OTHER STRATEGIES

RENT-TO-RENT: THE
ULTIMATE GUIDE
Last updated: 20 February 2020

It’s one of the hottest topics in property –

and it’s spawned countless training courses
and even more heated online debates.

Is rent-to-rent a great way to make money

from property? Are the claims of the course
providers exaggerated? Is it even legal? At
the end of this article, you can decide…

CONTENTS
WHAT IS RENT-TO-RENT?
The clue is in the name...but how does it really work?

THE DRAWBACKS OF RENT-TO-RENT

...And why are its detractors so down on it?

Chapter 1
ANALYSING RENT-TO-RENT
WHAT IS RENT-TO-
OPPORTUNITIES

RENT?
A four-step process to determine whether any given
property will work for rent-to-rent

CONCLUSION
Wrapping it all up
It seems like the clue is in the name...but let's start
by getting totally clear on what rent-to-rent
actually involves.

So where do both of those “rents” come from?

Well, basically:

You rent a property from a landlord…

To rent it out yourself, to a tenant

E!ectively, you’re taking control of the property

and acting as if you’re the landlord – just like you
would if you owned the property yourself.

Now, of course, this is all pretty pointless unless

you make a profit from the arrangement –
otherwise you’ve got all the hassle of property
ownership with none of the benefits!

That’s why in rent-to-rent you normally give the

landlord a guaranteed rent which is lower than
you’ll be able to charge to your tenants.

The landlord is happy because they have a

guaranteed income, without any of the e!ort that
renting out a property normally involves.

You’re happy because you’re making a profit –

which is e!ectively your reward for taking on the
e!ort and risk of managing the property.

Win-win!

At least…it can be a win-win. We’ll come to the

dangers – for both you and the landlord – later on.

Chapter 2

THE BENEFITS OF
RENT-TO-RENT

Rent-to-rent is still a niche property strategy, and is

far from being suitable for everyone – but it does
have some unique plus points that make it a good
choice in some situations...

NO NEED FOR MORTGAGES

You’re not buying the property – you’re just renting
it. That means, obviously, that you don’t need to
worry about getting mortgages.

Now, mortgages can be brilliant: leverage is one of

the best things about investing in property. But if
you can’t qualify for a mortgage – perhaps because
you don’t own your own home, you have shaky
credit history, you have limited earnings or you’re
new to the country – rent-to-rent gives you a way
of generating an income from property while
bypassing the need to go anywhere near a lender.

And related to this…

NO NEED FOR DEPOSITS

When you buy a property with a mortgage, you’ll
need a deposit of at least 20%. With rent-to-rent,
you’re (obviously) not buying the property – so no
need for a mortgage or a deposit.

That’s what makes rent-to-rent a popular strategy

for people with limited funds. For example, if
you’ve got £10,000 in savings that’s not going to be
anywhere near enough for a deposit on a property
– but it could be enough to set up a couple of rent-
to-rents.

NO LEGAL COSTS OR STAMP

DUTY
Again, you’re not buying the property – so there’s
no Stamp Duty to pay. And while you might pay a
solicitor to put an agreement together for you, it’s
not going to be anywhere near the cost of regular
property conveyancing.

(And as a side-point, you don’t have to contend

with the time it takes for normal property legals –
so you can theoretically get a deal tied up in a
matter of days rather than months.)

IN SUMMARY…
…rent-to-rent allows you to generate cash quickly,
with far less of a need for capital than normal buy-
to-let.

It’s far from perfect (we’ll come to the drawbacks

in a moment), but if you’re keen to get involved in
property but don’t have much in the way of cash…
it’s probably sounding pretty good to you at the
moment.

View a case study from my friends at Goliath,

showing how they spent £164 on marketing to
find a deal that generates £984 per month.

AND WHAT ABOUT THE

LANDLORD?
We’ve touched on this already, but it’s worth
getting clear on the benefits for the property
owner too – because these are the benefits you’ll
need to explain to them if you’re going to convince
them to rent their property to you.

The twin advantages for the landlord are a

guaranteed income and no e!ort. They get to
hand over their property to you, and (all being
well) they’ll get paid every month for the next few
years without having to do anything at all.

They won’t have to worry about:

Gaps between tenancies, because you’ve

promised to pay them regardless
Maintenance (up to a point – we’ll come back
to this later)
Tenants not paying (other than you not paying!)
Bills and other costs of ownership

(At this point it’s worth emphasising that the

reason the landlord doesn’t have to worry about
these is because they all become your
responsibility!)

From the landlord’s perspective, this is di!erent

from just giving their property to a letting agent –
because while an agent could remove a lot of the
hassle, the landlord would retain responsibility for
costs and only get paid as long as there are tenants
in place and paying.

Of course, there has to be some degree of

compromise – and in this case, it’s that the
landlord will probably (but not necessarily) need
to accept a lower monthly rent than they’d be able
to charge if they were doing everything
themselves. Otherwise, there’d be no room for you
to earn a profit in exchange for the risk and e!ort
you’re taking on.

A WARNING ABOUT
RENT-TO-RENT
TRAINING
Because rent-to-rent sounds so attractive
and doesn’t require much money to get
started, a lot of people with limited
experience o!er poor quality training
courses to cash in.

If you do want to learn how to get started

in rent-to-rent a"er reading this article, the
only training I can recommend (because
I’ve taken it myself) is from Mark and Brad
at Goliath Sourcing Academy.

Find out more about what they do here.

Chapter 3

THE DRAWBACKS OF
RENT-TO-RENT

Like I said, if you've got limited cash and want to

get involved in property, rent-to-rent probably
sounds great. And it can be – but it's important to
be aware of the drawbacks too...

NO CAPITAL GROWTH
This is a biggie.

You don’t own the property, so you won’t benefit

from any increase in its value over time.

Imagine you have a rent-to-rent agreement in

place, where you’re making £300 profit per month.

Over five years, you’ll make £18,000 in exchange

for looking a"er the property. Great!

But if the property is worth £200,000 and it grows

in value by 5% per year, over the same time period
the landlord will make £55,256 – without doing
any work at all!

Capital growth is a huge, huge benefit of owning

property: for some investors it’s all they care
about, and historically the gains from growth have
far outstripped the returns from rent. And with
rent-to-rent…you don’t get any of it.

(One happy side-e!ect though: if the property falls

in value, you don’t su!er!)

This is why rent-to-rent will always be a niche

strategy. If you can a!ord to buy property yourself,
it’s far better to do so: you have control, and you
benefit from the rental income and the capital
growth. But if you don’t have the capital, this just
isn’t an option – so rent-to-rent can at least
generate an income – which you might be able to
save up to build your own portfolio.

YOU’RE EXPOSED TO ALL

THE RISKS OF PROPERTY
OWNERSHIP
As we saw earlier, all the joys of property
ownership now become yours:

Voids (gaps between tenancies)

Maintenance
Bills

Even if you have a month where there’s

maintenance to do and no rental income comes in,
you still need to pay the landlord.

YOU DON’T HAVE CONTROL

E!ectively, paying the landlord is like the
mortgage payment you’d need to make if you
owned the property yourself – so it’s not that
di!erent.

But ultimately, you don’t have control in the same

way as you would if you owned the property
yourself. If the landlord failed to pay their
mortgage (assuming they had one), or just flat-out
changed their mind and insisted on taking the
property back before you agreed…at best you’re
out of pocket, and at worst you’ve got a very tricky
situation to resolve with your own tenants.

It’s not necessarily likely that anything will go

wrong if you’ve set the arrangement up correctly
and stuck to your side of the bargain, but the lack
of control is still a risk that you need to be aware
of.

Chapter 4

HOW DO YOU MAKE

MONEY FROM RENT-
TO-RENT?

There's obviously no point to rent-to-rent if you're

renting the property out for the same amount
you're renting it for. But at the same time, you
can't charge your tenants more than the market
rate just because you want to make a profit. So
how do you make the whole endeavour profitable?

There are three basic models:

1: SINGLE LET, WITH THE

LANDLORD ACCEPTING A
DISCOUNT
The landlord in a rent-to-rent scenario is getting a
guaranteed income stream without the usual risks
and hassles associated with renting a property, so
it’s not unreasonable that they should accept less
than the market rent from you.

So if you then rent the property on at the market

rent, you’ll make a profit. In theory, at least.

Say the market rent is £600 and you manage to get

the landlord to accept £400. On the face of it, that
gives you a £200 per month profit.

Remember though: all the costs of maintenance

and voids are your responsibility now. If you get
unlucky, this profit could easily disappear
completely – but with the work remaining very
much intact.

This model is by far the simplest and easiest of the

three. To make it work, you just need to negotiate
hard to make sure you leave enough room to make
a good margin even a"er your likely costs.

2: TURN THE PROPERTY

INTO AN HMO
If you have a 3-bedroom property that’s always
been rented to a single family, you’ll make more
money by renting it out as three separate rooms to
sharers – and even more if you convert a reception
room into a fourth bedroom.

The advantage of this method is that you might be

able to pay the landlord the full “single let” rent
and still make a profit – or at least not have to
negotiate so aggressively. (Of course, you’ll need
to tell the landlord what you plan to do and make
sure they’re OK with it.)

The obvious disadvantage is that managing an

HMO is more work than managing a single let.
You’ll also need to bear in mind that:

You’ll be responsible for the bills in an HMO,

which increases your running costs. This needs
to be factored into your calculations, and
means you’ll be even more out of pocket if the
property is empty for any reason.
There may be set-up costs to convert the
property into an HMO. Say this costs you £6,000
and you’re making a profit of £500 per month –
that means you won’t make any profit from the
first year of operation.
You’ll need to be aware of any licensing
requirements, which are beyond the scope of
this article.
If the landlord has a mortgage, it might be a
breach of the terms for the property to be let to
multiple occupants.

Still though, even a"er taking the negatives into

account, turning the property into an HMO is
probably the most popular rent-to-rent strategy.

(A variation of this strategy is taking an under-

performing HMO and making it more profitable by
improving its condition, adding an extra room, or
just marketing it better.)

Now is as good a point as any to talk about

time. With rent-to-rent there’s seldom
enough margin in the deal to use a letting
agent, so it will always take up your time.
Using the property as an HMO (or as a
short-term let, which is the next model
we’ll talk about) is more profitable, but
takes up more of your time. If you put a
price on your time, it’s possible that they’d
even work out equally profitable.

This isn’t anything to worry about: it’s a

fact of life that if you don’t have as much
money, you’ll need to put in more time.
You may well decide that it’s a trade-o!
you’re prepared to accept in order to get
the property rolling income coming in – it’s
just important that you don’t kid yourself
that a trade-o! isn’t required.

3: TURN THE PROPERTY

INTO SERVICED
ACCOMMODATION
Serviced accommodation just means renting the
property weekly or daily, usually fully furnished
and sometimes with additional services like
providing cleaning and linen. Depending on the
property’s location and type it might rent on a
short-term basis to holidaymakers or business
travellers – or not work as serviced
accommodation at all.

The tasks involved are very di!erent, but the

considerations are the same as using the property
as an HMO: it takes up more of your time, you’ve
got bills to worry about, there are set-up costs (like
furniture and accessories), and it may well be a
breach of the landlord’s mortgage conditions. If
the property is a flat, short-term lets are likely to
be a breach of the lease too.

And the advantage is the same too: more money

than you’d make with a single let, assuming you’re
able to keep the property occupied for enough
nights and keep your costs under control.

BONUS: DO ANY OF THE

ABOVE, BUT SELL THE DEAL
TO ANOTHER INVESTOR
If you find a deal that makes (say) £400 profit per
month, do you think someone would pay you to
pass that deal to them? Of course they would!

Is this a good idea? Well, it depends whether you’d

rather have a lump sum now or cash every month.
If you’d rather have the cash now to invest in more
marketing (or to save up for your own buy-to-let),
selling the deal on could make sense.

Find out more about “packaging” deals for other

investors.

Chapter 5

FINDING RENT-TO-
RENT
OPPORTUNITIES

Rent-to-rent can be a true win-win: profitable for

you, and removing hassle for the landlord. But just
as it's a niche strategy for you, it's not going to be
suitable for the majority of landlords either. Most
of them are happy either self-managing or using a
letting agent – and finding the landlords for whom
rent-to-rent is the right solution is a point where
many people fail and give up.

Finding rent-to-rent deals is one area

where people o!en feel like they need
training. But beware: a lot of people are
keen to sell you a course without fully
explaining the hard work you’ll need to
put in. Run a mile from anyone who tells
you it’s easy!

You don’t need to pay for training if you’re

confident in what you need to do. But if
you do want training, I’ve been through
the program that Mark & Brad at Goliath
Property Sourcing have put together and
can fully vouch for it. Find out more about
how their system works.

The methods you can use to find rent-to-rent

opportunities are endless. Once you understand