What is rent to rent? The ultimate R2R Property Investment in UK Guide you will ever need to start making 1k+ per month cash flow even with only one R2R.
Rent to Rent (R2R) Definition
The R2R ( rent to rent ) is a kind of an arrangement in which the investor rents a property from the landlord for a long (3-5 years) lease and then sub-lets it to guests on nightly rate base (Service Accommodation) or on a room by room basis (HMO). The Profit is the difference of rent being paid to the landlord and the higher nightly rate or room by room base income. As the investor is allowed to make changes to the property we can potentially facelift it and make it more attractive to guests or tenants by doing so able to achieve higher income than the rent paid to the landlord.
Before learning what is rent to rent (R2R) property investment , we need to understand the pros and cons of the entire system.
PROS OF RENT 2 RENT
“OWN NOTHING, CONTROL EVERYTHING”
- R2R property investment requires considerably little capital for investment. The landlord rent’s the property at a lower rate than the market. The investor doesn’t have to make a lot of changes if s/he has chosen the property wisely considering all the factors. Hence less monetary investment.
- The experience of the investor is just like a landlord here. If you are new in this field, you will get to experience what all work a landlord has to do, from property management to dealing with the tenants, marketing, looking for tenants, solving maintenance issues, contacting builders and tradesmen, establishing the mechanism of maximising time management and minimizing labour. In order to avoid these unpleasant experience and make the investment absolutely hands off you need to find a reliable and trustworthy sourcing and management company.
- Anyone can own a rent to rent even with poor credit history as there is no credit checks needed.
- Very quick process unlike with purchase, you literally can get 5-10 rent to rent properties up and running during the same time period as a purchase.
- Cash flow is huge you can potentially generate 1k+ per month cash flow even with only one R2R.
- Free Property: While R2R is all about control but own, you can still own an R2R. If you negotiate an option to buy from landlord at the end of the term potentially using your profit to buy the property, this is called a lease option agreement.
CONS OF RENT 2 RENT
- This arrangement is not ideal for long term capital appreciation unless you have an option to buy.
- You are not the landlord but an investor who acts like a landlord at this arrangement. This fact might hold you from getting the freedom of doing anything that you want to the property (nothing without consent).
EASY STEPS FOR A SUCCESSFUL RENT 2 RENT DEAL
- MARKET RESEARCH:
It is very important to have in-depth research about the yield of the area you are looking for the property in. Before investing in any property you should know about the demand and supply of service apartment OR HMO in that particular area. For example, you are looking for a property where the demand for SA & HMO is high but the supply is even higher, then that area won’t work for you. You should always research about the locality of the property, the market rates, about the landlord and other such factors before considering any property. Talk to people in the already existing SA & HMO in that particular area and try to get to know about what your market is all about. You can read our helpful guide on How to find the perfect property for Service Accommodations.
- SPREAD THE WORD:
After the in-depth market research, you should have a list of factors in your mind regarding what kind of a property you are looking for. With that idea in your mind, reach out to the agents, property sourcing companies, landlords and try to spread the word on what kind of property you are looking for. Be open and humble about your idea of R2R because not all landlords are okay with it. Have your terms and conditions clear to them on the first go. You need to stay active all throughout the process so you persist to your ideas and actions.
- THE OFFER:
When you find the right property for you, connect to the agents, landlords and talk about the deal. Try to negotiate in an optimistic way and always ask for what you want. It is very important to stick to your terms but sometimes certain conditionings need to be manipulated. This helps you to get the best deals for you and you can even keep pipelines for yourself.make sure to take help of a legalities expert or a lawyer.
- DUE DILIGENCE:
It is a little different from that of market research, it is more concentrated on a specific deal which you are about to sign. This is one major thing that most of the investors miss out on. You need to be careful about the property, the legalities and the history, the agreement, terms and conditions. Make sure there is transparency in between you and the landlord. If any confusion exists there might be circumstances in which the landlord doesn’t let you put the property on rent. Make sure you have put forth your specifications.
- THE WORST & BEST CASE:
Just like every coin has two sides, each deal has its both pros and cons. You need to be well aware of where you are investing your money. You need to analyse what can be the worst hindrances and the best outcomes of the deal you are going to sign. Speculations are of utmost importance.
- THE LEGAL ACTION:
Legal work is one of the most important and tedious steps of the entire process. Make sure each and every claw of the agreement is negotiated and cleared before signing. Every document needs to be checked and analysed and at the signing time, no casualties should be there. Transparency is the key.
- SIGN AND THE AFTERMATH:
This is the right time to sign the deal and get the property rented. And then comes the management work, the modifications needed, the value addition and the quest to get the tenants for yourself.
We provided you with all the information about R2R, from the introduction, pros and cons TO easy guidelines step by step in order to get a successful deal. We hope this blog of ours is helpful for you. Subscribe to our newsletter to get more articles like this directly in your inbox. You can also follow us on Facebook to get latest information about the UK property market.