Renting properties to rent out is a strategy that can earn you a high income but many consider it unethical.
Expert Jacquie Edwards, author of the book Rent to Rent: Your questions answered, says if applied in a proper way this strategy can be a win-win-win.
Edwards says that “most of the bad press is because of the cowboys out there that operate without knowing the rules and the legal requirements. If you learn how to operate properly then Rent to Rent is a great business model that can not only make you loads of cash but will also help provide quality housing during the current housing shortage and help struggling landlords.”
The expert explains:
“This business is perfect for people that want high cash flow with minimum cash input. Returns are generally over 100% on cash invested! Whether you already have a few investment properties and have run out of money for more deposits, or you are a complete property newbie you can use the Rent to Rent business model to build your six figure salary!
The basic business model is quite simple. Find a property for rent, rent that property from the owner on a long-term contract, rent out the rooms in the property to individuals on a room by room basis as a shared house. The profit to be made is the difference between the price the Rent to Renter pays to the owner and what they receive from the tenants living in the house. Generally this is £100 profit per bedroom per month, or more!
The first question everyone has at this point is “Isn’t that sub-letting and isn’t sub-letting illegal?” It’s important to know that sub-letting is not illegal. There are no UK laws that prohibit sub-letting – there are only specific types of contracts that don’t allow sub-letting. So it is important to know what type of contract to use in each individual situation. And when using the proper type of contract, which you can get from a specialist solicitor, then there are no problems with sub-letting.
The next step is finding the right house. Typically Rent to Renters are looking to rent larger houses, generally 3 or 4 bedrooms with multiple reception rooms and large kitchens. You want plenty of space for people to live comfortably and share facilities. The Rent to Renter would take this property on a long-term agreement, normally 3-5 years and generally paying the owner market rent for the property. This is great for the owner as they don’t have to worry about the voids that would normally happen during a tenant changeover.
A perfect house for the beginning Rent to Renter is a typical 3 bedroom 2 reception room house. If you can find an area that has good room rental rates (there are good tips on how to find them in the book Rent to Rent: Your Questions Answered) then you can rent that house from the owner and turn it into a 5 bedroom house by using the 2 reception rooms as bedrooms. This way you can pay the owner the market rental for a single family home and get a much higher rental from the 5 tenants that you put into the individual bedrooms. Most properties, when done properly, earn between £500 to £1,000 profit per month.”
Ethics and risks
Rent to Rent can support you and it seems like a great way to have high earnings with not much initial investment but it could be very risky. If you are not able to find enough tenants for the property you are subletting you will still have to pay the rent to the landlord. The original landlords of the property themselves can get into trouble for allowing their property to be sublet. They can lose their insurance or their buy-to-let mortgage.
The whole practice is hardly fair to tenants, as they live in crammed conditions and have to share their home with strangers.
There is also a risk of fraud with reported cases of landlords being ripped off by people subletting their properties.
While Rent to Rent can work well in some cases, it is not for everybody and if you are considering investing into such a scheme, you have to be careful, plan ahead and have a balanced approach. Consider how many tenants it is reasonable to have in one property, think of all legal aspects of subletting the rooms and also of the division of responsibilities between you, the original landlord and the tenants.
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