Uber is the world’s largest taxi firm—it owns no cars. Facebook is the world’s most popular media company—it creates no content. Airbnb is the world’s largest accommodation provider—it owns no property. Making money from something you don’t own is a thing, and it’s been a thing for a while. The trick is seeing the opportunity.
Most people think that to get started in property requires money; lots of money. But this isn’t true. There are other ways to get into property and make a good income, without ever buying a single property yourself. One way is rent-to-rent.
If there’s a voice in your head screaming subletting is code for something dodgy, ask it to hush for a moment.
There have been terrible stories of people profiteering from overcrowding properties. These rogue landlords often don’t have properly licenced HMOs, meaning the property may be unsafe for more than two people, yet they are cramming three or four people per room.
Rent to rent is a very different proposition. Rather than taking advantage of people, rent to rent aims to add value to properties, turning them from scruffy, poorly-maintained properties into warm, comfortable homes ─ something the property owner may not have the time, money or energy to achieve.
The model has actually been around for a long time when it comes to commercial property. Commercial leases are long-term ‘full repairing and insuring’ leases, where the tenant takes on all the costs of repairing and insuring the property. Now the model has been adapted for residential landlords.
So, rent to rent is perfectly legal when it’s done with the full knowledge and consent of the owner and when the correct contracts are in place. If you are still concerned, you might be swayed by the fact that rent to rent is recognised by the UK government’s Property Ombudsman, the Property Redress Scheme (PRS).
How does rent-to-rent work?
There are four simple parts to the process: you sign an agreement to rent a property, usually for a term of three to five years; you pay the owner or letting agent a guaranteed rent and usually, you take on paying the bills, just like a normal tenant; you improve the quality of the rental property before renting it out to tenants for a higher rent than you're paying the owner; the difference between the rent you receive from tenants and the rent you pay the owner or letting agent after the property running costs is the profit that you make for your business.
That’s all pretty straightforward, but what’s vital to make it work is finding properties that you can add value to. Adding the value is where you can earn a good income.
Why would a landlord give a property to me?
Even when people understand how rent to rent works and accept that it’s above board, they can struggle to believe that any landlord or letting agent would give a property to them.
The reason HMO landlords and letting agents will see an advantage for them in your plans is that they have problems that you can solve. Landlords and letting agents want rent to be paid on time and for the property to be looked after. These are things you can offer in a more specialised and focused way than a high street letting agent. For example, where a high street letting agent may have hundreds of properties, you will start off with one, so you can provide a more individual service.
When you learn how to describe your solution effectively, you become an irresistible option to your perfect customers. They know you can be relied on to keep the property in good condition, provide a good service to your tenants, and that they will receive their rental income on time every month.
How much time and effort does it take to be a rent to rent landlord?
In the beginning, it’s going to take you a few hours a week as you’ll be moving furniture around and completing improvements within the properties you manage. Once you get set up, it will probably take you a few hours a month to keep the property looking nice and the tenants happy.
If you have, say, five rent to rent properties in your portfolio, you’ll spend around 15-20 hours a month on maintenance. Even with an average profit of £500 per month, per property, after bills and running costs, you’ve got a profit of £2,500 per month. That’s £30,000 a year for working a lot less than 40 hours a week while building your profile in the property world.
Is rent to rent right for you?
The events of 2020 mean many of us have started to question our old ways of thinking. It was always seen as ‘normal’ and ‘safe’ to rely entirely on one source of income. Yet so many of us have found that the ‘safety’ of our role is not what we thought.
Of course, rent-to-rent comes with risks. You need to ensure that you understand it fully and your business is legal and compliant. But having your own rent-to-rent business is great in the short term for an additional income stream, and in the longer term, it's a good first step to buying your own investment property.