A rent to rent strategy involves letting out a property for a landlord and taking a profit from it yourself. You achieve this by paying the owner of the property for a single let, and letting the property as a HMO (multiple rooms) or serviced accommodation (Airbnb etc.) That way you’ll keep the difference as profit for your efforts.
And there is a lot of effort involved. You have to find tenants, ensure the maintenance and legal checks are carried out when necessary and collect the rents. And, that’s why the landlord agrees to rent to you in the first place – because you’ll be doing all the work, while they earn a stable rent.
What the landlord will get is guaranteed income for a set period (ie however long it states on your contract), and no worries about void periods and having to find tenants themselves.
It’s a popular strategy, because it allows newbie investors to get an understanding of how property works – as well as contacts – and make money, without having to put down a deposit or take out a mortgage etc.
Why use a Legal Agreement?
Having a legal agreement shows the landlord you are serious and, more importantly, responsible. It also shows you are keen to do everything right and above board. And, in doing so, it’s much more likely to get you that deal you’re after.
The type of contract to use in a rent to rent deal with a landlord or property owner is a guaranteed rent agreement. At Sourced, we have a custom version available to franchisees.
This gives you the right to manage the property and includes all the terms and conditions that you and the landlord have already agreed verbally.
There should also be a maximum amount agreed that you will pay for maintenance issues, and that major maintenance issues such as boiler replacements, repairing flooring, roof repairs etc are down to the landlord. This can all be negotiated, as can other aspects such as how long the agreement will be for and whether or not the landlord is willing to contribute to redecoration costs.
Short Assured Tenancy
You also need to sign your tenants up to a legal agreement – and that’s an assured shorthold tenancy (AST). This is the most common form of tenancy today and, in fact, all tenancies are AST unless stated otherwise.
This agreement is called ‘assured’, because it gives the tenant security ie that they’re not going to be made homeless, provided they pay rent and stick to the terms and conditions agreed. AST’s are for a fixed period – usually 6 or 12 months. After that, another AST can be agreed or the tenancy can become periodic ie on a month by month basis.
It’s worth to remember too that as you are managing the property, you’ll be expected to cover utility bills and council tax (if it’s an HMO), so this should be included in your calculations.
Get in Touch
Here at Sourced, we offer extensive training in rent to rent, as well as ongoing support from experienced investors who have used this model of property investing themselves. You will also find up-to-date contracts and agreements that you can use for your own business negotiations. To find out more, download our prospectus today.