RENT TO RENT. . you watch this as a video too ….. click here
A lot of people ask me all sorts of questions about interest rates – when is a good time to buy? Is the market is going to crash? The reality is I have not got a crystal ball and I cannot answer those questions! What I can do, is look at the data in front of me that’s available to me and the current circumstances, analyse what I want to achieve and then make a decision as to what I want to do. I then take all my learning and knowledge acquired to make sure I mitigate any possible errors or expensive costs that might crop up. Of course, there’s always a risk that something might go wrong or unforeseeable events. We might have a disaster of some sort which I can’t predict! What I can do is ensure I am prepared to do what I need to do right now.
So let’s talk about a strategy that will help in all these kind of circumstances where the property market is perceived to be very uncertain and there is a lot of negative press. Many people that do not believe property is a great investment or are too scared and frightened of the current market. Many people may be selling up after finding that their interest rates are too high and therefore unmanageable and that’s causing then stress.
Rent to Rent is a property strategy also very closely tied with lease options which is also a strategy that I have touched on before.
However, let’s just concentrate on rent to rent in this article. Rent to Rent is a situation where you might rent a property from a landlord that you can then do something to change it in some way. Maybe improve it, may be market it better, maybe aim for a different target client/tenant and you make some money in the middle.
This way effectively is quite simple. For example, I might find a landlord who has got a property that’s really rundown and they just can’t afford to do anything with it, they cannot afford to sell it because it’s not worth the money that they need to clear the mortgage and costs. So I would then suggest, that I pay that landlord a fixed amount of money per month for that property , which is guaranteed for a particular term 2 ,3 5, 10 years and then I would take that property and I would make it profitable for me. I might have to spend some money on that property if it’s rundown. Maybe paint & decorate, maybe new carpets etc.
Once I improved the property in some way I would then re-market it possibly in a different market. I could just stay in the same market like a buy-to-let, it could be that I by doing it up and improving the internals I will get a increased rent and enough money to pay the landlord whatever I’ve agreed to pay them minus my costs- I would then still make a profit.
One of the ways I would look at this is to make sure that the from the profit I’m making it would not cost more than six months profit to do the work to the property.
I want to make money on this property. The faster I get my initial investment back the sooner it could start earning me money.
Another option would be to change the use of the property, I could change it into a house of multiple occupancy, a HMO, this is where I rent the rooms out individually to people and would make a greater profit. There is more of a cost involved in the refurbishment here because there are important legal regulations you have to meet and those obviously cost more to achieve. In this situation you could also ask the landlord to contribute, even up to you pay half and they pay half. Let’s say the refurb is going to cost £5,000 pounds we put £5,000 in each. I am expecting to get that £5,000 back within the first six months, so my profit needs to be £833 pounds a month .
With Rent to Rent, just like lease options, there’s a very low cost to enter. You do not need a deposit for the property, nor get a mortgage for the property nor numerous credit checks. All you need is a landlord who is prepared to allow you to take on their property to do this work and to make money. Of course, you would keep the landlord involved all the way through and there are certain criteria you must fill with regards to their current mortgage criteria – are you allowed to let it for multiple rooms? – are you allowed to let it as a buy-to-let? Allowed it as a service combination?
Serviced accommodation is often an effective strategy (like those on AirBnB etc) where you will rent the room out on a daily/weekly/weekend basis and possibly make good profit, which also improves your cash flow.
As you see Rent to Rent gives you three valid possibilities:
You could just do the work to the property turn around as a buy-to -let,
You could complete work to the property making it a HMO,
Or finally you could do some work on the property, furnish it and make it Airbnb or a service combination.
ALL of these options are really viable and can make a good profit. Basically you are taking away the problem from the landlord you’re providing a win win situation as they do not have to worry about costs, bills, maintenance or tenants. You take on those elements for them in return you are paid and you are taking the difference in the in the money that’s collected.