Rent to Rent is a popular property strategy for those who want to create an income without owning a property or for those who don’t have access to a deposit.
But what’s in it for landlords?
In this quick guide we discuss the pros and cons of the Rent to Rent model (also known as the Guaranteed Rent Scheme) from a landlord’s perspective.
What is Rent to Rent or the Guaranteed Rent Scheme?
Rent to Rent involves one person (or company, letting agent, housing association or council) paying the landlord a guaranteed rent and then taking control of the property and acting as the landlord to sublet the property out at a higher rent.
This often involves turning the house into a House In Multiple Occupation (HMO) so that the rent they make is considerably higher than the rent they are paying the landlord.
Third party will take on the responsibility of finding tenants, paying bills, looking after maintenance and other costs.
Pros for the landlord
As the third party takes on the responsibility of managing the property for the duration of the contract the landlord can still financially benefit from renting without any of the hassle of managing the property.
The pros can include:-
Stress Free Guaranteed Rent
No more worrying about chasing rent or long drawdown periods when the house is empty.
You get paid whether the house is empty or not.
Free up your time
You will also free up your time that you would have spent managing the property, finding tenants, dealing with emergencies and issues and carrying out maintenance.
Late night or weekend calls from tenants are no longer your problem.
You will also save time and money carrying out maintenance checks and repairs.
Again these will be down to your third party to pay for and deal with.
No need to worry about regulations
Health and safety and other regulations will not be your responsibility.
No more bills
Any bills and utility costs will also be passed on to the third party.
Cons for the landlord
Although it seems like an ideal way to enjoy the benefits of being a landlord, there are also negatives to using a rent-to-rent scheme that you may not have considered.
These can include:-
You still need to get paid
Of course there is still no “guarantee” with Guaranted Rent Schemes.
There are still scammers and unprofessional people out there who may make late payments or not pay at all.
You need to do thorough background checks on anyone you enter into a contractual agreement with to ensure they pay on time, are looking after regulatory obligations and are treating their tenants properly.
Failure to do so may result in legal bills and your reputation suffering.
No control over who rents your house
When you enter a rent to rent agreement you are passing over a lot of control too.
You won’t have any say over who rents your property and any long term damage could end up costing you long after your agreement has finished.
Mismanagement of your property
Again you can’t control how well the third party manages your property.
If they don’t check the property regularly, carry out maintenance properly or use poor quality tradesmen you could end upping in the long run.
When you enter into a contract for a guaranteed rent scheme, it can last for a number of years.
So you can have no say on what goes on in your property for a long time, including any renovations.
As the property owner you are still liable for claims made against you for injuries at the property.
Therefore if the landlord doesn’t perform adequate safety checks or fix issues quicker key enough you could end up liable for injuries to tenants.
You need to makes sure you cover all the above in a legal contract which will incur extra costs.
How to do it properly
There’s no denying the pros of the Guaranteed Rent Scheme are attractive and you can enjoy relatively hassle free returns from your investment.
However it is important that you do thorough research and background checks on who you let rent your property.
Then ensure you have a water-tight contract that covers you for every eventuality and also covers payment dates.
It is likely you will earn less than you would if you managed the property yourself, however it also frees you up to spend your time with your full time job or even better… finding your next investment.
If you would like any help sourcing finance to fund a property project, drop us a line for an informal chat on 0161 913 2780 or email us here