What is Rent-to-Rent?
Rent-to-rent is a property strategy where you rent a property from a landlord and then sublet it, either as an HMO or as serviced accommodation. Essentially, you take on a property, pay the landlord a fixed rent, and then rent it out room by room or as short-term accommodation, aiming to make a higher overall income than your outgoings.
- HMO (House in Multiple Occupation):
- You rent a property and then rent out each room individually to tenants. The idea is that the combined rent from all the tenants exceeds what you pay the landlord, leaving you with a healthy profit.
- Serviced Accommodation:
- You rent a property and use it for short-term lets, like on Airbnb. Here, the goal is to charge a higher nightly rate and keep the place booked as much as possible, so your monthly earnings top your expenses.
Breaking Down the Numbers
Let’s get into a quick example:
- Say you rent a property for £1,000 a month.
- You decide to use it as an HMO and rent out 5 rooms at £650 each.
- That brings in £3,250 a month.
- After paying the landlord and covering the bills, you might be left with, let’s say, £700-£900 profit each month.
Common Concerns and Misconceptions
Some people new to property might be a bit wary of R2R, thinking it’s got a dodgy reputation. That usually comes from poorly managed deals. The key is doing your homework and ensuring everything is above board, especially when it comes to compliance and legal requirements.
Legal and Compliance
Article 4:
- This is crucial for HMOs. It’s a local planning regulation that can restrict converting family homes into HMOs. You need to check if your area has Article 4 directions in place before you commit.
Lease Conditions:
- For serviced accommodation, especially in blocks of flats, the lease might prohibit short-term lets. Always check the lease terms or get permission from the freeholder if needed.
Local Authority Restrictions:
- Some councils have specific rules. For example, in London, there’s a 90-night limit on short-term rentals unless you get planning permission for more.
Licenses and Registrations:
- You’ll need various licenses depending on your strategy. HMO licenses are a must for renting to multiple tenants. You also need to be registered with a redress scheme and ensure you’re complying with data protection regulations.
Finding and Securing the Right Properties
Research and Due Diligence:
- Use tools like SpareRoom for HMOs and AirDNA for serviced accommodation to gauge demand and pricing. You need to know there’s a market for what you’re offering.
Systemised Sourcing:
- Set up alerts on property websites for properties that meet your criteria. Evaluate them based on financial viability and layout.
Negotiating with Agents and Landlords
Building Rapport:
- Don’t dive into explaining rent-to-rent on the phone. Book a viewing, build rapport during the visit, and then explain your proposal. Highlight the benefits, like guaranteed rent and property maintenance.
Negotiation Points:
- Negotiate for favourable terms such as rent-free periods for setup, maintenance contributions, and refurbishment agreements. Use the right contract – a standard AST isn’t suitable for the agreement between you and the landlord.
Effective Management
Professional Presentation:
- Use professional photography and make sure your listings on platforms like SpareRoom and Airbnb look top-notch.
Optimising Listings:
- Regularly update and renew your listings to maintain visibility. Contact local businesses for long-term tenants or guests, and leverage LinkedIn to connect with HR departments.
Financial Management:
- Use tenant management systems, platform managers for serviced accommodations, and bookkeeping software to streamline operations. Consider outsourcing tasks to virtual assistants to stay efficient.
Maximising Income and Long-Term Strategy
Income Projections:
- Aim for a minimum profit of £1,000 per month per property. Be realistic with your rental income targets and manage your expenses effectively.
Long-Term Growth:
- Rent-to-rent can be a stepping stone to larger property investments. Use the cash flow generated to transition into property ownership, flips, or commercial conversions.
How Sourced Can Help
Comprehensive Training:
At Sourced, we provide extensive training to help you understand every aspect of the rent-to-rent strategy. Our training covers everything from market research to compliance and negotiation techniques.
Support System:
We offer ongoing support through our network of experienced property investors. Whether you need advice on a particular deal or help with managing a property, our support system is here to assist you.
Deal Sourcing Tools:
Our proprietary deal sourcing tools simplify the process of finding suitable properties. These tools help you identify high-potential properties quickly and efficiently.
Negotiation Assistance:
Sourced provides templates and guides to help you negotiate the best terms with landlords and agents. We ensure you have the right contracts in place to protect your interests.
Networking Opportunities:
As part of Sourced, you’ll have the opportunity to network with other investors, share insights, and collaborate on deals. Our community is a valuable resource for expanding your property investment knowledge.
To find out more information on how we help over 230 partners succeed in property, download our prospectus here.
