Rent-to-rent involves an individual or company renting a property from a landlord with the intention of renting it out to a third party. The landlord receives a guaranteed income every month, and the company or individual has an opportunity to generate a profit.
It is essential to receive consent to sublet from the landlord. However, many landlords are open to tenants subletting their properties, provided they receive the money due each month. The renter then becomes liable for managing their tenants and property maintenance.
While the market may be more niche than the traditional buy-to-let, there are certainly a number of experts making an income from this strategy. We have created this brief guide to rent-to-rent properties, which aims to help you understand the market along with its benefits and challenges.
If you are interested in the rent-to-rent market, there are various models for generating a profit.
The most common model is requesting a discounted rate on rent from the landlord in exchange for guaranteeing their income. You will also be expected to manage property maintenance. You then find tenants who will pay the full market rate, and as a result you will receive any mark-up on rent. For this strategy to work, it is helpful to have skills in negotiation and the ability to cover any maintenance costs.
Some other models include:
- Sub-letting the property to short-term tenants for an increased rate.
- Converting a family home into a house in multiple occupation (HMO) and managing the associated standards and obligations. As a result, you have the potential to receive rent from more tenants.
- Taking over management on an existing HMO.
Is Rent-To-Rent Legal?
Yes, rent-to-rent is legal when done with full consent from the landlord. Problems are created when people sub-let a property illegally without the landlord’s permission, and you may be evicted for breaching terms of the tenancy agreement.
Benefits of Rent-to-Rent
The rent-to-rent model works by giving you control rather than ownership of properties. This can be very lucrative and there are a number of benefits:
- Little investment is needed to start
- Provided you can fill the tenancies, you can become profitable quickly
- It is easy to find landlords looking to fill their property
- You have a recurring cash flow
- You require no mortgage or deposit to begin
Negatives of Rent-to-Rent
While the market is lucrative and comes with some great benefits, there are still risks and challenges involved with rent-to-rent. These include:
- No capital gain on the properties
- You are often responsible for bills and maintenance expenses
- The landlord has control of the property and could sell it during your agreement, although contracts in place will help prevent this
- You must pay the landlord even if you struggle to find a tenant
- Finding and managing tenants can be time-consuming
To conclude, the rent-to-rent market has the potential to be financially viable. The initial start-up costs are low, and the rewards can come in quickly. Experts have found that you can generate a full-time income in the rent-to-rent market with as few as 3-5 properties. The catch is that it does not come without its risks, and the process can become costly and time-consuming.
If you have an interest in property investment and would like further advice, please contact us at HOZE Investments.