Can you make money from property investing, without actually buying a property?
Let’s explore a new property investment strategy in the UK market making shockwaves. Rent to Rent property, otherwise known as Guaranteed Rent.
What is Rent to Rent Property?
Like some of the world’s biggest brands, uber doesn’t own any taxis. Airbnb doesn’t own any hotels and Rent to Rent means you don’t own any properties.
But with this new business model, you can still control and make money from properties by simply renting them from landlords for a lower price than the market rate and renting it out for higher to ordinary tenants.
Rent to Rent Landlord Benefits
Rent to Rent property is very different from a normal Assured Shorthold Tenancy (AST) where you rent the property from a landlord in it.
This is where you create a commercial agreement, known as a lease – to effectively rent the property *building* for a fixed price every month.
You then do it up, put in furniture if you want to furnish it then rent it out on the open market.
You pay the landlord their fee every month, collect the rent, and anything in the middle you get to keep.
Rent to Rent Investor Benefits
The whole idea of ‘Rent to Rent’, just like the big tech companies like uber, Airbnb and more – it’s about control, rather than ownership.
Rent to Rent Property Strategies
There are a few different strategies within Rent to Rent that might be worth considering to kickstart your property business.
The critical thing is to find an asset that’s underperforming for it’s potential, which means you could spend a bit of money bringing it up to a good standard, or re-thinking the usage of a property to make more money from it.
Rent to Rent HMO (Houses of Multiple Occupation)
When thinking about building cash flow in your business, you could focus on single buy-to-let properties however the cash flow is never that strong, especially when renting homes in the south of the UK where typically, competition is tough, and the returns will be very low.
This can be risky when you have to consider that you have to take on the maintenance and upkeep of the house.
HMOs are a great way of taking a house and renting out the house by the room.
This coliving strategy is very popular with students and young professionals and can work well in any major city with a lot of employers or universities. HMOs can come in all shapes and sizes and have a mixture of shared or en-suite bathrooms.
Where a typical buy-to-let house might net you about £250 a month profit, an HMO could net you anywhere from £800 to £1000 a month, and with smaller upfront money required – you’ll be able to scale a profitable business quicker.
🏡 Let’s look at an example property
If you rent a normal family home with 3 bedrooms and 2 reception rooms, you might be able to rent something like this for about £1000 a month.
If this property was an HMO in a popular city, you could achieve around £500 a month per room, this typically includes bills as you’ll pay these on behalf of the tenants.
If you converted the 2 reception rooms (or possibly kept one as a shared space) you could generate a gross rental income of £2000 to £2500 per month.
Take away the £1000 you pay to the landlord to lease their home and then the bills and maintenance reserve, you could be left with about £500 – £1000 per month in this scenario depending on whether you rent out 4 or 5 bedrooms.
You have to remember that HMOs in some council areas require licensing so you should always check with your local council and authority what their requirements are to make sure your house follows all the correct standards and fire procedures. You should always consider and learn whether it’s also in an article 4 area.
This is where C3 to C4 permitted development rights are removed.
This is a cost worth factoring in if you have a family home, it may not have things like fire doors, or even if a 3-story house – an integrated fire alarm. The best thing to do is speak to your local HMO officer.
Rent to Rent Serviced Accommodation
Like above, you could take a flat in a city centre and set it up as serviced accommodation. This is where you pay for the flat as a whole from a landlord and then rent the flat out on a nightly basis through services like Airbnb, booking.com, and more.
You could rent out an average 2 bedroom flat in a city centre for £800 a month, however, you could rent the room for an average rate of £80 a night. Assuming you can fill 25 nights a month, this would gross £2000 a month.
With this method, your costs will be higher to factor in key management, cleaners, and the higher management costs of dealing with many guests weekly.
However, through this method, you could still make about £500 – £1000 a month depending on your nightly rates and occupancy rate.
Serviced Accommodation is often another hot topic, so add this and rent to rent together in property training courses, and you’ve never seen so much financial freedom in a room.
The reality is they cost a lot to run, and profits might actually be lower if you don’t have a strong room rate or occupancy. The income might be great – but your costs might drown your profits, and you don’t end up with a lot for a tonne of work managing all those guests, cleaners, and management.
Similarly to the HMO strategy, it’s important to understand your landlord’s mortgage if they have one as it may not be valid for the usage you want to turn the property into.
Rent to Rent - Buy to Let (Single Let)
Lastly is good old vanilla buy to let, or single let.
This is where you lease the property from a landlord, give them the guaranteed rent for a lower monthly price and then you get some good-paying tenants and take on the property.
Why would a landlord want to give away their property for cheaper? They might not want the hassle of voids, maintenance, and all the hassle with a property.
They just want to receive a fixed amount of money every month knowing it’s guaranteed by you and regardless of what happens you’ll maintain the property and pay the rent during your agreement.
Rent to Rent - Gone Wrong
Stories are floating about in the news about dodgy companies, renting properties from Landlords and not compliantly renting them out, creating massive fines for the landlord.
Alternatively, they’ve rented properties out to bad tenants, causing problems within the house and backing away from the deal, again leaving the landlord in a really bad position.
Because Rent to Rent is being advertised as an easier strategy and is rife in the property training world to ‘get rich quick’, it’s being advertised as a quick and easy way into property because it does require less cash.
However – it’s still a serious business that requires compliance, regulation, and operating properly.
A lot of newbies into the market will go out there and start advertising to landlords.
However, if you find a nice family home, it’s pretty likely the landlord will have a buy-to-let mortgage on the property.
This prevents them from letting the property out as an HMO.
If you then start changing the use class of the property from C3 to C4, the council tax has multiple people on it, or you apply for licensing, the lender may get wind of this, and it completely voids their product; the lender might demand full repayment of the mortgage and blacklist the landlord in future – so you should always check this with the landlord first.
Ideally, they should not have a mortgage on the property.
Sometimes – Rent to Rent is often confused by landlords as ‘sub-letting’, this is where you take out an AST on a property, and then you yourself, rent it out to someone else. This is wrong and often is where somebody isn’t being honest with the landlord.
You should always be honest what you want to do with the property and conduct your due diligence on them and the mortgage product they have if they are mortgaged.
The Pros & Cons of Rent to Rent
Rent to Rent is a new and interesting way to bring benefits both to you and the landlord who owns the property.
If you’ve ever rented out a property, you’ll know the pains regardless of whether you manage or outsource it to an agent.
✅ Benefits to Landlords
⚠️Risks to Landlords
✅ Benefits to You (Investor)
⚠️ Risks to You (Investor)
How To Find Rent-to-Rent Deals
Rent to Rent can really work well for both you and the landlord, it brings benefits to each party, and that’s what a successful deal is all about.
Property often requires creative solutions, and this is one of them.
A lot of landlords out there, they may be fearful of this strategy purely because they don’t understand it.
This means for the majority – it probably isn’t the right thing for them.
They’re happy maintaining control and either managing it themselves or outsourcing it to an agent while taking on that hassle and maintenance cost.
There are plenty of courses out there, but 99% of them are utter rubbish.
You don’t need to pay for training, instead work with a great mentor or solicitor who is experienced in this because you are only as good as your contract.
Speak to Property & Lettings Agents
The people who have the biggest lists of landlords in a local area, great contacts, and also know who is thinking about hanging up their coat for good as property investors.
Estate agents spend a lot of time talking to landlords every day.
One little trick is to head onto an estate agent’s website and view the properties they currently have to rent on the market.
Even better if you can search it by time on the market if one has been lingering a little too long or the price has changed – this might be a good opportunity to inquiry.
However, be warned – estate agents, just like the landlord likely have no idea about Rent to Rent and the idea is confusing to them.
They might be fearful that as part of the agreement they don’t get their fee (this would need to be added to your costs).
Relationship building is crucial and even better if you can work with an agent who knows and trusts you.
If you can present a case to the agent that they’ll still get paid, but they’ll have ZERO work to do because you’ll take over management and the repairs – it’s quite an attractive offer for them to get paid for doing nothing day to do, apart from referring the deal to you!
You could advertise through Google Ads in a local area, use targeted Facebook Ads, post in property forums, or even create your own property brand in a local area to advertise your services such as guaranteed rent, no void periods, or hassle.
This is great for tired landlords who just don’t want to deal with it all anymore, but are not ready to sell their properties just yet.
What is a Rent To Rent Agreement (Contract)
A rent-to-rent agreement originated mainly from the commercial property world where commercial landlords and tenants would have a lease agreement.
Just like if you leased a car for monthly payments – you don’t own it, but you can use it.
And you’re also responsible for repairs and maintenance. This is known as an FRI (Fully Repairing & Insuring) lease.
You should not be using a standard residential AST contract (assured shorthold tenancy agreement) as this is wrong and will not carry the correct protections and agreements between yourself and the landlord.
If you rented out a property under an AST, this would indeed be sub-letting which both the landlord and lender would not be happy with.
Thankfully as things have matured in the industry, the Property Redress Scheme (PRS) do recognise Rent to Rent as a legitimate way to lease a house.
So this may also give landlords confidence as some are reluctant due to not knowing anything about it or never hearing about it before.
I’m by no means an expert on this, so speak to a qualified solicitor and expert who can guide you through the legal paperwork of a rent-to-rent agreement.
Work out who should pay for what.
For example – if the roof falls through because this is structural, you might not want to pay for this £20,000 expense, and this should be agreed upon very clearly with the landlord and written on the contract. You can cover routine maintenance, but a line should be drawn where that responsibility stops.
You need to make sure the agreement works in both favours, so don’t try and create advantages for yourself that bring unfair results to the landlord.
That isn’t an honest business.
The length of the agreement is also very important, this could usually be 3 to 5 years; it would allow a long enough time for you to recoup any funds you might spend on an initial refurbishment of the property and give you enough time to begin making a profit over the lifetime of the agreement.
Rent to Rent Conclusion
So, to summarise Rent to Rent property in the UK.
It’s a new, exciting strategy that requires a lower bar to entry compared to investing in your property.
It’s a great way to build cash flow and capital in a business and stretch your initial money further.
You can find a creative agreement to benefit both yourself and a tired landlord where both benefit and profit from a healthy agreement.
You need to be willing to put the work in as rent-to-rent deals are hard to find and secure due to skeptical landlords and agents.