Good Rent To Rent

Student-Money

Rent to Rent feels like a very dirty word in the world of property investing.

Unfortunately, it is seen by many as an easy low cost or "No Money Down" entry point into property investment. This is certainly not the case.

I have been running a Successful Rent to Rent portfolio in Southsea for coming up to four years now and I wanted to give an insight into how it works for both myself and the landlords that I work with. I am very pleased to say that every landlord that I have worked with so far at the end of the initial three year term has been happy renew onto another long term agreement. 

Kiera's Story 

Unlike many of the "fresh off the property training courses" I was already a portfolio landlord when I heard about Rent to Rent. I also had over 12 years estate agency experience. Even with my previous property experience I was still very cautious about entering the world of rent to rent. As many HMO landlords know, there are so many complex rules and regulations surrounding the management of HMO's. One of the first things I did was put myself on one of the well priced NRLA HMO management courses.

One of my first thoughts when I heard about Rent to Rent was why on Earth would a landlord rent a property to me and then let me rent it out for a profit? It was only after meeting up with several landlords and hearing about their issues with renting their properties out I realised that Rent to Rent could offer a solution. I am very lucky to work with some fantastic landlords, each of whom had very different circumstances. There is the one that bought a ready made HMO but then it turned out to be in the wrong area of Southsea to attract students so he was left with long void periods. There is the one that doesn't live locally and left it in the hands of a high street agent. The property wasn't very well maintained at all so again they struggled to replace tenants that left. At the point when I met him, he had just one tenant left in a 5 bedroom HMO. There is the one that bought it for a family member whilst at university and now  it was no longer required but he still wanted the investment income. The list goes on but I am sure you now get the gist. A lot of these landlords could have rented them out as a family home but really didn't want to lose the C4 status.

As Alwin mentions in his piece, the contract between the rent to rent operator and landlord is very important. We have had specific contracts drawn up that cater for rent to rent. They detail who is responsible for the day to day maintenance of the property who has overall responsibility to comply with licensing conditions. How many tenants are allowed to be in the property. Specific break clauses to protect both parties. We also provide directors personal guarantees for the rent. Our Contracts are over nine pages long. 

 What is in it for the landlord? 

Guaranteed rent for a three to five year period with no void periods to contend with.

We redecorate and refurnish throughout at our own expense. In some instances, we have upgraded the kitchens and added in additional bathrooms, of course with the landlords consent. We like to think we actually add value to the property in the way in which we finish them. We need to attract a particular type of tenant so need to provide a high end finish.

All utility costs covered by ourselves

No phone calls from tenants

We essentially offer a full property management service with very little involvement needed from the landlord.

We become the tenants landlord so essentially any issues are directed to us rather than the owner.

We manage them as if they were our own and as if it was our name on the license. No one wants a fine coming their way. I actually think it is very wrong that at the moment the law puts all of the onus on the property owner rather giving some of the responsibility to the person that has the day to day running of the property.

What is in it for the Rent to Rent Operator? 

We take on all of the risk with regard to any void periods and our reward is the uplift in rent between what we pay the landlord and what we receive in rental income minus costs. There are not just the utility costs to cover, We also cover small maintenance issues, cleaning and gardening, There are then the business operational costs.

As an operator we try and work on the basis that the last room and a half filled is our profit. IF we have one void room we are heading towards an operational loss.

I am going to go back to what I said in the beginning Rent to Rent is sold by many training courses as a "no money down" way into property investing.

This is certainly not the case. If you want to attract the right tenants you need to spend money on the refurbishment of the properties to create a high standard. A rent to rent business if set up correctly has many operational overheads:

- Professional memberships such as the PRS NRLA and ICO

- Professional Liability and public indemnity insurances

- Advertising of the rooms

- Accountancy fees

- Solicitors fees.

I have seen many Calculators that are provided to trainees on rent to rent courses and the majority of them highlight just how much money you can potentially make from rent to rent properties "the shiny pennies" so many of them don't include the operational overheads. This is where so many of the newer companies fail, they don't treat it as a business and unfortunately do not take all of the costs into consideration.

If done correctly with a reputable company Rent to Rent can be a great hands off solution for a landlord. As with anything Due diligence is key. The key things I would check if considering renting to a rent to rent company are;

Check the company on companies house, how long have they been trading?

What is their experience of managing properties?

Will they be offering a personal guarantor?

Analyse the contracts in detail and make sure you know who is responsible for what

Check if your mortgage/ insurance allows for this kind of set up.

Are they members of any professional bodies?

What checks do they do on the tenants?

I am always happy to help fellow landlords should they have any questions or concerns regarding entering a rent to rent agreement. 

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