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What is Rent to Rent in Property Investment?

By 13 July 2021No Comments

A rent to rent property strategy is when you rent an apartment or house from a landlord and then rent it out yourself for a profit.

Time-poor landlords and those whose interests now lie in other areas are often quite happy for someone to come along and guarantee them rent every month, while managing the property at the same time.

You get your fair share, by for example, using the property as a HMO and charging rent per room. The difference between the landlord’s rent and the HMO income is your profit.

Pros of Rent to Rent

You don’t need to have a lot of money upfront. In fact, you don’t need any really – not when you can pay the landlord from the first month’s rent you collect.

A rent to rent strategy also does away with the need for a mortgage. Considering mortgages are very difficult to obtain these days, unless you have a large deposit or almost perfect credit score, this point isn’t to be sniffed at.

Neither do you have to save up for years for a deposit (and which is the big sticking point for most first-time buyers).

And, neither do you have to pay a solicitor or conveyancer and a surveyor. And you can forget paying any Stamp Duty. That’s a few thousand pounds saved right there.

The landlord benefits from not having any void periods to worry about and knowing that you’ll take care of any maintenance issues that arise.

Cons of Rent to Rent

As you might expect though, not everything in the garden is rosy.

Unlike if you actually owned the property you are renting out, you won’t benefit from any capital growth. The landlord will.

You’ll have to also do the admin, any maintenance and checks required, and collect the rents. You’ll have to find new tenants when existing ones move on too – because you’ll still be paying the landlord your rent.

You are in control, but the landlord still owns the property, so can effectively close down the scheme at the end of your tenancy.

Typical Rent to Rent property

This two-bedroom New Build apartment in Slough City Centre is let for £1,200 a month on a three year rent to rent contract (with annual break clauses).

Sitting just 15 mins travel distance from London city centre and Heathrow Airport, it’s perfect for serviced accommodation. There are upfront costs of £8,400 (£1,200 rental, £1,200 deposit and sourcing fee of £6,000).

With 70% occupancy you can expect 710% ROCE after three years. That’s a monthly profit of £1,164 and £13,968 a year (£41,904 after the three-year contract term).

With 80% occupancy ROCE is 910%. The monthly profit is £1552, with an annual return of £18,624 (or £55,872 for the duration of the contract).

Investor and Sourced franchisee Shahid Aslam built his successful property business on trading rent to rent deals. Each deal was worth between £3,000 to £4,000 in sourcing fees. As a member of Sourced, he now finds that large management companies and developers are taking him seriously for rent to rent deals. As an individual and ‘one-man band’, he was regularly passed over. Today, it’s not unusual for him to find himself negotiating a multi-million-pound deal.

Interested? Get in touch

Sourced offer comprehensive training in rent to rent, together with the ongoing support that can help you succeed. This includes leads to find suitable properties in the first place. To find out more, download our Sourced Franchise prospectus today.

Sam Clayton

Franchise Manager