Rent to Rent Model – What is it?
Rent to Rent Model – What is it?
This article will provide you with a clear overview of what the rent to rent model is all about. This is a strategy that has grown rapidly in popularity over the last few years. This is because it is a strategy that is easily accessible, and this strategy really adds value back into the local community.
What is Rent to Rent?
Rent to rent is basically securing (not buying) a property on a long-term agreement. You may then decide to do a little bit of conversion work to the property, or maybe not depending on the type of property that you secure and then you let it to a third party. This strategy fits particularly well alongside the HMO model because most typical rent to rent properties are HMO’s.
So simply put rent to rent is securing a property, maybe adding some value and then re renting it. now this model can work in many different spaces, however it is most popular in HMO’s.
Why might you do this model?
The main reason that people choose to do this strategy is because it is a one stop solution for existing landlords. There are many landlord’s in the market who are tired of renting the properties themselves to multiple tenants, fed up of dealing with the tenants themselves and fed up of their properties. this is where rent to rent comes into play because it is a simple solution for these landlords whilst providing a service to the end user. This is what makes this business model such a win: win scenario.
Rent to rent is also massively scalable because it may be that you start with one property and in a very short period of time, this can really snowball and you can end up with a large business of tones and tones of properties to let.
I mentioned earlier in this article that you may do some conversion work before you re-out the property. These conversion works often consist of converting the current property into an HMO. If you are smart about this, it may be that you find an HMO landlord who is retired and no longer want to run their HMO. Therefore, the property is already set up for you to just take over and input a great management scheme.
There are many different ways of looking at this model. You may not want to convert it into a HMO, it may be that you manage to secure the property at a low rate allowing you to just add a little value to the property through refurbishment allowing you to then re-rent the property at a higher rate.
Who is likely to use this model?
There is a cross section of people who are likely to implement this model. The first thing to mention here is that this is a model to produce yourself some cashflow. This model is not about producing pots of cash or big chunks of money, it is about having month to month cashflow.
The person who employs this strategy is effectively the middle user. You rent it of the property owner who you pay, and you take your monthly cash flow from the tenants.
Now, the more properties that you have, the bigger cash flow that you will get. So, this is a great model for those of you who really want to systematise your business in the property space because as I mentioned previously it really can grow and snowball.
This is a strategy for someone who potentially has a little bit more time available. Having been in the rent to rent space for a long period of time I found that this model requires a lot of time and energy. I think that its important that if you employ this strategy, you make it your main focus. If you are thinking about rent to rent, you need to be thinking about the wider business model. Even if you put a management agent in place, any issues that might occur will ultimately come back to you. Therefore, it is important that you allow yourself the time to be able to facilitate this model.
When it comes to money, this is not the type of model that is going to attract investors. It is the kind of model that will require you to self-finance and self-fund. For this reason, having a little bit of start up capital such as a few thousand pound could be useful for you. now it may be that you could bring in a partner who could help with the finance initially, but really this isn’t a no cash model. You might have to furnish the property and work with solicitors; therefore, it is certainly going to take you a few thousand pound to get you running in the rent to rent space.
The last thing to mention here, is that this is a model for people who like people. It’s a model for those of you who like to be in the housing mix and network with people. It’s not really a model for those of you who want to operate in isolation.
Where might you implement this model?
This is very similar to the HMO model, but really when it comes down to where you want to implement this model, we begin to talk about these goldmine areas. You need to understand what your tenants will be looking for. This includes things such as local amenities, local transport links, parking and much more.
Typically, this works well where there is a need for affordable accommodation. When I refer to affordable accommodation, I don’t mean poor quality, I mean affordable within its market. This strategy can in theory be employed anywhere across the UK, where there is a need for affordable housing solutions.
One of the caveats around where you would employ this model, is that there are certain areas in the UK that have become oversaturated with HMO’s. I never look at saturation as a problem because something that I believe is that if it works, I always look at how can we do it better. But something to consider here for this strategy is that when you don’t own the property it can limit you to the amount of value that you can put into the property. You don’t want to be spending extortionate amounts on someone else’s property. You need to focus on the things that are really going to make a difference.
The key main things to remember when it comes to where to employ this strategy you need to do your due diligence and really understand the needs of the area.
When should you employ this strategy?
You can begin to employ this strategy right now. There is a real need for housing across the UK within the affordable space. This is a great strategy to employ whenever you know there is a need for a much more affordable accommodation.
Just like HMO’s more people are living more transiently and people are becoming more inclined to rent somewhere for six months and then move onto somewhere else. This is a relatively modern way of life.