Want to start a successful property business but don’t have the money? Find out how you can ‘rent to rent’
Stephanie Taylor, co-founder of Rent 2 Rent Success explains why control not ownership can be the key to a successful property business.
If creating a successful property business without owning a single property is something that could only happen in a fairy tale, does that mean my sister and I are Disney Princesses? We have attracted contracts worth over £2million, escaped our jobs and built a team.
Most people think that to get started in property and generate a decent income each month they need to buy a lot of properties. But this isn’t true. There are other ways to get into property and make a good income.
We’re all familiar with the idea of big corporations controlling assets rather than owning them and creating wildly profitable businesses:
- Uber, the world’s largest taxi firm, owns no cars
- Facebook, the world’s most popular media company, creates no content
- Airbnb, the world’s largest accommodation provider, owns no property.
And that is how a strategy, known as ‘rent-to-rent’, works too; control rather than ownership.
This means you don’t need a huge financial investment to get started. This is how it works:
- You sign anagreement to rent a property, usually for a term of three-to-fiveyears;
- 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’re 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 so that you can earn a good income from managed properties.
Is rent-to-rent legal?
For many people, subletting is code for doing something dodgy. There have been a lot of terrible stories of people profiteering from overcrowding properties. These rogue landlords often don’t have properly licenced HMOs (house in multiple occupation), meaning the property may be unsafe for more than two people, yet they are cramming three or four people per room.
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’s done with the full knowledge and consent of the owner and when the correct contracts are in place.
Why would a landlord give a property to you?
Even if people understand how rent-to-rent works and accept that it’s legal, they find it hard to see why any landlord or letting agent would give a property to them.
The ‘secret’ is that HMO landlords and letting agents have problems that you can solve. Landlords and letting agents want the rent paid on time and the property looked after. And these are things you can offer in a more specialised and focused way than a high street letting agent. For example, where a high street letting agent may have hundreds of properties, you will start off with one so can provide a more individual service.
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’s going to take you a few hours a week as you’ll 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’ll spend around 15-20 hours a month on maintenance. Even with an average profit of £500 per month, per property, after bills and running costs, you’ve got a profit of £2,500 per month. That’s £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 your business is legal and compliant. But if you’d like to get started in property without buying one and create the cashflow you need to have more freedom in your life, rent-to-rent is worth looking into and may be the perfect choice for you.
You can learn about rent-to-rent from the government’s property ombudsman, The Property Redress Scheme and find out how to do rent-to-rent ethically with the Free Rent 2 Rent Success Guide and Masterclass.
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-to-rent Success – Yes You Can Get Started in Property!’ will be published in January 2021.
Photo by Scott Webb