What Is Rent To Rent And How Can I Make Money From It
So, you have some questions and you want to know, what is rent to rent and how can I make money from it?
Let’s get started…
You’re probably reading this because you’ve heard of this amazing strategy where you can make money off property you don’t own but aren’t quite sure how it works OR you’ve never heard of this strategy before but now, I’ve got your attention!
There is a lot of hype around the Rent to Rent (or R2R for short) strategy but is it all true?
In this article I’m going to do my best to give you the truth about the Rent to Rent strategy and you can decide whether it’s the right strategy for you or whether you should consider something else.
What is Rent To Rent?
Rent to Rent is where you take on a property from the owner, pay them a fixed income per month and then you rent the property for a higher amount, keeping the profit for yourself.
I’m sure there are all sorts of questions you’re asking about how this could possibly work, or possibly even asking yourself whether you can legally sublet a property! Well, I’m going to do my best to predict your questions and answer them here.
How does the Rent to Rent strategy work?
There are a few different ways you can set up the contracts to ensure everything is legal but for the purposes of this article I want to explain the most common, and in my opinion the easiest to explain to Landlords.
This is also the way Goliath Property Solutions set up 95% of our Rent to Rent deals so it makes sense to focus your attention rather than confuse you!
You are going to become the property owner/landlord’s Managing Agent, but with a slight difference.
I’m sure you probably already understand the standard lettings and management process where a landlord gives their property to a Letting Agent, they manage the property and deduct a small percentage (usually 10%) from the rent each month as their management fee.
In return for the small percentage, they deal with all the hassle, headaches, maintenance etc. so the landlord has somewhat of a ‘hands off’ investment.
Unfortunately, a lot of the time the Landlord still gets called to authorise maintenance and they still must deal with tenants moving out, voids, rent arrears etc.
So really, the ‘hands off’ investment they thought they had really isn’t as ‘hands off’ as they thought!
We are the property owner’s Managing Agent but on steroids!
This is where we step in with our ‘alternative’ to the traditional property management model!
We are going to act in the same capacity as a Managing Agent (which the property owner/landlord already understands) but instead of the monthly payment being dependent on whether there’s any maintenance or if the tenants have paid their rent, or even if the tenants hand their notice in, we’re going to guarantee a fixed amount to the Landlord per month no matter what for a contracted period!
No brainer, right!?
It should be but you will face objections such as;
“Sounds too good to be true”
“What if the property lies empty for months, do you still pay me”
But don’t worry, as soon as you show them the Management Contract/Management Agreement (the contract between you and them) which goes into detail about how it works, your responsibility to them and theirs to you and the terms of the agreement, you’ll soon win them over.
As we said before, it’s a no brainer!
But how can you make more money than the Landlord is already getting?
A very common question I get asked which challenges the rent to rent strategy is;
“How can we generate more rental income than the Landlord is already getting themselves? Surely if it was that easy, they’d be doing it for themselves?”
Valid question but a very simple one to answer.
A lot of landlords out there have become what I call “tired landlords.” Tired landlords are those landlords who have been doing this for a long time and have become tired, fed up, bored of the day to day landlord stuff.
They just simply can’t be bothered to do anything to their properties, they have coasted along for years getting rent for a ‘tired’ property and doing very little to it over that time.
But the market has changed! Tenants are becoming more demanding and the better tenants (i.e. those who pay their rent on time every month) expect a minimum standard of living which these properties simply don’t offer anymore.
What does this mean?
Well, this means the ‘tired’ landlords have started to see an increase in void periods. It’s taking longer to find tenants each time a tenancy comes to an end and when tenants are found, they’re not the best of quality!
Remember, the property’s tired as well so this means increased phone calls reporting maintenance which means increased monthly costs on an already reduced rental income!
Hopefully you can now see why there’s a massive opportunity here.
Of course, we’re not going to be able to help every landlord out there as a lot of them will do the work needed for themselves but trust me, there are A LOT of landlords who just want an easy life, and this is where you step in!
It’s not all easy though! You need to think about what you’re taking on
Remember, quite often you’re taking away the headaches from the landlord which means effectively YOU’RE taking these headaches on.
- Yes, you will refurbish the property to a higher standard to get better tenants
- Yes, you will offer a much better experience for tenants, so they don’t call you all the time moaning about trivial issues
- Yes, you will be able to charge a higher rental income and make more profit
BUT BUT BUT
You still run the risk of coming up against problems which you need to deal with, whilst still paying the landlord a fixed amount of income per month, even if you haven’t got any income coming in!
For a new Managing Agent (i.e. you) it can be a very steep learning curve when things start to go wrong. Tenants are people and people can be very unpredictable and you will need to handle this when it arises.
This could include tenants not paying rent, tenants fighting with each other, break ins, deaths etc.
I don’t want to be the bringer of doom and gloom, but you really need to be prepared for what you’re getting yourself into as it can be very stressful.
The financial reward can be excellent, but the negative side of property management can become a living nightmare and you need to be prepared for both sides.
You might be one of the lucky few who never have any problems but if you go into a Rent to Rent Agreement like this without being aware of the ‘whole truth’ then you’re setting yourself up for a very hard fall.
How to find rent to rent deals…
So, I’ve explained the ins and outs of the strategy and I’ve even done my best to give you both sides of the coin by explaining the risks and you’re still here so I guess it would help you if I told you how to find these rent to rent deals!
As we’ve highlighted already, your target audience is going to be landlords primarily.
There are a few main reasons for focusing on landlords which are:
- Landlords are generally easier to find from a marketing point of view
- Landlords are much easier to explain the R2R strategy to
- There are A LOT of tired landlords out there looking for a solution to their property problems
- Landlord’s properties are easier to take on due to tenancies ending and becoming empty
The obvious place – Letting Agents / Property Managers
Letting Agents are always advertising properties that are becoming available to rent and they are generally aware of who their ‘tired’ landlords are. (Use rightmove.com to find agents and properties in your area).
Unfortunately, they are going to be wary of working with you as you are technically a managing agent as well but you’re looking to take the stock (properties) off their hands which they are struggling with.
You want their headache landlords or those headache properties which they struggle to let because it needs so much work doing to it.
As long as you are honest in the way you approach Agents and explain that you want to work with them rather than against them, you will find Agents who are interested in working with you.
Depending on how quickly you want to build up your portfolio, you will also need to consider getting direct to Landlords (i.e. bypass the Agents on spareroom.com & gumtree.com).
There are a few ways you can do this:
- Direct Mail
- Contacting private ads
- Online advertising (such as Facebook or Google Ads)
Needless to say, getting landlords directly is a much better strategy to find R2R deals but there is a skill involved in mastering this type of marketing as you’ll need to ensure you get your messaging right, targeting the right audience and have the ability to build rapport and close the deals when they contact you.
These skills can be learned and there is a lot of ‘testing’ that needs to be done but when you nail it you’ll find the direct to landlord leads are by far the easiest to convert into deals.
You will also find that once you find the formula that finds one landlord the chances are very high that same formula will generate even more leads.
How could I forget rent to rent sourcers (deal packagers)?
In addition to Agents and going direct you could also enlist the services of a rent to rent sourcer. Sourcers/Deal Packagers are agents who find you rent to rent deals and charge a fee for doing so.
Fees can vary as can the quality of the deal!
Whenever you’re considering a deal from a sourcer you still need to do your own due diligence and always ensure you get to meet the property owner before signing up to any deals!
Rent to rent is a strategy where the relationship you have with the landlord is very important as you are still managing their property.
If the landlord is difficult or not completely understanding of the strategy and you take on the deal unknowingly then there’s a risk things could go wrong very quickly, usually after you’ve spent £000’s on a refurb only to have the landlord insist on taking their property back!
Hopefully I’ve been able to share some insight into the Rent to Rent (R2R) strategy with you and why it remains such a popular strategy in the current market.
As I have detailed above, it’s not all plain sailing and you do need to be aware of the challenges as well as the upsides.
Yes, the cash flow can be incredible with only a couple of deals needed to generate life changing income
There are risks and challenges that could mean you don’t generate any profit and what’s the point of doing that?!
Rent to rent is a fantastic strategy to get into the property investment world and a brilliant way to generate monthly cashflow but remember what your property goals are, how this strategy might fit into those and where you want to progress from here.
Whilst it’s great generating cashflow from someone else’s assets, it should always be a goal to get some of your own as this is where the real wealth lies.