What is Rent to Rent - Complete Guide 

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The Insider @ Houst
Last updated on
May 22, 2024

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What is Rent to Rent - Complete Guide 

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You know, the whole pandemic situation has really made it clear that having just one source of income can be risky. So, if you're thinking about bringing in some extra cash each month, getting into property investment could be a smart move. But let's be honest; not everyone has a spare house lying around or the money for a big mortgage.

That's where rent-to-rent comes in. It's like a different approach to renting out properties that could work for you, especially if you're short on cash.

So, what is rent to rent, and how does it all work? In this blog, we’ll discuss it in detail. So, let’s get started! 

Table of Contents

What is Rent to Rent? 

In rent-to-rent, you rent a place from a landlord, then turn around and rent it out to someone else. It might sound a bit sketchy, like subletting, but if you have the right contracts and agreements in place, it's totally legit and can actually be a win-win for everyone involved.

Landlords might go for rent to rent if they're having trouble finding tenants for their place or if they can't afford to fix it up to attract renters. Once you rent the place from them, you spruce it up if needed, then rent it out for a higher price, pocketing the difference as profit.

How Rent to Rent Works in UK

Rent to rent has been around in the business property scene for a bit, but now it's gaining steam in residential rentals, too. 

You and the landlord agree on a fixed rent for a decent stretch of time, maybe three to five years. This rent is usually lower than what the place could fetch on the open market.

For the landlord, it's a sweet deal because they get a steady income without the hassle of dealing with vacancies or finding tenants. And here's where you come in: You update the place to make it appealing to renters, which lets you charge a higher rent.

Now, here's the key to making it work: You've got to make sure there's enough of a gap between what you pay the landlord and what you charge tenants to cover your costs, like fixing up the place and any downtime between tenants.

A lot of rent-to-rent folks rent out the property as a house in multiple occupations (HMO). That means more income potential, but it might also mean spending more to get the property up to snuff.

Benefits of Rent to Rent

Rent-to-rent is a specific way of dealing with property that's not for everyone, but it does have its perks in certain situations...

No Need for Mortgages

No mortgages are needed here. With rent-to-rent, you're just renting the property, so you can skip all the hassle of dealing with mortgages.

Mortgages can be great for leveraging your investments, but if you're not eligible for one, for reasons like not owning a home, having a rocky credit history, limited income, or being new to the country, rent-to-rent offers a way to make money from property without having to deal with lenders.

Forget About Deposits

When you're buying a place with a mortgage, you're usually looking at putting down at least 20% as a deposit. But with rent-to-rent, you're not buying the place at all. So, guess what? No need to stress about mortgages or deposits.

This is why rent-to-rent is a hit with folks who don't have a ton of cash lying around. Say you've got £10,000 stashed away. That's nowhere near enough to even think about buying a property. But hey, it could be plenty to kickstart a couple of rent-to-rents.

No Legal Fees or Stamp Duty

Since you're not actually buying the property, you can forget about paying Stamp Duty altogether. And sure, you might need to hire a solicitor to draw up an agreement for you, but it won't break the bank like the legal costs of buying a property conventionally.

You don't have to deal with the usual snail-paced legal processes. With rent-to-rent, you can potentially seal the deal in just a few days, not months. 

And What About the Landlord?

Let's talk about the landlord's side of the story. It's important to understand their benefits because you'll need to sell them on the idea if you want them to rent their property to you.

For landlords, it's a win-win situation. They get a guaranteed income without lifting a finger. They hand over their property to you, and as long as everything goes smoothly, they'll receive a monthly paycheck for the next few years without any hassle.

Here's why they love it:

  • No worries about vacancies because you've promised to pay them regardless.
  • They're off the hook for maintenance.
  • No stress about tenants skipping out on rent (since you're the one paying).
  • Bills and other ownership costs? It's not their problem anymore. (That's all on you now!)

This isn't like handing their property over to a traditional letting agent. With an agent, landlords still have to foot the bills and only get paid when there are tenants in place and paying up.

Sure, there's a bit of a trade-off. Landlords might have to settle for a slightly lower monthly rent than what they could charge on their own. But hey, that's the compromise for you taking on the risk and effort.

How Can You Make Money From Rent to Rent?

Rent-to-rent only makes sense if you're making more from your tenants than what you're paying the landlord. But you can't overcharge your tenants. So, the key is finding the right balance to make a profit without ripping off your renters.

There are 3 basic models: 

Make Profit with Single Lets

In a rent-to-rent setup, the landlord agrees to a lower rent from you, giving them a steady income without the usual rental headaches.

If you rent the place out at the market rate, you'll profit. Sounds simple, right?

Let's say the market rent is £600, but you negotiate with the landlord to pay only £400. That's a potential £200 profit each month.

You're on the hook for all maintenance and any empty periods. Your profit could vanish quickly if things go south, but the workload stays put.

This approach is the easiest of the bunch. Just be a tough negotiator to ensure you've got enough wiggle room for a healthy profit after covering your likely expenses.

Transform the Property into an HMO

If you own a 3-bedroom place that's usually rented to one family, consider renting the rooms separately to make more money. You might even turn a living room into an extra bedroom for added profit.

The upside? You could pay the landlord the same rent they'd get from one family and still make money without much haggling. Just get their approval first.

But there are downsides:

  • Managing multiple tenants is more work.
  • You'll be responsible for all the bills, which cuts into your profits.
  • Converting the place could cost money upfront.
  • You might need special licenses.
  • If the landlord has a mortgage, renting to multiple people might not be allowed.

Turn the Property into Serviced Accommodation

Converting your property into serviced accommodation involves renting it out fully furnished, sometimes with extras like cleaning and linen services, on a weekly or daily basis. Depending on your location and property type, it may appeal to holidaymakers or business travellers, or it might not work as serviced accommodation at all.

Now, the tasks involved are different, but the things to think about are pretty much the same as with an HMO: it'll take up more of your time, there are bills to deal with, you'll need to invest in setting it up (think furniture and stuff), and it might not fly with the landlord's mortgage terms. Short-term rentals might even break the lease if your place is a flat.

Conclusion 

If you're considering entering the rental market in the UK, let's chat. Houst will walk you through your choices, whether it's buy-to-let, rent-to-rent, or something else entirely. They’ll help you manage your rental property with ease! 

The Insider @ Houst

The Insider @ Houst

The Insider team at Houst is dedicated to providing up-to-date and relevant information on short-term rentals. If you have hosting inquiries, please write to us at expert@houst.com. For guest inquiries, reach out at guest@houst.com. We are here to help you navigate the world of short lets and look forward to assisting you with your needs.

The Insider @ Houst

The Insider @ Houst

The Insider team at Houst is dedicated to providing up-to-date and relevant information on short-term rentals. If you have hosting inquiries, please write to us at expert@houst.com. For guest inquiries, reach out at guest@houst.com. We are here to help you navigate the world of short lets and look forward to assisting you with your needs.

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