How Do You Succeed in Rent To Rent?

Nikka Sulton

How Do You Succeed in Rent To Rent?

Rent-to-rent property businesses have gained popularity in the UK, offering a unique income-generation method for investors and entrepreneurs without property ownership. This comprehensive guide is designed to walk you through the essential steps of starting your own rent-to-rent business. From identifying suitable properties and securing funding to navigating legal aspects, we cover the key elements of this business model.

Exploring the pros and cons of rent-to-rent, along with addressing the associated controversies, the guide provides insights into how this model compares to traditional landlord-tenant relationships. Whether you’re an experienced property investor or just entering the field, this guide equips you with the necessary information to succeed in the rent-to-rent property landscape. Stay informed and make informed decisions on your journey in the rent-to-rent property game.

How you can make money from property without buying it?

For those with an entrepreneurial spirit seeking a consistent cash flow from property and aiming for freedom from the 9-5 grind, rent to rent stands out as an excellent business model. However, the challenge lies in the potential overwhelm and confusion caused by scattered information. Many newcomers piece together the rent-to-rent strategy from various sources like YouTube, podcasts, and social media, often ending up with an incomplete understanding. Rent to rent involves numerous intricacies, and attempting to gather information piecemeal can hinder a clear step-by-step process towards success.

If you’re here, it’s likely that ethical practices matter to you. That’s why we began sharing our knowledge, recognizing the prevalence of less-than-scrupulous approaches among property ‘trainers.’ Our goal is to demonstrate that there’s an ethical way to profit from properties you don’t own, offering value to landlords, housemates, and fostering success for you and your business.

How does “Rent to Rent” work in the UK?

The rent-to-rent model is straightforward. In essence:

1. Lease Agreement:

– Rent a property, typically for 3-5 years.

2. Guaranteed Rent:

– Pay the owner or letting agent a guaranteed rent, usually covering bills.

3. Tenant Rentals:

– Sublet the property to tenants at a higher rent than you pay.

The profit for your business is the difference between the rent received from tenants and the rent paid to the owner or letting agent after factoring in property costs. There are three primary approaches to residential rent-to-rent, which I’ll detail shortly.

There are three main ways you can do rent to rent:

1. Rent to Rent HMO (Houses of Multiple Occupation):

Renting out each bedroom individually in a property, known as an HMO, proves highly effective for rent-to-rent. Whether converting a family home or taking on an existing HMO, the cost structure can be lucrative. For instance, transforming a 4-bedroom family home into a 5-bedroom HMO, each room at £600, can generate £3,000, resulting in a net income of around £1,500 post bills. Existing HMOs, with minimal refurbishment, offer a win-win-win situation for landlords, tenants, and rent-to-rent operators, creating consistent recurring revenue.

HMOs provide steady income, with housemates committing for at least 6 months, and they remain attractive even during market downturns. Despite being more time-consuming than single-family lets, efficient systems can streamline HMO management, making it feasible to run a successful business in just a few hours a month.

2. Rent to Rent Serviced Accommodation:

This approach focuses on nightly rentals of the entire unit, presenting higher revenue potential but with increased costs and complexities. For instance, a 2-bedroom flat could generate £800 per month or £1,520 through nightly rentals. While the income is enticing, operational costs include utilities, laundry, cleaning, online booking portal fees (around 15%), and a 20% VAT, impacting overall profit.

Serviced accommodation operates as a hospitality business, demanding more time, higher expenses, and rigorous marketing efforts. The unpredictability of occupancy, especially for newcomers, coupled with planning restrictions like the “90 Day Rule” in certain areas, can lead to financial losses despite the impressive income potential.

3. Rent to Rent Single Let:

While the primary focus in rent-to-rent is often on HMOs or serviced accommodation, there’s a possibility of managing single let properties as well. Single lets, catering to a single household like a couple or a family, typically involve less intensive management. Although straightforward, the cashflow potential is usually lower compared to other rent-to-rent strategies. While not actively sought out, managing single lets could be an additional service offered, especially when dealing with HMO landlords who have such properties in their portfolio.

Is rent to rent legal?

Addressing a common concern, rent to rent is a legal and legitimate business model, not to be confused with illegal subletting. The concept has historical roots in commercial property, where tenants often exercise the right to sublet through long-term leases. In residential property, the rent to rent model ensures that landlords receive guarantees similar to those enjoyed by commercial landlords. Notably, major players in the industry, such as Northwood, have successfully implemented the rent to rent strategy for guaranteed rent. It’s crucial to distinguish legal rent to rent, conducted with the owner’s knowledge and consent and with proper contracts, from unlawful subletting scenarios that make headlines. The legality of rent to rent is recognized and upheld by authoritative bodies like the UK government’s Property Ombudsman and the Property Redress Scheme (PRS), providing further assurance and credibility to this established practice.