes for normal property legals – so you can theoretically get a deal tied up in a matter of days rather than months.)
IN SUMMARY…
…rent-to-rent allows you to generate cash quickly, with far less of a need for capital than normal buy-to-let.
AND WHAT ABOUT THE LANDLORD?
We’ve touched on this already, but it’s worth getting clear on the benefits for the property owner too – because these are the benefits you’ll need to explain to them if you’re going to convince them to rent their property to you.
The twin advantages for the landlord are a guaranteed income and no effort. They get to hand over their property to you, and (all being well) they’ll get paid every month for the next few years without having to do anything at all.
They won’t have to worry about:
•Gaps between tenancies, because you’ve promised to pay them regardless
•Maintenance (up to a point – we’ll come back to this later)
•Tenants not paying (other than you not paying!)
•Bills and other costs of ownership
(At this point it’s worth emphasising that the reason the landlord doesn’t have to worry about these is because they all become your responsibility!)
From the landlord’s perspective, this is different from just giving their property to a letting agent – because while an agent could remove a lot of the hassle, the landlord would retain responsibility for costs and only get paid as long as there are tenants in place and paying.
Of course, there has to be some degree of compromise – and in this case, it’s that the landlord will probably (but not necessarily) need to accept a lower monthly rent than they’d be able to charge if they were doing everything themselves. Otherwise, there’d be no room for you to earn a profit in exchange for the risk and effort you’re taking on.
