Rent to Rent: a guide

Rent to rent is fairly easy to explain as a strategy, and in terms of property investment, allows you to get involved in investing in property without much capital.  So simply, you RENT a property from a landlord and RENT it out to a tenant.

To make this work as an investment you have to make a profit out of the deal, so normally you will offer the landlord a fixed rent or guaranteed rent, which will be less than you can rent it out yourself.  Obviously, the landlord has to be happy with what is offered, but then they have a guaranteed return without having to worry about void periods or the hassle of finding tenants.  You will then rent out the property to your tenants for an increased rent, making a profit, without the risk of having to buy a property to let out.

There are pros and cons to rent to rent, like with any of the strategies we have covered.  

Lets consider the PROS of rent to rent.  Firstly you are not buying the property so there is no risk of taking on a mortgage.  Maybe you have poor credit history, or are overstretched financially, rent to rent allows you to make money from property without  taking on lending.  Rent to rent allows for much lower entry into property investing than having to put a deposit down on a property to purchase it.  In fact there are NO costs associated with buying a property, so NO solicitor fees, NO stamp duty fees, and assuming you have the tenant contacts, or you find the right property, things can be set up relatively quickly.

Generally, you will offer the owner of the property / landlord, a long-term agreement, giving them the assurity that their property will be rented for longevity and for a guaranteed amount.  This means for them, no void periods, low to no maintenance costs, no bills.  

A simple rent to rent example would be finding a property where the market rent is £700 per month, you agree to pay the landlord £450 per month guaranteed, empty or not.  Making you £250 per month profit, assuming you rent it out for £700.

A landlord might ask, what is the difference between this and giving the property to a letting agent - well with a letting agent the landlord is still responsible for costs, repairs, and will only receive rent as long as there is a tenant, whereas you are going to pay the landlord irrespective if the property is empty or not.

The landlord will normally have to accept a lower than market rate for the benefit of receiving a guaranteed return every month, but this is a choice they have to make, and it is also how you are going to make a profit.  

There are, of course, cons to rent to rent, a big one is also one of the positives, but as you do not own the property you will not be making any money from the bricks and mortar, in terms of capital appreciation.  The longer you have a rent-to-rent agreement in place it is the landlord/owner of the property who is benefiting from the appreciation.

Also with rent to rent all the issues taken away from the landlord are now your responsibility, the voids, maintenance, and bills and you have to continue to pay the landlord their rent each month.

Aside from the simple example given previously, other rent to rent strategies include renting a whole property and then turning it into an HMO, or similar to this would be using the property as a short term let, or serviced accommodation.  

Before getting involved in rent to rent you obviously have to have the property/ies to rent out, and you need to be confident in being able to fill those properties with tenants.  So, again, we come back to having a strong network of contacts, and the ability to advertise. 

Also before taking on a property you need to establish that there is tenant demand for the property, whether it is as a single rental property, an HMO or STL.  Like all investment strategies, due diligence is KEY before entering into agreements, in order to mitigate your risk.

As much as rent-to-rent sounds simple, it is by far, an easy way to make decent profit, and although there are many people making a success of the sector, it should only be explored by confident investors, with the ability to market and negotiate deals.

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