Rent to Rent - Your Next Investment Opportunity
Rent to Rent (R2R) is a pretty simple property strategy that enables property enthusiasts to get on the property ladder and start making profits without having to invest huge sums of money in deposits, mortgage repayments, stamp duty or legal costs involved in purchasing property.
In very simple terms, you rent a property off a landlord for a guaranteed rent – usually on a long-term basis – and then rent it out to a tenant. That means you take full control of the property and play the role of a landlord, despite not owning the property.
Adopting a R2R strategy can bring good returns for very little outlay but you need to ensure you’re giving the property owner or letting agent a guaranteed monthly rent that is lower than what you’ll be charging a tenant. The difference between the rent you receive and the rent you pay to the owner after all the related property expenses is your month-on-month profit.
When a landlord owns multiple properties it can be a huge undertaking for them to rent them all out and keep them rented out to good tenants who pay their rent on time and look after the property. If a property lies empty for a few months, a landlord will lose earnings, which will ultimately dent annual profits. By allowing someone else to take on the properties under a R2R agreement, landlords can have the best of both worlds.
But remember that when you take on a property under a R2R agreement you become responsible for everything the owner/letting agent would usually be responsible for, including loss of earnings due to gaps in between tenancies, tenants defaulting on payments, operating costs and some maintenance bills (depending on the agreement you have with the owner/letting agent.
It’s certainly a niche property business strategy that can have benefits as well as drawbacks. The main drawbacks of the R2R strategy are:
All the risks, no property ownership – this is pretty self-explanatory. You take on all the risks as if you were the property owner but you don’t actually own the property. You also have no control over what the owner/letting agent might want to do with the property at short notice, leaving you out of pocket. This can put many people off, but if you’re looking for short-term financial gain it can still be an interesting avenue to explore.
No capital gain – if you want to make money in the long-term, investing in a property of your own is the best way to do this. When you’re going for R2R you’re only making small profit margins month-on-month rather than much bigger margins over the long term. If you can buy your own property it’s always a more attractive option financially.
If you do decide to take on a property under a R2R scheme, there are a few ways you can decide to manage it. You can rent it out as a single let, turn it into an HMO, which means increased rent from multiple tenants, or turn it into Serviced Accommodation. The latter two options will take up more time, effort and stress, but could see monthly profits increase exponentially. The level of risk you want to take depends on how much time and effort you want to dedicate to R2R.
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