Property investors are always looking for new strategies and Rent-to-Rent has recently risen to the top of the popular strategies list. So, how does it work?
In simple terms, Rent-to-Rent means that you find landlords who already have rental properties, but want to offload the responsibility for finding tenants and looking after the property.
You pay the landlord the deposit and an agreed monthly guaranteed rent with a permission to sublet the property, aiming to make a profit. While one property won’t make you rich, it’s a strategy that’s easy to duplicate and then the profit starts to stack up.
Why are so many property people talking about it?
Low cash investment
Rent-to-Rent has a much lower entry level for people just starting out in property. Instead of having to save up a substantial deposit to buy your first property, managing someone else’s rental property allows the new investor to get started in property for a few thousand, instead of tens of thousands.
All you need is the deposit and enough to give the property you’re going to rent a facelift. Even adding sourcing fees into the equation, start-up investment is likely to come in well below £10,000, depending on where the property is located.
It’s not only a low entry investment, but has the potential to help an investor to build up their nest egg towards buying their own property quicker than most other strategies.
Time v. money
Rent-to-Rent matches landlords with properties who are time-poor with people who only have a small amount of capital, but have the time to spend on looking after tenants.
When a landlord doesn’t want the hassle of dealing with all that goes with owning buy-to-let properties – contracts, maintenance, finding and dealing with tenants – the idea of handing the problem to someone else is very attractive.
Letting someone else do all the legwork is better even than putting the property in the hands of an agent – as that would still leave the landlord with some things that they have to deal with themselves.
A Rent-to-Rent investor takes all the hassle away, but they will need to invest time, rather than money.
A way to gain valuable experience
Serviced accommodation (SA) is another very popular area for investors as the returns are high as long as you can keep the property occupied the majority of the time. However, getting a mortgage for serviced accommodation is not always easy for investors without relevant experience.
Lenders like to be reassured that the mortgagee knows what they’re doing and has a relevant track record. In other words, they want to know that the property will enable the owner to keep up their mortgage payments. Empty rooms or properties mean no income.
Gaining experience in the SA business through Rent-to-Rent opens the door to becoming a SA landlord in your own right in the future.
When you’re going into Rent-to-Rent, you don’t have to allow for stamp duty, Capital Gains Tax, deposits, estate agents commission, mortgage interest, conveyancing fees, etc.
It’s sensible to have a proper contract drawn up between you and the landlord you’re renting the property from, but that’s usually something you only need to do once, unless there are radical differences in the deals you negotiate with landlords.
However, that means that the income from the property only has to cover the monthly fee you’ve agreed with the landlord and any maintenance that needs doing. The rest is pure profit.
PropTech makes it easy
In today’s world, property investment is a whole lot easier. Not many years ago, finding potential Rent-to-Rent properties was a long haul. Many landlords hadn’t heard of it and were more likely to place their properties with a letting agent.
Now you can sit at your laptop and quickly find properties that fulfil the criteria you’re looking for, with landlords that are actively looking to put their properties with a Rent-to-Rent investor.
There is software that allows you to check the potential out – such as the market rental rates, the yield for your property and you’ve got a wealth of information at your fingertips that lets you carry out in-depth due diligence in a matter of minutes, rather than months.
This means that getting started in Rent-to-Rent is not such a big leap. Think of it as the door being half open, instead of firmly closed!
Rent-to-Rent has a lot to offer, but it’s not for the faint-hearted. If you choose this strategy you will need to be prepared to put in the effort.
You’ll be a landlord in all ways except you don’t hold the deeds to the property, that means finding an ongoing stream of tenants, whether you’re offering mainstream lets or SA. You’ll have to keep the property in good repair and deal with any tenant issues, too.
If you put in the effort, it can be very rewarding and a great way to put your toes into the property investment pool. No wonder it’s become such a hot strategy for new investors.