First things first, what is Rent To Rent?
Rent To Rent is in essence a form of subletting, where a tenant would rent all (or part of) your property with the intention of re-letting it out to someone else. And through doing so would provide you with a guaranteed monthly rent and take on the majority of the responsibilities. You’re best looking at it like this…
A Rent To Rent investor is a professional middleman, who’s trying their best to leverage your property in some way, shape or form. The most common of which is changing its usage (a subject we will cover further on in this blog), although other factors like them already having a tenant lined up, may also be explain why they've approached you.
But while this all sounds reasonably straight forward, don’t be fooled because this kooky little strategy is anything but. Rent To Rent deals can be incredibly complex, especially in legal terms - far more complex than the hordes of ‘YouTube property gurus’ make them out to be. You see, it's not only being clued up on the Rent To Rent strategy that's vital, but aslo how to do your homework on any potential investors.
How does a Rent 2 Rent deal work?
While a large proportion of the Rent To Rent journey resembles that you experience through buy to let, there are some key differences that you NEED to be aware of, especially if you leave your lettings agent to handle negotiation.
Here’s a quick step by step run down of how a typical Rent To Rent deal goes ahead…
STEP 1: Invite the Rent To Rent applicant to your property
Inviting a Rent To Rent investor to your property is a great way to suss just how committed they are to doing a deal. Typically those in Rent To Rent will contact a long list of landlords (at least ten) in hope of bagging themselves a bargain. So if you find yourself talking with an investor who’s desperate to see your property quick, then take it as a good sign. After all, being the landlord (i.e. the homeowner) you have the upper hand – as you’ll discover this trend continues throughout most of the Rent 2 Rent process, which certainly isn’t a bad thing.
STEP 2: Get to know the Rent 2 Rent applicant
Just like tenants, Rent To Rent investors come in all shapes and sizes, so getting to know them and their situation is vital. As you’ll discover later on in this blog, fail to do this properly and it could come back to bite you later on.
What we’d suggest is that you see your conversation as a game. Create a tick list of the key information that you’re looking to get out of your conversation with the Rent To Rent investor and think of ways to get the answers you want indirectly. What we mean by this is plan ahead and most importantly take your time (it’s not a time trial). Probably the worst thing you could do would be to shake the investors hand and dive straight into their financial situation, as they’ll likely adopt a similar covert conversation tactic with you.
NEGOTIATION TIP: Take a leap of an estate agent’s book - casually pepper questions throughout your conversation until you get the answer you want. And ALWAYS leave anything financial until you’ve established a rapport. Even for a wealthy investor money can be a sensitive subject.
To put a stop to any awkward silences, here’s 3 questions that’ll get a Rent To Rent investor talking...
1. How long have you been in property? – A good first question to pose, as whether they’ve been in property 20 years or 2 months, most Rent 2 Renters will jump at the chance to talk property. Besides that’s why they’re here. Not only that, but knowing someone's level of experience can clearly indicate whether they're a worth your time. You don't want to be doing your first deal with someone who's largest Rent To Rent achievement is graduating from a property course.
2. What's attracted you to my property in particular? – If there’s silence in answer to this question, politely show the Rent To Rent investor to the door. The entire reason they’ve met with you should be because they’ve got an exciting vision for your property, and if they don’t, then why waste your time? Not only that but if you know why they want to Rent To Rent your house, you can compare them with other investors and pick the solution that’s most viable for you!
3. What’s been your best deal so far? – Because this could very easily lead to 'moneytalk' we'd suggest waiting a while before asking this. While it’s not asking their bank balance, it could lead to them spilling the outcomes of past deals – all useful information. It’s also help you gauge their levels of success.
WARNING: People can uphold the appearance of a high flying businessman both in person and over social media, so do your homework… sharp suits, car rentals and decent photographers aren’t that hard to come by.
STEP 3: Touch on Rent To Rent intentions and how they plan on making money
Providing you’ve already asked them Question 2 (above) you may have already touched on this. When considering a Rent To Rent agreement with someone you need to be clear on the vision they have for your property and trust that they will carry out the work toat least a good standard. You don’t want your house wrecking by a cowboy!
To help you understand what you should expect, here’s two common Rent 2 Rent proposals…
Studio flat = Hotel
Yes, you read that right – Rent To Renters would jump at the chance to turn your studio flat into a hotel. Let us explain…
As unorthodox as it may sound, this is the likely the Rent To Rent strategy you’ll be pitched by an investor if you own a studio flat. But once you take a look at the hotels and leisure industry, it’s not that hard to see why.
With homeowners on the hunt for a second income and tourists wanting to stay somewhere more unique than the typical Travelodge, online marketplaces like AirBNB and Booking.com have become incredibly popular. So much so that the price for one night in these types of accommodation can often be as much as a hotel itself. Kit out a studio flat to a high standard and, providing it’s in an attractive location (city centres are usually the best), it could easily be booked out for months on end.
To show you just how profitable this Rent To Rent model can be, we’ve done the maths below…
Say as a residential studio flat you’d achieve an average monthly rent of £600. But, through AirBNB/ Booking.com you could achieve £50 - £60 a night, even at the lower figure you’d be turning over £1500 in the average month, providing it’s fully booked. And even if it isn’t, all you need is for it to be let for 12 nights each month at that lower figure and you’d be no worse off than a residential let.
NOTE: Don’t forget that AirBNB earnings ARE NOT exempt from tax, so if you decide to let a Rent To Renter go down this route, be sure they’re aware of this from the start. You don't want a huge tax bill limiting their ability to pay you later on.
