January 30, 2024

What is Rent to Rent?

Rent to rent

In the dynamic and fast-moving world of real estate, property owners are constantly exploring innovative ways to optimise their rental income and ensure steady returns on their investments. One strategy gaining popularity is rent to rent. In this post, we’ll explore the concept of rent to rent, examining how it works and the benefits it can bring for landlords.

What is rent to rent?

Rent to rent, sometimes known as guaranteed rent, is where a landlord or property owner consents to rent his or her property to an individual or business for a specified time and for a guaranteed monthly income. The renter, also known as the guaranteed rent provider, then sublets the property on to a tenant.

This arrangement allows the guaranteed rent provider to take on the responsibilities of managing the property and sourcing tenants. In return, they provide the property owner with a fixed monthly rent, regardless of whether the property is occupied or vacant.

Is rent to rent legal?

Yes, rent to rent is legal providing the landlord is clearly aware that the guaranteed rent provider will be subletting the property to a tenant.

Problems with rent to rent arise when a property is sublet without the landlord’s knowledge or permission. We’ll look more at the legalities further on in this article.

How does rent to rent work?

The rent to rent process involves a series of steps that can benefit both the property owner and the guaranteed rent providers:

Agreement and terms

The property owner and the guaranteed rent provider enter into a legal agreement specifying the terms of the lease. This includes the amount of rent that the landlord will receive each month, the duration of the lease, and any other relevant conditions.

Property management

The guaranteed rent provider, whether they are an individual or an organisation, in most cases will take over the management of the property. This includes handling maintenance issues, finding and vetting tenants, and dealing with day-to-day responsibilities.

Sublet

The guaranteed rent provider sublets the property to tenants, often using a standard Assured Shorthold Tenancy (AST) agreement. This agreement ensures that the tenants have a safe and secure place to live, whilst providing income to the property owner.

In most cases, the tenants will be on housing association or local authority housing lists. So there is a double benefit for the landlord by way of assisting in addressing the housing crisis.

Fixed monthly rent

Regardless of whether the property is fully occupied or experiences occasional vacancies, the property owner receives a fixed monthly rent from the guaranteed rent provider as per the agreed terms.

What are the benefits of a rent to rent scheme for landlords?

There are many reasons why landlords are using rent to rent schemes:

Steady income

Rent to rent provides investment property owners with a predictable and consistent monthly income. Unlike traditional leasing arrangements where voids can result in financial uncertainty, or where there is the risk of tenants failing to pay their rent on time or at all, the fixed monthly rent from the guaranteed rent provider ensures a steady cash flow.

Reduced administrative burden

Property management can be time consuming and demanding. Rent to rent in most cases allows property owners to offload the day to day responsibilities of managing the property, including tenant relations and maintenance issues, to the guaranteed rent provider. This significantly reduces the administrative burden of the property owner.

Mitigated risk of void periods

Void periods are a common concern for property owners, especially during economic downturns or unforeseen circumstances. Rent to rent mitigates this risk, as the property owner continues to receive rent from the guaranteed rent provider even if the property temporarily sits empty.

Professional property management

Partnering with a reputable guaranteed rent provider often means access to professional property management services.

These companies have the expertise and resources to efficiently handle tenant screening, property maintenance and other aspects of property management, ensuring that the property is well maintained and suitably tenanted.

Flexibility in lease terms

Rent to rent agreements can offer flexibility in lease terms allowing property owners to negotiate terms that suit their needs. This might include the duration of the lease, the rent amount and other conditions.

Hands-off investment

For property owners seeking a more hands-off approach to real estate investment, rent to rent offers an attractive solution. With the guaranteed rent provider taking on the day to day management responsibilities, property owners can focus on other aspects of their investment portfolio or personal pursuits.

For landlords who are based overseas or geographically distant from their property, rent to rent offers the ideal solution.

Access to new markets

Rent to rent can open up opportunities for property owners to enter new markets or neighbourhoods that they might not have considered viable for traditional renting.

The guaranteed rent provider’s expertise in the local rental market can be valuable in identifying profitable opportunities.

Which rent to rent properties work best?

Rent to rent property choices mainly fall into the following three categories:

1. Rent to rent single let

This is a straightforward let where a house or flat is rented to a family, couple or single person. Any type of property can make up a rent to rent single let, including a house, flat or cottage.

2. Rent to rent Houses in Multiple Occupation (HMO)

HMOs are often used within rent to rent schemes. This usually involves a larger property whereby each bedroom is rented out individually. Tenants typically, but not always, share the kitchen, bathroom and lounge area.

It is the responsibility of the guaranteed rent provider to check whether a HMO licence is needed for the rent to rent property. Usually, a HMO licence is not needed unless there are five or more tenants in the property, but each local authority has a slightly different set of rules, so it’s essential that this point is checked carefully, as fines are issued in the event of missing licences.

3. Rent to rent serviced accommodation

This method of rent to rent focuses on renting the entire property by the night rather than by the month. This kind of rent to rent property tends to be used for holiday lets or in hotspots within cities where there is a lot of footfall.

If you’re a landlord looking at a possible rent to rent scheme, it’s worth having a discussion with your renter or agent about which method of rental you’d prefer for your property.

If you have strong opinions either way, then you should look to have this written into the initial rental agreement.

What types of rent to renters are there?

Renters that you, as a landlord may end up dealing with, fall into three categories:

1. Local authorities

Often, local authorities will rent from landlords to house people when it is difficult to place them in private tenancies. The benefit of using local authorities is that they have the backing of a local authority corporation.

2. Property management companies

Some property management companies now specialise in rent to rent. Whilst most are legitimate, it is important to check credentials and conduct thorough due diligence before proceeding with any particular property management company.

3. Private individuals

This is the riskier side of rent to rent and inevitably where the process ends up being tarnished with a bad name.

No doubt, some private individuals are professional and operating legitimately, but you should be aware of others who have very little property management experience and are simply looking to make a fast buck.

What are the legalities of rent to rent tenancy agreements?

As a landlord, if you decide that rent to rent is for you, there will be two tenancies in place. One will be between you the owner and the renter, and one between the renter and the tenant.

The one between you and the renter is a commercial contract, and the one between the renter and the tenant is a typical AST which details all the usual letting obligations.

It is essential that you as the landlord seek specialist legal advice to ensure that the commercial contract covers all aspects relating to rent to rent, and that your particular preferences are covered by the AST, such as placing restrictions on making alterations to the property.

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.

OpenRent

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.

Estate agents

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 a rent to rent strategy

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 a rent to rent scheme, 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 strategy, or a guaranteed rent scheme?

A guaranteed rent scheme is a respectable and recognised way to legally conduct a rent to rent process professionally.

As a landlord, you sign a contract on a guaranteed rent scheme – usually between 3 and 7 years – and are paid an agreed rental income every month regardless of whether the property is occupied or vacant.

Rent guarantee schemes, like this one have clear and respected legal documents in place for both the landlord and the tenant.

As highlighted in the benefits above, the agent is responsible for finding tenants, dealing with all the legal and administrative tasks, collecting the rent, liaising with the tenant, maintaining the property and dealing with the eviction process should this become necessary.

You can find out more details on how they work in this article.

Considering rent to rent? Look at professional guaranteed rent schemes like the one from City Borough Housing

For landlords, rent to rent has many benefits, including a steady guaranteed income and hands-off property management.

Whichever type of rent to rent strategy you choose, it is vital to conduct thorough due diligence and ensure that you have a legal representative look over documents and contracts.

Guaranteed rental schemes such as those provided by City Borough Housing are a professional way to carry out rent to rent. Legal contracts are in place and the scheme is backed by a management company which ensures your property is returned to you in the same condition it was at the start of the tenancy, allowing for fair wear and tear.

To find out more about guaranteed rent schemes and how they work, and to request your free valuation, please get in touch. Our friendly team look forward to talking with you.

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