Everything You Need To Know About Rent To Rent

What is rent to rent?

Rent to rent is when you rent a property from a landlord and then rent that property to tenants. For example, you rent an entire house and then rent out the rooms, or rent a flat and turn it into serviced accommodation on a platform such as Airbnb.

What type of landlord would be open to rent to rent?

For rent to rent to work you will need a particular type of landlord. It doesn't work with every house and with every landlord. It has to be a landlord who is happy to receive a low guaranteed rent. So he can't be a landlord that wants as much as he can possibly get every single month. It needs to be someone who's more hands-off that just wants a quiet life, no hassle, and he wants a guaranteed rent. That is the qualification for the landlord.

Rent to rent script

This is an exact message I have sent to landlords:

“Hey, I've just seen your property on SpareRoom. Would you be interested in receiving a fixed guaranteed rent or maybe selling your property all together. If so, please text back and let's jump on a quick call? Samuel”

Boom! It doesn’t need to be complicated.

What to say to landlords on the phone?

In the video you will see me do a real call with a real landlord and book an appointment. The important thing is to tell them that you are not looking for a property for yourself, but rather a corporate let for your company. Now is not the time to discuss the ins and outs of rent to rent, you can do that in person, but never mislead the landlord into thinking you are going to be living in the property yourself.

Is rent to rent illegal?

Isn't this illegal? The answer to that is no, it is not illegal. Rent to rent is not a new thing; it's been around for years. It's something that's very, very commonly accepted in commercial property.

All rent to rent is, is a business agreement on a residential property, so as long as you use the right agreement it is fine. If you use an AST contract and then just sublet it, then that is illegal.

However, if you use a correct contract and that is a management agreement, and tell the landlord what you're doing, it is perfectly legal.

Will you need permission from the lender?

If there are restrictions from the lender, then you'll need to ask the lender's permission. This is just general standard practice in property investing. If you're going to rent something out, you need permission to do that. If you're going to rent it out in a peculiar way, such as serviced accommodation or buy the room as a multi-let/HMO, of course you're going to need to make sure that the lending on the property is fit for purpose.

What type of property is best for rent to rent?

The qualification for the house is that the house can achieve a lot more rent than it is currently doing. So what kind of house would that be? Well there are many different examples. One example is a house being rented as a single let that could be rented by the room instead.

An example of this could be, a five bed house the landlord is renting for £600 a month near a city centre. After furnishing the house you find out you could get £400 a month per room. You factor in the bills you would need to pay and find you would be making a good profit.

Another option is serviced accommodation. An example would be, you find a little studio apartment in the city centre and it's renting out for £500 a month. You could furnish it to a high standard and rent it like a hotel without staff. You could list this property on Airbnb and booking.com and instead of getting maybe £500 a month, you could get £500 every few days in rent from guests.

Do you need an HMO licence?

You do not need an HMO licence unless there are five or more tenants in the property. This does vary slightly from council to council. But the standard rule of thumb is that you'll only need an HMO licence if the property has five or more people.

You still will need fire doors and smoke alarms to keep it safe but you will not need a licence, nor will you need any kind of rent to rent licence in order to carry out a rent to rent deal.

How to analyse a rent to rent deal to see if it's profitable

The return on investment of a rent to rent deal needs to be 100%. When I'm buying property, because I'm not just taking control of the property, I also own it and I'm benefiting from the capital appreciation, if I'm getting 20% I'm really happy. But if I'm taking control of something I want 100% return on investment.

What does that mean? That means whatever money you are putting down to get the rent to rent deal (rent up front, deposit to the landlord, furnishings, contracts and any fees associated with getting it set up) needs to be returned in profit within a year.

Your profit isn’t the amount the tenant pays minus the rent. There are expenses. With rent to rent there are actually quite a lot of expenses: you've got to pay the landlord; you've also got to pay for the bills (council tax, gas and electric); you've got to pay for the Wi-Fi. You will have other costs too like Airbnb fees for serviced accommodation and potentially management fees (if you don’t manage the property yourself).

So to work out your return on investment, knock the monthly expenses off the monthly rent you will receive. This is your profit. Times your monthly profit by 12; that will give you your annual profit. Then look at the total that you're going to put down to get the rent to rent. If you're not going to make your money back within the first year, don't do the deal. If you will, do the deal!

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