are rent to rent deals a good idea for landlords

Are Rent to Rent Deals a Good Idea for Landlords?

Considering Rent to Rent deals as a landlord? This guide explores the advantages and disadvantages to help you make an informed decision.

Every now and then landlords receive intriguing messages from prospective tenants. They usually offer above asking price and guarantee that rent will be paid on time every month. Even better, they can sign a contract tomorrow.

Seems too good to be true, right? Well, it might be. Chances are you’re being approached for a Rent to Rent deal, but what exactly does that entail, and should landlords entertain the idea?

Here, you’ll learn all about Rent to Rent, how to tell if someone’s pitching you this arrangement, and you’ll find some advice if you’re thinking about getting into it.

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What is Rent to Rent and how does it work?

The term Rent to Rent can cover a range of different arrangements. It’s also sometimes called a ‘guaranteed rent scheme’ or ‘rent to serviced accommodation’ (R2SA). 

They all share the same basic idea: rent a property for one price, then let it out again at a higher price. 

First, a person or a company (referred to here as an ‘operator’) will approach a landlord who is usually advertising a large property.

They offer to pay a bit more than the market price and will be ready to proceed immediately. This can be quite tempting to landlords hoping to reduce void periods.

The operator can afford to pay more because they intend to split the property into as many bedrooms as possible, and then sublet each room individually.

In some cases, they may even divide larger rooms into smaller ones to maximise occupancy.

What’s the big deal?

Rent to Rent often gets a bad reputation. But why? Couldn’t it just be an easy way for landlords to maximise their rental income without the hassle of managing the property?

Unfortunately, it’s not that simple. Many see it as a get-rich-quick scheme, with plenty of ‘property influencers’ boasting about how they earn thousands every month through such arrangements.

However, alongside these success stories, there are horror stories circulating among landlords. They share experiences of entering into Rent to Rent deals, only for the operator to disappear with all the rent money.

Unfortunately, this is a big risk that comes with Rent to Rent.

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10 signs you’re being approached for a Rent to Rent deal

Now that you’re familiar with Rent to Rent, let’s delve into how you can quickly determine if you’re being approached for such an arrangement.

Vanessa Warwick, an experienced portfolio landlord and co-founder of Property Tribes, has shared this handy checklist to help you identify potential Rent to Rent pitches and avoid illegitimate or fraudulent offers.

1. Stay cautious if you receive a message from someone who says they’re a letting agent or middleman representing corporate clients, promising guaranteed rent and a long-term contract.

2. The person contacting you might seem rehearsed, and if you ask about specifics like contract arrangements, they might not have answers – an Assured Shorthold Tenancy (AST) isn’t suitable for this kind of deal. Watch out for emotional pitches like “We’ll handle everything for you” or “You’ll just see the rent rolling in each month.”

3. Consider it a red flag if they mention a corporate let where sub-tenants (company employees) will be frequently coming and going. This could signal that the property might be used for serviced accommodation like Airbnb, raising concerns about increased wear and tear.

4. Some ‘Rent to Rent investors’ claim to have government contracts for providing social housing and/or supported living. Instances have emerged where such contracts have been forged. The government conducts rigorous due diligence before awarding such contracts. Only a handful of companies hold genuine government contracts, which can be verified online. Ask to see a copy of any such contract and make sure to check its provenance and authenticity. 

5. It’s also essential to ask about their company registration number, years in operation, preferred deposit protection scheme, and the number of properties under their management. If they hesitate or cannot provide these fundamental details, consider it a warning sign.

6. Ask whether the company directors are homeowners and willing to provide a personal guarantee. If they refuse or indicate otherwise, consider it another warning sign.

7. Get their company information and search for them on Companies House to assess their trading history, timeliness of account filings, and net assets. If they’re a recently established company or less than two years old, it could indicate a potential risk and should be approached with caution.

8. Request their membership details for an independent redress scheme, such as the Property Ombudsman or The Property Redress Scheme. You should be alarmed if they’re not a member, as it’s a mandatory requirement. Plus, it means you’ll have no recourse if the arrangement turns sour.

9. As previously mentioned, being offered rent well above the asking price suggests you might be dealing with a Rent to Rent scheme.

10. Ask them if they have paid for any training on how to undertake Rent to Rent and what professional qualifications or credentials the person or company who trained them has.

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If you’re determined to get involved in Rent to Rent anyway…

By now, it should be clear that Rent to Rent deals carry multiple risks. As the landlord, you’re still on the hook for adhering to a range of regulations, despite not managing the property actively.

On top of that, the middleman operator could vanish at any moment, leaving you to handle a potentially illegal tenancy that might cost thousands to resolve.

But if you’re determined to proceed with a Rent to Rent deal, there are ways to minimise the risk.

In a Rent to Rent arrangement, the property owner leases directly to the rent operator, rather than simply authorising them to manage the property, as an agent would.

This tenancy won’t be an Assured Shorthold Tenancy (AST), so a standard tenancy agreement isn’t suitable. You should insist on using a contract tailored specifically for this type of arrangement.

When landlords sign up with a guaranteed rent provider, they’re entering into a commercial contract, not an AST.

It’s crucial to have an independent legal professional review the contract, as some terms may be deemed unfair.

The contract should state that the guaranteed rent provider can sublet the property with your consent. Make sure there’s a break clause in the agreement so you can end it early if you’re not satisfied.

Also, ensure the property is returned in the same condition as when it was provided.

Remember, for a legally sound tenancy with all your landlord duties taken care of, OpenRent is the best tool landlords have at hand.

We can find you excellent tenants, draft your tenancy agreement, secure the deposit, and collect the rent – all following industry best practices, helping you maintain a consistent rental income from your property.

Notable Replies

  1. Just by way of a practical example of what can happen when such arrangements go wrong: Against my advice, my brother-in-law rented his property to a rent-to-rent company that already had around 10-15 similar properties on its books. The guy was very professional in his approach and claimed to have HMO licenses in his name from several of these properties and a good relationship with the HMO team at the Council. He guaranteed a particular rent and put 4 tenants in there.

    Things started to go wrong when the Council introduced an Additional licensing scheme that would capture 4-bed HMOs. The rent to rent company wasn’t aware of this and the property was now in default. A neighbour complained that it was over-crowded and the Council wrote to my brother-in-law threatening prosecution. His insurance was then due for renewal and he was unable to get insurance for the house as it didn’t have a licence. On inspection it was found that there were actually 10 people living there as it wasn’t being effectively managed as the rent to rent company had over-extended itself. Then some of the tenants stopped paying rent and the so-called guaranteed payments to my brother-in-law also stopped. Then came Covid19 and the tenants effectively can’t be removed. The rent to rent company offered to end the contract with my brother-in-law but all that would happen then is that the occupants would become his direct tenants and he would inherit all the problems and liabilities. This issue is still not fully resolved.

  2. Don’t touch it with a barge pole

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This article is not intended to form legal or investment advice. Investments in property are not guaranteed and can decrease in value as well as increase.

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