| Jennifer Tozer

What is ‘Rent-to-Rent’ and How Does it Work?

Rent to rent is not that widely known, but it could be a way for you to make an income without having to buy a property.

Like many things, rent to rent comes with positives and it comes with negatives – the best thing to do is to weigh up the pros and the cons and come to a decision on whether you are willing to take the risk.

Rent to rent can certainly be another way for you to build a property income portfolio if you don’t have the cash reserves to buy.

You’ll see why we say “build a property income portfolio” in a moment because we’ll explain what rent to rent actually is and why it could be an option for you.

Don’t forget, we are more than happy to help explain things further so give our office a call on 01803 525100 and we will run through it with you.

What is “rent to rent”?

As the name implies, rent to rent is where you rent a property from the owner, and you then rent it to a third party.

You rent somewhere to then rent it out further. Sounds simple really, doesn’t it?

The trick of course is to make money by renting it out for more than you yourself are renting it for in the first place.

You can see why some people do it, particularly if they don’t have capital to invest.

Is rent to rent a good option?

Well, in many ways, yes. As we have said, you don’t need the big cash outlay, and you don’t need to arrange a mortgage. You sign the contracts with the owner and then go about getting a tenant who pays you more than the rent you are paying. You look after the property and get the financial reward.

The owner sees the benefit of a regular income without having to do very much, particularly as it is up to you to ensure he or she gets paid.

So it’s all good then?

Well, here’s the thing. There are things to think about. In effect, you take on the responsibilities of the owner. Maintenance costs will be yours, the condition checks and certificates are likely to be your responsibility. Insurance too.

If you were the owner of the property, you’d have all these costs too – but at least you would be the owner.

What happens if rent isn’t paid to you on time? As the person who rents from the owner, you’ll still have to pay the rent to them, whether you get yours or not.

If a tenant leaves for some reason, you are the one who will have to find a new tenant and go through all the processes associated with that.

Will you make money if the property goes up in value? You’re the renter so not the owner – so no, you won’t benefit from the property going up in price, although you might benefit if the area has gone more upmarket, meaning you can charge a higher rent.

Remember though, right at the start of the agreement, you will need to set a fixed rental price with the owner. If you don’t do this, they could put their rent up and you won’t see any benefit at all.

Is it legal?

The big question! You will have probably heard that sub-letting is not always legal. This is true but only if you don’t have the owners permission. Rent to rent is a perfectly legal way to operate. It does take a lot of understanding, and it is fair to say that not everyone thinks it is a bona fide system. But, it’s actually a system that works well in the commercial property sector.

Think of all the car parks and buildings that are managed by an organisation that is not the owner. Think of the social media companies or web-based businesses where you rent a room or get a lift somewhere. They make money from the service, but do not own the property or the car.

What’s the trick to getting it right?

You can earn an income from rent to rent, but everyone has to understand it. You also need to find a property where you can add value to it. Imagine if you rented an unkempt house, perhaps a two up, two down, for a low rent, then made it good, sparklingly clean and updated and then charged a much higher rent from your tenant.

That’s how best to make the best of rent to rent.

This is of course just a short summary with a few of the pros and cons of rent to rent, and we hope it gives you food for thought. If you want to know a little more, we can help you.

Ridgewater Sales and Lettings are your local property experts for the Torbay area. Call us on 01803 525100 or email neil@ridgewater.co.uk to chat with a member of our friendly and experienced team.