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Rent To Rent Guide For Beginners: What is Rent To Rent?

Rent To ​​​​Rent Guide For Beginners: What is Rent To Rent? 

To simplify it, rent-to-rent is renting a person’s property…and then sub-letting it to others at a higher rental price than what you are paying…and then pocketing the difference.

You might ask, “Okay, if I were a landlord, why would I allow my property to be rented to someone at the lower price?” That is a good question. Some answers to this question are…because it is convenient for a landlord, because the landlord may avoid void periods by agreeing to rent it now, even if at a lower price, because the landlord will get some certainty in payments, because the landlord may get a longer term agreed with you…hopefully you get the rest.


Benefits of rent-to-rent​

The landlord gets a steady flow of cash and is freed from the hassles of renting out a property for a number of years. He/she doesn't have to worry about tenants not paying up, building maintenance, and other costs of owning a property.

The advantages for the individual brokering the rent-to-rent are as​​​​​ follows:

  • Zero mortgages: you get to earn income from a property without buying it and without worrying about mortgage payments.
  • Zero deposit: if you are purchasing a property using mortgage finace, you first must be mortgageable. Then you need an average deposit of 25% which will be impossible if you have limited cash. However, with rent-to-rent, you don’t need to buy the property to earn income from it.
  • Zero legal expenses or stamp duty: since you are not purchasing the property, you do not need to pay stamp duty and the usual transactional costs that come with buying a property eg, legal fees for the property conveyance.

Cons of rent-to-rent

  • Zero capital growth: even if you are a newbie in the property business, you should know that the value of a property can rise and fall – and they do. With rent-to-rent, you obviously do not own the property and so if there is an increase in the value of the property over time, you get nothing from it.
  • Property ownership risks: although you do not own the property, rent-to-rent exposes you to the risks associated with owning one. These risks include tenancy gaps, maintenance, and bills. You will still have to pay the landlord even in situations where there’s no rent coming in and you have maintenance to run.
  • Initial costs involved: you may need to spend some money modernising or remodeling the internals of the property to make it attractive for your sub-tenants.
  • Zero control: because you do not own the property, you don’t really have control over it. If the landlord decides to take back the property for whatever reason, or fails to pay the mortgage, then you have a very serious situation on your hands eg. you’d have a lot of explaining to do with your tenants (who obviously will not be happy with you).
  • Legality Issues: Often, landlords aren’t allowed to enter these types of rent-to-ret agreements. Their mortgage lenders will not allow it. Some mortgage lenders only allow sub-lets for a shirt period of time in a year. Some mortgage lenders do now allow it at all.
  • Opportunity issues: There are not that many landlords that will sign up to this. First you will have to find a landlord that wants to rent their property to you at a lower rental rate. Then you have to explain how the system works. Then they have to agree to this…then you may spend some money to spruce up the property…and then you have to find and manage tenants and ensure that they pay you. Can you see how much effort and risk this requires?
  • Huge saturation in the market: Too many people are trying to do rent-to-rent. Not enough opportunities exist. You won’t have first-to-market advantage. Most people doing rent-to-rent are unsuccessful simply because there is too much competition and not enough opportunities.
  • Compliance Issues: You may need a guarantor and the right legal agreements and structures in place to protect you from a number of things that could go wrong.
  • Scalability Issues: Rent-to-rent is a niche market. Who knows whether it will exist in the future. You can’t confidently predict whether legislation will be passed to make it even more difficult. You will have to become an expert in it to have a chance…and eve n if you do become an expert, will the niche continue?
  • Too much time and effort: Initially you’re going to spend lot of time finding sellers and trying to agree terms. If terms are agreed, you will then spend most of your time finding and managing sub-tenants. You will find it difficult to scale.

Models for profiting from rent-to-rent

As mentioned earlier, one of the reasons that rent-to-rent is viable is because the landlord chooses to accept a lower payment than if they rented it out themselves. This helps you make profit without renting the property out at a price above the market rate. Here are the three models:


  • Convert the property into a HMO: if the property you are renting is a 4 bedroom property, it will be more profitable to convert it to a House of Multiple Occupancy (HMO) and rent it out to more than one tenant to share. Even converting the reception room (if it has one) to a fifth room increases your profit. This is a great option because you don’t need to go into hardcore negotiations, you can just offer the landlord the normal rate and then rent it out as a HMO, making you profit. Before you do this, you have to inform the landlord of what you want to do.  There are a few things you need to be aware of though, they include: the bills associated with a HMO; the setup cost for a HMO (avg £5,000); you should get information about licenses and regulations governing HMOs; it might be a violation of the mortgage terms. Alternatively, you could take an existing HMO and make it more profitable.
  • Rent it out as serviced accommodation: this is another rent-to-rent strategy. You can rent a 2- or 3-bedroom property and then sub-rent it out as serviced accommodation on a daily, weekly or monthly basis. This will work well if the property is located in or around a tourist destination. This involves a lot of management though…and again, you must understand the restrictions within the mortgage.
  • Bargaining for a discount: this is the simplest of all three models and the most basic. You have to negotiate a lower rate to allow yourself to make some profit from the whole idea. Given that the landlord will make a guaranteed income for years to come without any effort at all, this is the main driving factor for the landlord to agree a deal with you. This strategy is all about how good you are at negotiation.

Conclusion 

Rent-to-rent is an interesting niche strategy in the property business that in theory can make you a lot of money or cost you a lot of money. In practice though, it is a very tough market that is probably not scalable on a consistent basis. You must do serious volume and agree lots of properties to make a true impact on your income. There are several ways to find rent-to-rent opportunities such as pay per click, free adverts, pasting notices and posting mails directly to the landlords. Be sure you do your homework before you venture into this business and be prepared to work extremely hard!

Serviced Accommodation: Beginners Guide To Serviced Accommodation In The UK

Beginners Guide To Serviced Accommodation In The UK

For every aspiring property investor in the serviced accommodation sector in the UK who doesn’t know where to start…

According to Wikipedia, serviced accommodation is a type of furnished, self-contained property designed for short-term stays, which provides amenities for daily use.

Bear in mind that serviced accommodation is not restricted to urban and city centers; you can also provide it in rural or remote locations. The only problem with providing it in a rural environment is that you might find it difficult to attract regular tenants.

If for one reason or another, you are afraid of renting out your residential property, then, you should consider the option of serviced accommodation.

There has been significant growth in the serviced accommodation sector of the United Kingdom.

This growth is evident in the number of properties that are being made available and the rise in the number of online networks which attract tenants who seek this type of accommodation.

Based on the rates charged and the length of tenancy, there are at least four different types of markets or tenant groups you can target within the service accommodation sector in the UK.

They are:

  • The disaster recovery tenant
  • The relocating tenant
  • The corporate event or personal event tenant
  • The corporate tenant

While this is not an exhaustive list, it gives you an idea of the type of client you can target based on the factors at your disposal.

For example, you can’t target the corporate when your apartment is semi-urban. Similarly, you would need to market aggressively and spend time and resources to manage your property before you can attract the personal events tenants.

While there are high tenant turn-over segments within this sector, it also has the highest competition.

Point is, make sure your resources and the unchangeable factors suit the market segment you are targeting.

Pros

1. If you plan to stay at a place for a long period, service apartments are cheaper than staying in hotels. This is one of the reasons why companies rent serviced accommodation for some of their employees who will be having a medium to long stay. For example, a 5-month training program

2. For the best services and value for money, serviced accommodation is the best option

3. If you are leasing out serviced accommodation, it provides you with funds you need to maintain your property

4. Serviced accommodation appeals to a large pool of tenants,  most of whom will prefer it rather than deal with fluctuations in property prices when buying or renting on the open market

Cons

1. Getting finance is one major problem with serviced accommodation. While some mortgage lenders will lend with a low percentage of the purchase price, some won’t lend at all.

2. Since serviced accommodation is usually leased for long periods, they can only be sold to investors.

3. It is said that most serviced accommodation has poor capital growth.

4. Mortgage lenders put restrictions on how many times / how long you can use a property for serviced accommodation purposes.

Revenue options

There are two main options for handling serviced accommodation:

1. Targeting short-term tenants that will stay for a maximum of 5 days, then, charging them premium rates. A major disadvantage of this option is that you will have less certainty in your occupancy.

2. Targeting contracts with firms who would need accommodation for their contractors or consultants. A disadvantage of this option is that you have to offer a better rate, but your occupancy would be more certain.

If you don’t mind charging less than premium rates, then, the second option is better and if you are able to sign a secured long-term contract with these firms, it can be a highly profitable investment for you. It is also profitable for the company because they can get a significant reduction in one of their fixed costs.

Conclusion

While you can make healthy profits in providing a valuable and growing service, you need to research and plan carefully because as with anything else, this type of investment also has its’ own risks. You must understand the rules and guidelines before delving into it.

Property Portfolio: An Ultimate Guide To Building Your Property Portfolio In The UK

Build Your Property Portfolio: An Ultimate Guide To Building Your Property Portfolio In The UK

Most people in the UK see property investment as the preferred type of investment. As a result, even those that are not investors, like to see their properties increase in value. The first step of building your property portfolio is buying the first property. Usually, this is the tricky part because most people are not sure where to start with property investment. Choosing the first investment property wisely is important to the success of your future portfolio as this sets the tone for future dealings and enables you to use this first property to buy more properties.

It is important to be well informed about the advantages and disadvantages of property investment over other types of investment in order to be determined to build your portfolio.

  • Education on property investment in the UK is easy to access and understand
  • Rental income has performed more consistently than cash or stock dividends
  • In the long term, capital gains from property investment are stronger than most investments
  • High returns with a low level of volatility
  • The risk associated with property investment is low
  • You're in control of adding value to your investment

Whilst it is easily demonstrated that English properties grow in value, if you have just one property, then you have to wait for that property to increase in value. During this time, you may miss out on other opportunities to further make money.

Gain Knowledge

Knowledge is power, information is liberating and education is the premise of progress. Devoting time to educate yourself has an invaluable return on investment and will significantly increase your chances of success. An investment in knowledge pays the best interest and this can be achieved through reading books, blogs or attending seminars and masterclasses. The greatest investment that you can make is in yourself.

Get Connected

This refers to increasing your connections with the right people - your very own Power Team. The value of having the right connections cannot be overemphasised. See your Power Team as an extension of you. Whom do you want on your side? Having the right connections means you can leverage all of their experience and expertise.

Get a Mentor

If you're learning from someone that already has the knowledge and you can learn all you want to know faster, you are already halfway through the journey of building your property portfolio. One of the greatest values of mentors is their ability to see ahead of what others cannot see. They can help you navigate a course to the right destination. This is because they have the experience and expertise. They can offer valuable advice, direction and connect you with their Power Team.

Gain Experience

Once you have the knowledge, it is much easier to purchase your first investment property... and it gets easier from there. As you become more familiar with the workings of property investment, you start to accumulate your own experience. Experience is a great teacher in the learning process. A wise way to start would be to learn from other people's experience rather than your own. Learn from other people's failures and successes and then focus only on pursuing the successes

Understand Equity & Leverage

One of the easiest ways to build your property portfolio in the UK is by taking advantage of the equity you have in your properties. Properties usually go up in value and part of this increase can then be used to purchase more properties. You need to be able to identify suitable the properties that suit your property investment plan. Proper research and planning will no doubt help you develop strategies to invest well.

Maintain Positive Cash Flow

Always make sure in every investment you make on properties there is profit at the end of the day. At the very least, ensure that you can service your debt. The cost of expenses like maintenance generated from each property should never exceed the payment you get from them. The profit can then be used to further increase your standings in the UK property market. This can be done either by purchasing more properties or adding value to the existing ones through targeted renovations. Alternatively, if you build a robust property portfolio, the profit you make on properties is useful when some of your properties may not be performing.

Know How To Exit

Do you hold, do you remortgage or do you sell? Understand your exit strategies...and when to apply them.

Maximise Income

This involves being able to increase the rental income when you justifiably can. You can lower your letting management fee. You can look into lowering your mortgage interest rate. Ways of increasing rental income include:

  1.  Regular checks, maintenance, and clean-up
  2.  A new paint job
  3.  Upgrade facilities that are out-of-date
  4.  Consider added extras that emotionally drive tenants
  5.  Focus more on kitchens and bathrooms
  6.  Improve the natural environment

Plan For The Future

Most people miss this. What is the ultimate aim? Cashflow, a lump sum, inheritance for your children, a legacy for generations to come? Once you understand your end goal, you can structure your purchases properly from the start.

Explore Uncomfortable Zones

Remember, you are not buying the property to live in it; you are buying it as an investment. Don't be fixated on a particular area just because you live near it, otherwise, you'll miss all the better opportunities in other areas. Don't focus on one strategy just because that's the only one you know. Learn the other strategies and then decide which is the best for you. Understand the importance of diversification and how that can benefit you.

Gain Emotional Intelligence

Things go wrong with property investment. Accept this. However, know that there is a solution. The ability of the unexpected to happen is the reason why investing in properties is difficult. So to succeed there is a need to be able to predict the future. This comes from knowledge of the UK property market. So if setbacks happen at the beginning, do not let fear of something going wrong keep you from investing. Once appropriate analysis has been done, success is inevitable. With proper education, analysis and experience, you will be able to gain emotional intelligence.

Start Now

Now is the time to learn, build your power team, raise capital and start your property investment journey.

Best Regards,

Shane Hindocha

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