Firstly what is Rent to Rent? It’s effectively an arbitrage model a strategy where by an investor either rents a property from another investor for a agreed monthly price and then lets the property to tenants for a higher figure – you can think of it like offering the services an agent would do but with bigger upsides for the investor (as you are taking on more responsibility).
There are a few permatations of what a typical Rent to Rent deal looks like.
Firstly you could rent an HMO from a landlord (House in multiple occupation) a property that is already set up to run as a multi-let the furniture is already bought, the rooms individually set up and all fire regulation changes such as fire doors, closers and alarms installed in line with the local councils requirements.
Or secondly you could rent a property that isn’t currently run as an HMO, with this type of deal you would need to do all the work in getting the property up to spec in terms of what HMO tenants in that area want for living standards, the legal requirements and putting the standard furniture items in.
Setting up an HMO could cost you £5,000 – £10,000 or sometimes more depending on the quality of the finish and furnishings and this will depend on what area you are in and what type of tenant you are looking to attract.
As a side note if you want your properties to generate huge demand, always be full and with a waiting list of “ideal” tenants clambering over themselves to get in to your properties –
Make sure you focus on delivering WOW Factor
This is as relevant to your success no matter what area of your local town or city you are in (cheap or expensive) or what part of the country you are in.
Tenants don’t want to live in a hovel
They want a few luxuries, the more you can push the boundary on what is “standard” in your properties the more tenants will want to live in them and pay a premium to do so as well as tell their friends about “how great their landlord is”
This should go without saying as it’s basic business stuff, but most businesses don’t understand how to generate supply and demand either!
Treat your property endeavours as a real business and you won’t go far wrong – in business what is best for the customer is always best for the business, in property your tenants are your customers, your job is to make their life as amazing as you can, in return they will spread the word far and wide about your properties, you will be able to charge a premium and have fewer voids as well as a waiting list of hungry “ideal” tenants chomping at the bit to get into one of your properties.
This is as true for a Rent to Rent property as it is for a property that you have purchased.
With rent to rent properties you also have another customer in the chain, that is the landlord that owns the property, your job is also to keep him/her happy, looking after their property up to a great standard and always paying the rent on time/before time will go a long way to keeping them happy – even if they didn’t keep the property up to the best standard it’s worth you going further for all the reasons mentioned.
I would also recommend giving them regular updates on how the property is going, maybe even a video of the condition, just to ease their mind – they may not care but if you can go the “extra mile” they will also spread the work about your business, what a great job you are doing looking after their property and potentially bring other landlords to your door with more properties suitable for adding to your rent to rent portfolio.
Is it Sub Letting? Isn’t Subletting Illegal? You don’t have to spend too long around the internet, a property group or forum before you hear someone mention sub-letting and the “sub letting is illegal”
Often you hear this response from Letting Agents when approaching them for potential rent to rent properties.
So is it illegal?
The fact of the matter is Sub Letting is not illegal un less it’s an “illegal subletting” which probably makes no sense at all but bare with me…
Also obviously none of this constitutes legal advice and only a moron would take any advice from me anyway! You are always best off paying an exorbitant fee for a lawyer to give you a “clear as mud” jargon filled answer.
So with that all being said, an illegal sub-letting would be one were the renter lets on the property without the express permission of the landlord.
This is more prevalent in social housing and seemingly were the original phrasing comes from (in my research).
If you want more information on the matter this article is fairly helpful
What type of landlord is going to be interested in a Rent to Rent?
Generally a landlord that will entertain a rent to rent scenario comes under one of the following.
Tired, a tired landlord is fed up of the day to day drudgery of the property rental business, probably because they are doing all the work themselves running around like a headless chicken!
Make sure you have proper systems in place to manage your properties and avoid this “landlord burnout”
They just want out of the game and if you come along with a great solution for their problems (i.e. taking their property headache from them) they may jump at the chance. In general this type of landlord falls under the “motivated seller” column – it’s always easier to do a deal when you have a motivated seller, just make sure you still set up a deal that’s “win win”
The next type of landlord that may be interested in letting you manage their property is the “hands off” landlord. To them letting someone else manage the property so that they don’t have to is a dream come true scenario, they just want the long term benefits of owning the property, maybe they have another business or other interests that they would much rather be doing than managing property or managing the agents that should be managing the property for them.
The third type is the accidental landlord, their heart isn’t really in it, they started renting their property because they couldn’t sell it and don’t want to deal with the rental side. To them you are a hero!
How to find potential rent to rent deals…
Just like any property deal they could be anywhere, but to really find the gems you need to narrow your search a little more than going after everything.
The above landlord types should help as an initial pointer for you to narrow down your acquisition techniques.
Tired landlords are by their nature going to be doing all the work themselves, this will include advertising their properties to potential tenants, you can find these landlords anywhere they may be looking for tenants, Gumtree.com or Spareroom.co.uk are favourites but they also advertise in the windows of their properties so take a drive or walk around your local area and see what you can find.
The other 2 types are most likely going to be with lettings agents – apart from the ones trying to do it themselves in that case (see above).
To get deals from lettings agents (or estate agents) you need to build rapport, they need to know, like and trust you before they suggest to any of their landlords that you may have a solution to their problems.
For this to work best takes some time, you have to put in the effort in building the relationships, it can be a slow burn but once you get the breakthrough and they start passing you deals they could send you a lot! Just make sure that you do everything you said you would/could and treat that first house like gold – they will be watching everything you do!
Also you will more than likely have to pay the agent a management fee as well so factor this in to your calculations on your deal analyser.
I could go on, there’s loads more to it but we’re already at 1400 words and my fingers are cramping! I may well do a follow up, let me know in the comments what else you want to know and what you think of this post.