Over the last few years, there has been an increased incidence of property investors looking at the rent-to-rent concept for opportunities to make profit. Depending on who you talk to, some will see it for the opportunity it is, while others will see it as a little too risky and complicated.
So, to provide a little clarity, we thought we would look at the concept of rent-to-rent in closer detail. Like any opportunity, there quite a few do’s and don’ts, but by the end, we’ll have a better idea of whether rent-to-rent really is a risky venture or one that simply gets a bad press.
So, let’s look at what’s involved
It’s really important to stress at the very outset that rent-to-rent has absolutely nothing to do with illegally subletting a property without the owner’s consent. What you’ll typically do is look for a larger rental property that’s being offered on a single rent basis and that is struggling to find tenants.
You’ll be approaching the landlord to offer them a guaranteed rent for an extended period (usually as much as 3-5 years) with complete transparency about the fact that you’re going to rent out each room separately. To a landlord who’s struggling to find tenants, a guaranteed rental income like this is going to seem very appealing, so don’t be afraid of approaching them, as you’re likely to be very welcome.
You’ll then be paying a fixed fee each month to the landlord, which is usually equal to the rent being asked and your profit is going to come from filling each room with a tenant and the extra rent that it generates.
Sounds simple enough, right?
A Bit of Work is Usually Needed
One aspect you’ll need to factor in to your sums is that a single occupancy rental property may need a bit of work to be suitable for multiple occupancy, which is a cost that you’ll have to bear. If the cost of doing so – which might involve adding things like fire doors – is going to be too high, then it might not be the right property for you.
The reason being that you’re never going to be the owner of the property and any changes you make will likely have to be reversed before you leave. You may be lucky enough to find a ready-made House of Multiple Occupancy (HMO) which won’t need any work to apply to the rent-to-rent model, but in most cases, some alterations to the property will need to be made and they need to costed out and considered.
Is There Local Demand?
It’s all well and good finding the perfect property for your rent-to-rent plans, but it will all count for nought if there’s no local demand – which is eminently possible if the landlord has struggled to rent it out before you came along.
If you want to be sure, take a look at local message boards for adverts for rooms and you’ll get a good idea for the demand in the local area. You could even place a dummy ad in your local paper to see what kind of response you get, but whichever way you do it, you need to be sure, as once the rent-to-rent agreement is signed, you’re obligated to pay rent for the agreed period.
Keeping Rooms Filled
Before entering the rent-to-rent sphere, you need to understand that your primary goal, over and above keeping the property maintained, is to keep every room occupied. You should be aiming to take around £100 per month profit each month from each room, so if 2 rooms out of 6 are empty, then your profit will be pretty much gone.
This is why understanding local demand is so important, as it will give you an idea of just how hard keeping 100% occupancy is going to be.
You’ll Pay All the Bills
Another thing that it’s vital that you understand with a rent-to-rent arrangement, is that you are essentially taking on the responsibilities of a normal tenant, so you’re going to have to pay all of the bills and include it in the rent that’s charged to the people in each room. Forget this fact when working out your sums and you’ll see a big chunk of your profits disappear.
There are a number of misconceptions in the UK property investment world about the rent-to-rent concept, even from professional estate agents who’s first reaction is often that it’s illegal to sublet – illustrating that they’ve missed the point of what you’re asking. This is a shame, as the concept is a real opportunity for investors to gain a residual income from property without actually owning one.
All that’s needed is thorough research of the local area, time and effort to find the ideal property and a well-structured, accurate financial plan to ensure your travails won’t end up with no profit. As long as you understand what you’re getting into and you’re completely honest and transparent with the landlord, the rent-to-rent model is one that certainly holds water and one we wouldn’t dismiss out of hand.
Whether rent-to-rent is right or wrong for you can come down to your own individual circumstances and each case should be judged on its merits, but those who see it as overly-complicated and more trouble than its worth, would seem to be somewhat wide of the mark.
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