What is Rent to Rent? A Complete Guide

What is rent to rent? A complete guide

Rent to Rent has become a very common term in the real estate industry that has proved to be very profitable, and we get a lot of questions about it.

So here we are, bringing you a complete guide on Rent to Rent. We have also attempted to address some of the most frequently asked questions. So, let’s dive into this detailed guide.

What is Rent to Rent?

Renting a property from a landlord and then renting it out at a higher price to a third party is referred to as rent to rent. It is a form of subletting in which a tenant rents a property from the landlord to re-let at a higher price it to someone else.

In doing so, you are guaranteed a monthly rent from your tenant. You will also pay the rent of the property to the landlord and whatever left is your profit. Rent to Rent can become a very profitable strategy depending upon how you practice it.

What is Rent to Rent in the UK?

To understand the basic concept of rent to rent in the UK, let’s take an example. Suppose you rent a house for three to five years and you provide a guaranteed rent to the landlord or rental agent. You take care of the property and pay the property bills.

Then, you plan to rent it out to some other person. You find a tenant and charge him higher rent than what you are paying to the owner of the property that is the landlord. The profit for you and your business is the difference between the rent you collect from your tenants and the rent you pay the owner or letting agent after deducting property expenditures.

You will initially need to invest your own funds to get the business off the ground, but as you attract additional tenants, you will see a steady flow of income, with a portion going out to the landlord as rent, a portion for the services you provide, and the remaining portion going to your earnings as the profit.

Is Rent to Rent worth it in the UK?

With rent-to-rent becoming mainstream in the real estate industry, we are asked some common questions: Is rent-to-rent worth it? Is it worth it in the UK? To answer it – it depends. It depends on how you practice the strategy, how you understand it, how you put your skills into it, and how much effort you do.

Renting to tenants is essentially buy-to-let without the need to make a purchase. If managed effectively, it will bring in money for you, but since you don’t own the property, you won’t benefit from an asset’s rise in value in terms of a return on your investment.

Capital gains tax and stamp duties are not applied. It is so common because there is no large deposit to find or mortgage to pay off.

The drawback is that it requires work and takes time; it is not passive revenue.

However, after you’ve established one property, you can use that to operate more than one. More tasks can now be completed digitally thanks to advances in technology, and using the correct tools makes it feasible to earn money without worrying about taxes.

Is Rent to Rent legal?

Yes, rent to rent is legal but it do comes with its terms and conditions that need to be kept in mind when doing the business.

There are many minds out there that still think that rent to rent is illegal, but this is because they think of rent to rent as someone subletting property to another tenant without the knowledge and consent of the landlord or the property owner. This way is false and should be opposed.

The only legal way is to do rent-to-rent business with the complete knowledge and consent of the property landlord and make sure that all contracts are signed and in place.

The parties, however, should consider the legal issues to avoid any conflict and concerns. Since the contract between the landlord and the tenant is commercial, it is best if it covers the time during which the renter will be required to pay the Guaranteed Rent. Additionally,

the parties should have clear and straightforward terms of agreement that specify how much rent the tenant is required to pay the landlord as well as their respective responsibilities for managing the property and ensuring that the landlord complies with all applicable laws.

The Business Model of Rent to Rent:

How to start Rent to Rent?

When you are starting with rent to rent business, especially in the UK, you need to have a strong grip on the basic and profitable concepts of rent-to-rent. You should start by making out a business model. You need to specify the type of clients you will be targeting.

You would also need a suitable property that you will let out. It is also advised to keep a specified budget in mind so you plan and go in the right direction without wasting both, time and your money.

  • Target your clients

For instance, if you are considering tourist-friendly cities, your ideal client is a traveller who plans to remain for 1-2 weeks or more.

Your properties should be close to their places of employment, have efficient transportation systems, and have eateries, etc. if you are considering cities with a high volume of corporate visitors.

  • Search out the best and most suitable property to let out

Before finalizing a property to let it out, there are a few factors that you should consider. You would not want a property that does not attract tenants and you keep on going in loss. The first thing to review is the location of the property. It is usually a good idea to look for properties that are facility-rich.

They should be close to hospitals, city centres, schools, universities, etc. These are the prime areas that perform exceptionally throughout the year. Ideally, the location in which your property is located should be easily interconnected to other areas of the city by different transportation means like buses, subways, taxis, and so on.

Depending on the type of tenant, you may also seek properties near popular tourist attractions, restaurants, bars, parks, etc. Also very successful are places with low crime rates.

How much effort and time do I need to put in for a successful Rent-to-rent business?

It will take you a few hours each week at first because you will be moving furniture and making renovations to the residences you manage. Once you’re up and running, you’ll generally just need a few hours each month to keep the property looking beautiful and the renters satisfied.

If you have five rent-to-rent properties in your portfolio, you will spend around 15-20 hours per month on maintenance. Even with an expected revenue of £500 per month per property after bills and operating expenditures, you have a monthly profit of £2,500. That’s £30,000 per year for working far fewer than 40 hours per week while establishing your property profile.

Conclusion

In summary, the business model of the rent-to-rent strategy can become very profitable with good practice. It can create a genuine cash flow. It is a legal strategy becoming mainstream in the property industry. When diving into this business, don’t make dumb mistakes and simply research it first. Try to take as much knowledge as you can from reliable sources.

Rent to Rent does come with its risks but you need to ensure that your business is following legal terms and conditions. It’s a wise first move toward getting your own rental property. You can earn a lot of money quickly if you play your cards effectively.


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