There are large potential profits to be made in property. However, to make money in the property world, you need to have a fair amount of it to start with, either in the form of already owned property or access to funds to acquire property.
But this is not actually the case.
You can make a good income without ever buying a single property yourself by employing a rent-to-rent strategy, which does not require a huge financial investment to get started.
Is rent-to-rent legal?
Many people think subletting must mean something dodgy. Yes, there have been shocking stories of people profiteering from overcrowding properties, with rogue landlords not having properly licenced HMOs (house in multiple occupation) and cramming three or four people into a single room. But rent-to-rent is a very different proposition.
Rather than taking advantage of people, rent-to-rent aims to add value to properties, turning them from scruffy, poorly maintained properties into warm, comfortable homes ─ something the property owner may not have the time, money or energy to achieve.
The model has actually been around for a long time when it comes to commercial property. Commercial leases are long-term full repairing and insuring leases, where the tenant takes on all the costs of repairing and insuring the property. Now the model has been adapted for residential landlords.
So, rent-to-rent is perfectly legal when it is done with the full knowledge and consent of the owner and when the correct contracts are in place.
Here is how rent-to-rent works:
- You sign an agreement to rent a property, usually for a term of three-to-five years.
- You pay the owner or letting agent a guaranteed rent and usually you take on paying the bills, just like a normal tenant.
- You improve the quality of the rental property before renting it out to tenants for a higher rent than you are paying the owner.
- The difference between the rent you receive from tenants and the rent you pay the owner or letting agent after the property running costs is the profit that you make for your business.
While the basis of rent-to-rent is pretty straightforward, the
trick is finding properties that you can add value to. It is by adding value
that you make income from managed rent-to-rent properties.
Why would a landlord give a property to you?
HMO landlords and letting agents have problems that you can solve. Landlords and letting agents want the rent to paid on time and for the property to be looked after. And these are things you can offer in a more specialised and focused way than a high street letting agent.
When you learn how to describe your solution effectively, you become an irresistible option to your perfect customers. They know you can be relied on to keep the property in good condition, provide a good service to your tenants, and that they will receive their rental income on time every month.
How much time and effort does it take to be a rent-to-rent landlord?
In the beginning, it is going to take you a few hours a week as you will be moving furniture around and completing improvements within the properties you manage. Once you get set up, it will probably take you a few hours a month to keep the property looking nice and the tenants happy.
If you have, say, five rent-to-rent properties in your portfolio, you will spend around fifteen to twenty hours a month on maintenance. Even with an average profit of £500 per month, per property, after bills and running costs, you will have got a profit of £2,500 per month. That is £30,000 a year for working a lot less than 40 hours a week while building your profile in the property world.
Is rent-to-rent right for you?
Of course, rent-to-rent comes with risks. You need to ensure that you understand it fully and that your business is legal and compliant. But if you would like to get started in property without actually buying property, rent-to-rent is worth looking into; making money from something you do not own may be the perfect choice for you, and it does not require a huge up-front financial investment.
ABOUT THE AUTHOR
Stephanie Taylor is co-founder of HMO Heaven and Rent 2 Rent Success. Stephanie launched Rent 2 Rent Success to help professionals who want to get involved in property, but feel stuck as they’re worried they don’t have enough time, money or knowledge to get started.
Through her inspirational Rent 2 Rent Success YouTube channel, podcast and website, Stephanie debunks the myth that you need large sums of money to get started in property.
Her book ‘Rent 2 Rent Success, our ethical 6-step system to get you started in property without buying it’ is now available.
Find out more