June 7, 2023
Rent to Rent Properties – What You Need to Know as a Landlord
As a landlord, you are probably looking for new and innovative ways to maximise your rental income. One strategy that you may have heard of is the concept of ‘rent to rent’ properties. Here we’ll explain what are rent to rent properties, investigate how to find rent to rent properties, and discuss what you need to be aware of as a landlord around the whole topic of rent to rent.
What is rent to rent?
Before we look at what are rent to rent properties, let’s understand the basics.
Rent to rent is a strategy where you lease a property from a landlord, and then sublet it to tenants at a profit. It benefits both parties; it is an easy and potentially lucrative way for you the landlord to make a profit, and it benefits the owner because they receive a guaranteed income and do not have to deal with queries or maintenance issues relating to the tenants.
Rent to rent is legal when it takes place with the understanding and agreement of the owner, and when there are contracts in place.
What are rent to rent properties?
There are 3 main models for using the rent to rent strategy:
Rent to rent single let
This is the basic rent to rent model whereby you rent a property to a single household like a family or couple at a higher rental fee than that which the owner would charge. To make a profit using this model, you would either need to persuade the owner of the property to accept a discount on the rent, or charge your tenants a higher price. This is a straightforward model, but can be challenging to pin down in practice.
Rent to rent – houses in multiple occupation (HMO)
With the owner’s permission, you can, with this model, turn a property you are renting into a multiple share and let out each room individually. Each tenant has their own bedroom, but they will share a bathroom, kitchen and lounge area. It can be a lucrative strategy if you wish to target students or young professionals.
For example, if a four-bedroom house with two reception rooms typically rents at £1,000 per month, it can be converted into a five-bedroom HMO and rented out individually at £500 per month per tenant, generating a potential income of £2,500.
Rent to rent serviced accommodation
This model involves renting the entire property for a shorter term, a little bit like holiday or Airbnb accommodation. For example, a two-bedroom house may rent for £1,200 a month. But if it’s rented out at say £60 per night, then you could earn the equivalent of £1,800 a month.
Whilst this seems like a good prospect, there are disadvantages to this model. As a hospitality business, it becomes more costly and time consuming to manage in practice. You’ll need to cover all costs, market regularly for new guests and look after them whilst they’re staying at your property. Occupancy rates are unpredictable, and it can be stressful trying to constantly find new tenants.
How to find rent to rent properties
Interested in this model? Here are some ideas for how to find rent to rent properties…
Gumtree and Facebook
You could use websites such as Gumtree, Facebook and Facebook Marketplace to scour properties that are available to rent in your area.
Remember the idea is that you want to find something that you can improve upon either by increasing the rental price to your tenants, or reducing the price that you pay to the owner, or by converting the property into an HMO.
Landlords use this website to advertise directly to tenants, which means you can liaise with them to find out if they’re interested in a rent to rent deal.
HMO licence list
If you’re specifically looking for a rent to HMO deal, then you can get hold of a list of all the licensed HMOs in a local authority’s area via their website, and contact the owners directly.
Get to know your local estate and letting agents and be open with them, explaining what you’re looking for and why.
Things to be aware of with rent to rent
Whilst rent to rent sounds like a great way to make a profit quickly and easily without any huge outlay, there are some things to be mindful of…
There’s no capital growth with rent to rent
When you buy a property to rent out, you’ll benefit from the monthly rental income as well as enjoying the advantages of your property appreciating in value. With rent to rent, you won’t experience any capital growth, because you don’t own the asset.
You are responsible
You don’t own the property, yet you still bear the responsibility for your tenant. If a tenant doesn’t pay or falls into rent arrears, you still need to pay the owner. You are also responsible for sorting out the maintenance and dealing with everyday tenant queries, as well as tenanting the property and carrying out interim inspections.
The property owner maintains control
The owner of the property retains control over everything. This means you may encounter unexpected issues, such as the owner deciding to sell up mid-way through your tenancy, resulting in the eviction of your tenants. Or the owner may fall into arrears with their mortgage provider. This is why it’s vital to ensure that you have a contract in place. Even when there is, be aware that there are still risks.
Rent to rent, or a guaranteed rent scheme?
With the information provided, you should now understand what rent to rent properties are, how to find them, and the concept of guaranteed rent associated with these properties.
On the surface, a rent to rent deal sounds like a good idea. But there are lots of risks involved and, in some cases, a lot of time and effort will need to be put into them too. It’s important to investigate rent to rent in more detail before committing.
If you decide that a rent to rent model is too risky, there are other ways to boost your rental income, such as a guaranteed rent scheme.
Here at City Borough Housing, we offer all our landlords a guaranteed monthly income even if the property is untenanted, or the tenants are in arrears with their payments. We also take care of all the administrative and legal work along with the sourcing of new tenants, collecting rent, carrying out maintenance and dealing with tenant queries. In short, we remove the hassle whilst guaranteeing you an income.