If you’re look for a passive way to generate an income, which is actually pretty simple, then rent to rent could be a strategy for you to consider. Not only is the methodology behind it reasonably straight forward, but in many cases, it can also deliver a healthy ROI.
Whether rent to rent is something you should dabble in depends entirely on you and your situation. So, your best bet is to consider the advantages and disadvantages of rent to rent below, before making any final decisions.
Got any further questions about rent to rent or want to write for us? Feel free to reach out to our editor.
Rent to rent comes with plenty of advantages…
No mortgages – Opting for a rent to rent strategy, allows you to generate cash flow from a property without the large financial commitment that comes with a property purchase. This means that getting a mortgage isn’t something you have to be worried about.
There’s no legal costs – As a rent to rent strategy only requires you to rent, not buy, you can skirt around the costs of conveyancing and stamp duty – a major cost of moving home or buying a buy to let outright. Although, you may need to pay a solicitor to solidify the agreement between you and the landlord, as you should with any rent to rent deals – but these costs will be minor in comparison to a full-fat conveyancing service.
Deposits are also not required – This is arguably one of the biggest perks of rent to rent because unlike traditional buy to lets where you need to either own your property or fund a buy to let mortgage, with rent to rent requires a reasonably small financial commitment. And it’s for this reason rent to rent is proving popular – it’s on of, if not the cheapest way to dabble in property investment
Although, rent to rent does come with disadvantages…
No capital appreciation – Providing the housing market is healthy, homeowners generate capital appreciation, which by opting for the rent to rent strategy you will not be able to take advantage of. In essence this is free money that you would benefit from by going down the buy to let route as the value of your property increases. This then beggars the question – why do rent to rent to generate a couple of thousand a year when owning a property could see you do that and more with NO effort?!
Added responsibilities – Unlike with a buy to let where it’s up to your tenants to pay the bills, as a rent to rent investor this is a cost you would have to cover. You’d also be exposed to all the risks that come with property ownership, as part of a rent to rent agreement is that you’ll ‘look after’ the property for a set length of time. You’d also need make allowances for any gaps in-between tenancies to ensure you can keep up your end of the agreement – your payments to the landlord. Losing rent to rent deals because you defaulted on your own agreement is not something you want to be doing. Rent to rent deals are hinged around trust, which if you break could be costly… as you’ll discover below.
A lack of control – Because if you rent to rent you don’t actually own the property, you have less power than the landlord if something were to go wrong. For instance, in the event a landlord gets behind on their mortgage payments or enters arrears, you’d be left with no choice to abandon the deal and remove your tenants if the property were scheduled for repossession. In this situation, the best thing for you is that you’re out of pocket. The worse being that you’re left with a complex situation to sort out with your tenants.
You should always vet a landlord before offering a rent to rent deal. Ask them questions like…
- How long have they owned the property?
- Is the property mortgaged? (If so, try to get their Loan To Value here)
- What do they do for their day job? (Are they a full-time landlord?)
- Have they done rent to rent before? (Previous experience in rent to rent would be favourable)
Basically approach the situation like a lender. Do your research, and only go ahead with a deal if you’re fully satisfied with the property, landlord and legals.
Remember: a rent to rent property with a strong yield is only half the equation. Fail to to do business with a reliable landlord and you may be in for a nasty surprise.
Got a success/ horror story to do with rent to rent or some advice you’d like to share? Reach out to our editor today!
Myles is a first class ‘word nerd’ currently working at the heart of the property industry. He’s particularly passionate about all-things property, interiors and D.I.Y.
Be sure to connect with him via LinkedIn.