Rent to Rent, also referred to as ‘Guaranteed Rent’ is a growing phenomena in the world of residential lettings. The idea, put simply, is the renting of a property by an individual, in order to sub-let it to paying tenants. This intriguing process enables someone to profit from renting, without ever having to own a property.
So how does Rent to Rent work?
More often than not it all starts with a ‘tired’ landlord. Tired landlords no longer want to continue being in the middle of the letting process. After all today’s landlord faces a growing number of Government regulations. Instead, tired landlords want to benefit from a rental income without all of the headaches. Enter the rent-savvy individual, willing to take over the day to day job of looking after tenants. With a hard-to-refuse offer of Guaranteed Rent for a typical period of three to seven years, tired landlords can hand over their properties.
Is Rent to Rent for me?
Do you seem to fit the title of tired landlord? Rent to Rent has many pros and cons. It can provide you with an easy way to reap the benefits of your rental income whilst holding out for increases in the property’s value. You can keep earning while someone else does the harder graft for you. Provided you have found a credible rent to rent operator, there are no worries of tenant issues or lost rent. With a contract including light maintenance, you can guarantee your property will be returned in the condition you left it.
However, you will have to forgoe some rental income in order for the rent to rent operator to also make a return from the arrangement. Typically the rent to rent operator will pay around 60% of the gross rent for each room within a multi-let property. However, the numbers work best on a typical family. This is true where the rent to rent operator only has to carry out the minimum work to render it safe to sub-let.
For many, the buzzwords ‘infinite profit’ and ‘passive income’ are enough to peak their interest. With the day to day hassle of managing a property removed from the equation, rent to rent appears to be pretty simple. Find some tenants, do a few maintenance jobs, and head to the bank. Right? Not necessairly.
Behind every perfect scenario lay some risks.
Keep your eyes out for these potential problems:
Legal issues with Rent to Rent
Beware of the credibility of some rent to rent operators. In some cases both tenants and landlords could be negatively affected. One common example is when an individual or company portrays themselves as experts in the field and actually have very little knowledge or experience. Without prior knowledge it is all too easy to fall foul to many of the legal issues that rent to rent presents. Examples include ensuring a property has a HMO (House in Multiple Occupation) Licence where one is needed. The rules are out there to protect tenants and are to be ignored at your peril. For these reasons, it is important that you know who you are ‘getting into bed with’ to make rent to rent work properly.
Con-artist Renters & Illegal rent to rent operators
In 2012, Rose Chimuka was jailed for over 4 years after what police called an ‘elaborate fraud’. Using fake ID’s and an embellished story, she claimed to be a respected mother and wife. She leased properties which she said she would live in with her family. The asylum seeker then illegally sub-let the properties as she passed herself off as the real landlord. This scam affected 6 different landlords, who each lost up to a huge £86,000 each in rent. The potential issues of such scams are definitely something to be be careful about when thinking about taking this route.
Lost or no rent
With the rent to rent approach, it is rarely the sub-letter who faces the consequences. The ‘real’ landlord tends to be the one who suffers the loss of rent. Also, some end up left with sitting tenants and further difficulties removing them. Even with agreements being made, some landlords find themselves being left high and dry.
Before deciding on rent to rent, make sure you have done your research into what could potentially go wrong. It is important to recognize the risks should your renter be a fraud. You should check that you will still be financially stable if something did go wrong.
In order to be protected, it is vital to do your due diligence before moving forward. For more advice on how to be safe in the rent to rent industry, read the Lettingaproperty.com post here.
Having provided Guaranteed Rent across a wide range of properties for some years, the team at Capitum can offer tired landlords genuine help. You can see some of our current rent to rent properties here.
To find out how we can help call us today on 0115 740 1800.