RENT TO RENT GUIDE
Updated: May 8, 2022
Hey guys hope you are good now today we are going to look at the rent to rent strategy
and here is a guide to rent to rent that will be broken down into a 3 parts
as you might already know its one of the most profitable strategies in property and certainly the most talked-about
so we are going to address some questions and misconceptions surrounding the topic
such as is rent to rent even legal and is rent to rent even for me
well let's find out
so let's get started
WHAT IS RENT-TO-RENT?
Well the clue can certainly be found in the name
you rent a property from a landlord and then you rent it out to tenants
as if you owned the property yourself
you negotiate a guaranteed monthly rent to give to the landlord that needs to be lower than the rent you can charge to your tenants
and you keep the profit in-between
you get all the benefits of controlling the asset without the hassle of actually purchasing the property
The landlord is happy because they have the guaranteed rent, without any management fees or the hassle of dealing with tenants directly giving them a hands-off investment that is a very enticing proposition to a time-poor landlord
your also happy because you're making a nice monthly profit from a property you don't even own
creating a win-win situation for you and the landlord that can lead to many more opportunities in the future such as taking on more property's from the landlord or even when the landlord tells his friends and family about the great benefits you are offering and then, in turn, being offered more property's from the people who the landlord knows
SO WHAT ARE THE BENEFITS OF RENT-TO-RENT
Rent to rent is a great strategy but its not suitable for everyone
you need time to locate and stack deals you also need the correct training and contracts to undertake the strategy
but here are the benefits
you don't need a mortgage or the perfect credit score
because you’re not buying the property you’re just renting it. That means you don’t need to worry about getting mortgages and finding massive deposits
Now, mortgages can be brilliant: leverage is one of the best things about investing in property.
But if you cannot get a mortgage because of a low income or you don't own your own home or simply your credit score is bad because of a few missed payments of an old mobile phone contract you had when you were 17 etc there are many things that can halt a mortgage application going through
rent to rent simply bypasses the need to use mortgages all together
THERE IS ALSO NO NEED FOR A 25-50K DEPOSIT
To purchase a property in the UK for 100k you will need at least a 25k deposit then you have legal fees, and stamp duty fees so realistic you want 30k in your bank to make your first small investment property purchase
that will most likely be a single let as mortgage companies don't like to lend money to first-time landlords to do HMOs of serviced accommodation
so for your 30k investment, you're most likely to make between 3-400 pounds per month
but with just a 5k investment into rent to rent will most likely see you make a monthly profit of 5-700 pounds per month
so you will need a bit of money however as the average rent to rent deal we have done costs around 5k but we generally have made this back within 6-9 months of taking the deal on
and the speed you can get a deal over the line is very fast as we are not waiting for mortgage companies, land registry searches, conveyancing etc that can sometimes take 6 months for a property purchase to go through
we can collect keys in as little as a week
so if its speed you're looking for because you are desperate to quit that 9-5 then rent to rent is certainly worth considering
so all in all rent to rent can be a quick and effective way at entering the property market as an investor without all the hassle of mortgages, stamp duty, large deposits, and lengthy conveyancing
SO WHAT ABOUT THE LANDLORD?
We’ve touched on this a little bit already, but it's worth being crystal clear on this as this is how you're going to secure the deal from them in the first place as they are simply going to ask you well how does this benefit me
1 the main advantage is the guaranteed rent from one single source you
2 hassle-free for up to 5 years with no management fees or having to deal with tenants phoning them at 3 in the morning because the Wi-Fi stopped working
They won’t have to worry about:
Void periods Maintenance issues
chasing tenants for rent
management fees
TV and broadband bills
even if the landlord handed the property to a management company they won't cover void periods or deal with bills or any maintenance
giving the property to you enables a hands-off investment to the landlord yes you will pay them less than if they were to do all the work you're going to be doing but 9 times out of 10 they don't have your vision, time, or training to spot the full potential of the property
this is the end of part one of our guides to rent to rent we will be doing part 2 hopefully tomorrow
I hope you all enjoyed watching have a great day and enjoy the weather
WHAT ARE THE DRAWBACKS OF RENT-TO-RENT
So if you have limited funds and time but you still want to get into property investing rent to rent is great but its important to understand that there can also be drawbacks to you yourself the rent to renter
and a big one is
YOU DON'T BENEFIT NO CAPITAL GROWTH
This is can be massive but it's certainly not a guaranteed property prices on a whole generally increase in value year after year it been proven throughout history yes we have dips and recessions but a general rule of thumb is that property increases in value fact
so it will be the landlord that will get this benefit and not you as you are only renting the property
you could make say £500 per month over 5 years that's 30k
now let's say the property you rent is worth 250k and the value increases by 10% in the 5 years the landlord will make a quick 25k without doing anything and 10% is being modest it could be even 20% over 5 years
so if you have the funds in order to purchase the property yourself its always far better to do so but if you don't have a 62k deposit to purchase the 250k house then rent to rent is the best way
saving all your rent to rent income can be a great way to get the deposit together for the future
It certainly worked for us and it can for you
YOU’RE ALSO EXPOSED TO ALL THE RISKS OF PROPERTY OWNERSHIP
Such as having to pay the landlord for any void periods
small maintenance issues and all the bills relating to the property
regardless of if you have any rental income coming in or not so you are exposed to some degree of risk
but without risk comes no reward!
YOU DON’T HAVE FULL CONTROL OF THE PROPERTY
So paying the landlord effectively becomes like paying a large mortgage payment
that would probably be halved or less if you had an actual mortgage
and ultimately you don't have full control so if the landlord wanted to stop the agreement they could and then if they defaulted on the mortgage on the property you could get the property repossessed without you having any say in the matter
things like this don't normally go wrong but there is always the small chance
and we think you should be made aware of
NOW HOW DO WE MAKE A PROFIT FROM RENT TO RENT
As we touched upon before first of all we rent a property we then rent it on to tenants for a higher amount than what we pay the landlord but there are 3 main ways we can do this
and some are more profitable than others we generally stick to rent to HMO or rent to SA
FIRST IS SINGLE SINGLE LET,
So I would say this is the least profitable of the 3
so we simply rent a standard house from an existing landlord we negotiate a great fixed rent on the house for say 3-5 years lets say the market rent is 1000per month and we negotiate rent with him for £750 we then rent it out at current market rent of £1000 and claim a monthly profit of £250
but we have to be careful because with any void periods or missed payments you can soon find that small profit you made is eaten away very quickly
this is by far the quickest and simplest of the strategies
2: RENT TO HMO
Here there are 2 options we can find a standard 3-bed property and then convert it into an HMO by using one of the downstairs reception rooms into a bedroom
where a normal 3 bed would only rent for say £700
you could negotiate a fixed rent with the landlord of say £600
you could then start collecting rent from 4 tenants @ 400pm
giving you a total income of £1600 leaving you with a monthly profit after expenses of around £700-£800
but this strategy you will need t let the landlord know what you intend to do with the property and also do it within an area that has no article 4 in place which is a planning restriction imposed by the council that removes the right for you to use the property as an HMO
bear in mind that you are going to have to pay all the bills that are associated with running an HMO And you will have to have the property fully occupied to make a good profit
There are also setup charges involved in converting a property into an HMO such as internal layout changes, fire doors, wired smoke alarms ect this will normally cost you around 5k to get this done
If the landlord has a mortgage, he will need to check with the lender to see if it OK to use the property as an HMO
after looking at all the negatives this still stands as a very popular and profitable way to undertake the strategy
The second variation is the most popular and the most profitable of 2
this is where we target run-down student properties close to city centers university and hospitals
these properties will of taken a battering over the years and will always need some form of updating
this it where the landlord gets to the point where he needs to do work in order to secure a further booking and more often than not they simply don't have the time to do so
so often they sit empty for a few months with no students at all wanting to move into the property and when the landlord misses the academic year he is stuck with an empty property and ongoing bills so his once asset quickly becomes a liability
this is where we come in we spot these properties and offer the landlord a guaranteed rent with no aggro of finding tenants and even conduct an uplift on the property landlords love it because that once dingy house will now have a new lease of life and become a nice cash-flowing asset once again and it's totally hands-off for them
we love this strategy and its great to find a win-win situation for us and the landlord
this is more profitable than the previous variation of the strategy and there is no worrying about licensing restrictions or article 4 zones or even the montage company's
because its already licensed property with all the HMO specifications already in place
yes we will need to spend a bit on the initial set up but because these larger properties having more rooms the profit margins can be very healthy
these deals typically take between 5-10k to set up depending on the size and amount of bedrooms in the property
3: SERVICED ACCOMMODATION
Serviced accommodation is very similar to the single let strategy but instead of renting it out for years at a time to 1 tenant we rent the property to holidaymakers and workers ect on a nightly basis like a mini-hotel
but that's where the similarities end we need to provide additional services such as housekeeping cleaning fresh linen and towels just like what you find in a hotel
it also has to be fully furnished to a great standard
so the setup costs need to be controlled and can easily eat up a 6k budget in a 2-bed apartment
we then have the ongoing management of the property some people look at running a SA as a whole job in itself
you have to manage the guest check in check out
advertise the property constantly
and make sure it's not rented out to the local gang of youths that can use the property as a party pad for the night and trash the place
all this aside it can make for a great strategy that can prove to be very profitable a personally know of a few people who strictly focus on this and do very well indeed
there are a couple of things you need to check before entering into a serviced accommodation property
it has to have an appealing location to workers and travel makers alike
you need to establish a cleaning team in the area who are used to dealing with a serviced accommodation units
establish a safe place for the keys to be collected for the new arrivals or you will have to check people in and out of the property yourself (that's no fun if you not in the area or if they arrive at 3 in the morning because of a delayed flight or some other excuse yes trust me it does happen )
so it's all about being able to systematize your systems
checks also need to be made with the mortgage company to make sure its OK to do short lets
then there is also the apartment building itself if the property is leasehold a lot of apartment managers won't allow short lets
so make sure you correctly do your due diligence
we nearly took on one deal ourselves in a new build apartment block in a nice spot in the city center agreed with the owner and the block manager established a cleaning team in the area checked the demand all was good to go then just as we were about to sign the apartment block manager said that I would have to personally or someone from our team would have to personally check everyone in and out
this was a total deal-breaker for us right at the last minute but sometimes you just need to learn to walk away
as it was a 12mile drive for us and we have a crazy schedule as it is without the added responsibility of checking guests in and out some might have been OK with this be we ultimately had to walk away
So that's the end of part 2 of our rent to rent guide I hope this hasn't deterred you from the exciting world of rent to rent but it's always best to tell the full story rather than hide facts and paint the perfect picture
I hope you have enjoyed and found this video useful catch up with us tomorrow for the final part of our guide
have a great evening
part 3
hey Guys welcome back this is the 3rd and final part of our rent to rent a guide and today we are going to look at a few more of the bonuses that rent to rent has to offer also ways to secure rent to rent deals
so as we spoke in part2 about the three different ways you can do rent to rent we also have another option to make cash from rent to rent without actually doing a rent to rent and that's to simply sell the deal on to another investor
say you find a deal that makes 4-600 pounds profit per month, do you think someone else would pay you to pass that deal to them? Yes Of course they would!
This is what we call deal sourcing
but you need to make the decision do you want the monthly cash flow from the property for yourself or do you just want to make a quick buck and sell the deal on and keep looking for others this is effectively what deal sources do
but when a great deal comes along they usually keep it for themselves
how do we find these rent to rent deals
Rent-to-rent can be a great win-win situation and a profitable one for us and the landlord
but not all landlords are going to be interested and it doesn't suit them all a lot are happy as they are or using a letting agent because that's all they know and this new rent to rent deal you have proposed sometimes seems too good to be true for them and a lot of letting agents just don't understand
you will hear a lot more oh no thanks it's not for me or the letting agent says oh no we don't deal with the company lets
but that is just their loss and they will soon realize that we provide a great service
but don't let this deter you this is where we need to be persistent go direct to the vendor and use smaller letting agents who understand what you do
yes its hard work and you have to put in the leg work and time but once you secure one deal it soon opens the door to many many more deals
there are many ways to find rent to rent deals and here are a few for you
THE DREADED LETTING AGENTS
This is by far the easiest way to find landlords they are full of them they deal with landlords day in and day out
and the properties they have are easily found online
just one problem the agent has no interest in working with you or has a company policy that doesn't let them
it's all excuses because they don't understand
they are set in their ways and like to do things the traditional way
they always seem to think you are trying to cut them out of the deal
this is not the case it actually is a whole lot easier for the agent to just hand all their properties to us but they just can't see it yet
being successful in this method requires building rapport with the agents and relationships because once hearing you out and think about it there is always the possibility they will put your offer forward to the landlord
just make sure they understand that they will still get their fee and also the ongoing fee from the landlord for managing the property when the agents finally realize they are actually still getting paid just to do less work they should be happy and their ears will soon prick up
you just need to get them to understand your model
FREE LISTINGS
Then there are free listings you can simply cut out the need for the agent by advertising directly to the landlords the ways that work best are Facebook groups, Gumtree, and the local paper you just have to get your point across guaranteed rent, no void periods, no hassle. you’ll have lots of competition so get creative in order to get someone to call you.
DIRECT TO VENDOR MAIL
Going directly to the vendor will always be the most effective way to secure deals as long as you know how to ex