Rent to Rent Gives Landlords Guaranteed Business: An accountant’s view

Introduction

In this article you’ll find an accountant’s guide to the rent to rent business model, and how it will benefit landlords by providing them with guaranteed business.

What is rent to rent?

Rent to rent involves the property owner handing over responsibility for the property to the renter, rather than handling it themselves.

How Does ‘Guaranteed Rent’ or ‘Rent to Rent’ Work?

The rent to rent business model involves the renter gaining licence to invite other paying tenants to the property. Furthermore, the renter is then responsible for providing the fixed rental payments for the agreed upon amount of time and for general maintenance, and in turn is given total control over finding new tenants for the property, acting as the landlord.

Benefits of rent to rent

  • Minimal effort. The landlord will have even fewer responsibilities than normal, because the Renter is responsible for the property.
  • Guaranteed income. Rent to rent is an investment that will span over a few years, meaning that the landlord is guaranteed income for a fixed amount of time. This means that landlords won’t have to prepare for missing months between tenancies or pay maintenance (within reason).
  • Fixed pricing and terms. No surprises, no early exits, no rental adjustments, just straightforward monthly payments to the landlord for a fixed term.

Drawbacks

  • The landlord may make less rental income than in other contracts. This is due to the fact that the sole renter, who is responsible for paying the rent to the landlord, will not then provide extra income to the landlord if they have more tenants in the property. Therefore, any extra tenants that live in the property will pay to the renter, not the landlord.
  • The landlord is tied into the contract. The upside of this is that there is guaranteed income, but the downside means that the landlord cannot then decide to sell the property or live in it themselves during the contracted period.

Opportunists or vultures?

There has been some dispute about whether the rent to rent model encourages lazy landlords who are choosing minimal effort over maximising their returns. However, the very fact is that landlords who rent out their rooms to separate tenants in a standard rental agreement stand to be overworked with hassle, maintenance and constant coming and going. Particularly in the case young professionals and students, of course a landlord will make more revenue by renting each room in a large house separately; nevertheless, the rent to rent model allows the sole renter to organise the tenants and take care of the house and its maintenance without costing the landlord in time and stress. This isn’t a question of laziness, but rather of landlords choosing to prioritise their time and stress over maximum revenue.

Rent to rent – immoral & illegal?

As previously mentioned, most tenancy agreements clearly state that subletting is against the rules of the contract. When it comes to rent to rent, these issues arise not only in a legal sense, but in the sense that the landlord will have no idea who is living on their property. The renter could, in theory, let rooms out to illegal immigrants, those involved in criminal activity or even just a highly irresponsible tenant. This raises questions of the morality of rent to rent; who is to blame if things go wrong?

Landlords safeguarding themselves against ‘rent to rent.’

If the landlord has not agreed to subletting and has stated it as against the rules of the contract, then they should prepare to safeguard themselves against breaches of the contract. This could include having regular inspections; letting the property through an agency who conduct thorough checks; or conducting tenant interviews themselves.

Rent to Rent Business Models

There are 3 types of rent to rent business models.

  • Single Let
  • HMO
  • Serviced Accommodation

Single let

Rent to rent in single lets means that, as stated, the landlord gets a guaranteed fixed income every month from a single renter of the entire property. This would likely mean that the landlord will have to charge less per month than the market price, because the tenant will be responsible for all the maintenance and upkeep of the property too.

HMO

This is the preferred rent-to-rent option, simply because HMO properties require upkeep and maintenance due to multiple tenants living there at once. Passing the responsibility of the HMO property to a sole renter helps you as a landlord be less involved and helps the renter to make money from multiple tenants too.

Serviced accommodation

Serviced accommodation, such as those found on sites like AirBnB, means that the property is short-term let and usually fully furnished and professionally cleaned. As a rent to rent, this would mean having trust in the renter to provide the standards required for serviced accommodation, as well as being reliable in providing keys and help to short term tenants when needed.

Where to find “landlords” or customers

  • Word of mouth or letting to friends.
  • Advertising on sites such as Gumtree.

Securing Rent to Rent Agreements

Who pays for what?

It is essential to clarify who is responsible for paying for what in the property. In a rent to rent let, the renter is responsible for general maintenance of the house; this could include (non-comprehensive list):

  • Painting
  • Cleaning
  • Repairing minor breakages and leaks
  • Garden maintenance

However, most renters will not agree to a rent to rent if the landlord tries to make them responsible for all repairs. Things that will still be up to the landlord in most rent to rents are:

  • Roofing
  • Major plumbing such as boiler replacement
  • Replacing flooring

How long is the agreement?

For a first time rent to rent landlord, perhaps it is wise to keep the agreement for approximately one year – not too long, in case it turns out not to be for you. However, as long as you are making steady money with few problems, it is up to you and the renter to decide on the agreement’s length.

Get a lawyer

It is essential to go over any rent to rent contracts you propose with a professional property lawyer, who can spot any loopholes or errors in your agreement before it is signed by either party.

What stage are you at with your property investments?

  • I have no property investments
  • I have one or more properties and am looking to expand
  • I have one or more properties and am not looking to expand
  • I am looking to reduce the number of properties I have

Get in touch

If you wish to learn more about the rent to rent business model, don’t hesitate to contact us today!

  • Tags: