Next on my list of principal strategies is something that can be great to get you started in property – particularly if you have very little capital – it’s Rent to Rent. Essentially a form of sub-letting, rent to rent is where you “sub-let” a property or properties from a landlord (quite often a stereotypically tired landlord), and take over the management.
For many, the idea of sub-letting brings up images of some form of illegal or dodgy activity, but rent to rent is actually perfectly above board – if you do it right.
In essence, rent to rent is about negotiating a long-term tenancy from a current landlord for mutual benefit. The big advantage of doing this is that you might be able to negotiate a lower rent than the current market value and can then go on to let it out at a higher rate. You can pocket the difference and can save this money to put towards a deposit on an investment property.
When rent to rents began to become popular some years back, most landlords started out with simple single let units. They would negotiate a low enough rent with the existing landlord to be able to make their strategy work, and would then rent the property out on a short-term tenancy. Today, things have progressed somewhat and those looking to make even greater returns have begun to “rent to rent” properties as HMOs.
There’s been a fair amount of talk in the press that make suggestions that this type of activity is illegal, but so long as you do it the right way – and take into account the necessary legalities – then this strategy can be perfectly fine.
For example, you need to be aware that rent to rents are not possible with council-owned properties – this is a big no-no – and you need to make sure that the landlord will not be in violation of his or her mortgage. (Sub-letting might be against the terms of a buy to let mortgage so this needs to be checked).
If it is the case that the current landlord would be in violation of the mortgage terms, then it’s advisable to get in touch with the lender. Often, a simple phone call to the lender can make it possible to change the terms. The other thing you need to verify is that you won’t be invalidating anybody’s insurance; but, if it’s all okay, then rent to rent is a very simple strategy which many, many people can use.
The big benefit of rent to rent is that you can start with very little capital and you don’t actually have to buy a property. However, as with everything, there is a flip side. As you won’t be owning the property, it means that you won’t be benefitting from any possible future capital growth. But, if you are stuck for cash and if you do want to get started in property, then this strategy can be a great way to get yourself on the right track.
One suggestion I would make to anyone looking to go into this is that they consider negotiating an option deal to go alongside the rent to rent agreement with the current owner/landlord. Options as well as instalment contracts, delay completions and all the other creative strategies that we’ve been thinking about lately, can work really well with a rent to rent agreement, and can be great at helping you to work towards building a property portfolio for the future.
Here’s to successful property investing
Peter Jones B.Sc FRICS
By the way, I’ve rewritten and updated my best selling eBook, The Successful Property Investor’s Strategy Workshop, which is an account of how I put together my multi-property portfolio, starting from scratch and with no money of my own, and how you can do the same. For more details please go to ThePropertyTeacher.co.uk