It has been suggested that a “rent-to-rent” arrangement is a quick and simple route to a huge passive income for property investors. You sign a contract, you accept payment upfront, and your tenant takes responsibility for the property.
Sounds fantastic! With such an apparently easy method of making a profit with minimal hassle and effort, it is no wonder that the practice of rent-to-rent is becoming popular in the ever-changing business of property investment.
While there is undoubtedly an appeal to opening your property to a rent-to-rent tenancy, such agreements have suffered a sprinkling of bad press. Claims of unethical practice and properties being left in a poor state have appeared online and in newspapers, leaving many property owners hesitant to even contemplate this strategy.
This topic has been broached and referenced on the Progressive Property Facebook Community numerous times, which has revealed that there are no doubt misconceptions as well as hurdles to consider before committing. Let’s discuss the draws and the drawbacks, the pros and the cons, with the aim of helping you decide whether the quick and easy appeal of rent-to-rent might be for you.
What is rent-to-rent?
Rent-to-rent is when you let out a property to a tenant on a single-let basis. This tenant will rarely live at the property and will be free to sub-let its rooms as they see fit. Depending on the type of property and the agreements made, sometimes the arrangement involves a small amount of refurb work, converting offices/lounges etc into extra bedrooms. Some sub-letters will ask for financial help from the property owner in order to make these adjustments.
The sub-letter will then let out the property to (usually 4 ) separate tenants while paying the property’s single-let rent and bills while pocketing the difference.
Why would you agree?
The shrewd property investors among you might ask, “Why would I work hard to purchase my properties, build up a great portfolio, and then allow other entrepreneurs to dive in and make more than me?”
It’s certainly a valid question, but we at Progressive Property are very keen on the idea of passive income. Being a landlord can also be a stressful role, meaning that when presented with such an opportunity, plenty of people leap at the opportunity for several years guaranteed all at once. In a rent-to-rent scenario, property owners are guaranteed a specific start date, with no empty periods for however long the agreement lasts, plus no missed or late payments due to them being paid in lump sums.
Many of the time-consuming aspects of renting out a property are taken care of by the sub-letter, meaning that you, as the property owner, do not have to handle tenant queries or day-to-day management responsibilities and can rely on the sub-letter to deal with the smaller maintenance issues.
Essentially, you are receiving the asking price of your property AND scraping a whole pile of hassle off your plate.
Misconceptions of rent-to-rent
• Not an assured shorthold tenancy
Because the tenant is not going to be living in the property, it cannot be considered an assured shorthold tenancy, and should not be treated as such. Such agreements will be commercial or business tenancies.
• Tenants cannot be evicted without a court order
Just because the property is being sub-let, a tenant still has the right to remain at the property, and they cannot be removed without the presence of a court order. Evicting a tenant without a court order is a criminal offence and landlords/sub-letters who try it risk being taken to court for damages.
• Not a licence and neither are those of the live-in tenants
The sub-letting tenant will have a contract with you for their part in the renting and upkeep of the property, and the tenants living there are likely to have assured shorthold tenancies, even though they are sub-letting through a 3rd party. This means that all rights that generally go along with renting a property are likely to be in place, despite the primary arrangement being between owner and sub-letter.
So, could this strategy be for you?
As with any change in your property investing strategy, the most important thing to bear in mind is putting in your due diligence. While no one would deny the attraction of what appears to be 100% passive income, there have been criticisms and questions raised that you will want to carefully consider beforehand.
If you are curious there are many resources online that you can research, which will include both the positives and the negatives of the practice, both of which you should pay careful attention to. Ask yourself, will you be content knowing that while you are making money from your portfolio, someone else may be profiting from your hard work? Do you want more or less control over your tenants’ living environments, bearing in mind that comfortable tenants are more likely to be good tenants? Are you certain about the legal implications, and are you confident in the legitimacy of the sub-letter?
You are likely to find property investors who have experience on the Progressive Property Facebook Community, which you can find here. Ask around, put in your research and due diligence, and explore with an open mind. Passive income could be closer and easier than you think.
Do you want to learn more? We have an online course where you can learn everything about running your own successful property business.
Is it better to buy a house or rent a house?
The video below will show you a landlord explaining whether you should buy or rent a property: