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12:49 PM, 26th July 2013, About 11 years ago 26
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There have been some real horror stories of Rent to Rent hitting the press of late and that’s not necessarily a bad thing as it raises awareness of the strategy.
However, what I’m looking for now are some success stories from property owners, investors and tenants.
I know for sure that the “Guaranteed Rent” business model, badged “Rent to Rent”, “rent2rent” or “r2r” for short over recent years has been operated for decades by some major operators.
Some examples which immediately spring to mind are Northwoods Letting agents which operate a Guaranteed Rent model on an agency basis.
Housing Associations and councils also offer fully repairing leases to property owners and then sublet the properties and that also fits within the rent 2 rent business model. Generally these schemes are utilised to increase the availability of housing stock required to accommodate vulnerable tenants.
Group 4 security are another major player in the sector. They typically offer landlords 5 year FRI leases with permission to sublet too. G4 then utilise properties they are leasing for rehabilitation purposes.
For some property owners I can see the attraction, although it’s not a business model which appeals to me personally.
The allure of guaranteed rent, albeit below the market rental value, sometimes significantly, has to be one of the main features of attraction. For property owners who don’t see themselves as landlords, the ability to offload everything related to regulation must also be attractive.
My research has uncovered two business models to date. The first is the commercial lease model. This is where the investor leases a property from the owner and takes on the responsibility for all compliance as well as returning the property to the owner after an agreed period in the same state of repair. The contract terms for these arrangements tend to be for 5 years or less. This is so that notice can be served to enable the property owner to contract out of the provision of the Landlord and Tenant Act so that the owner does not become obliged to extend the lease. The responsibilities relating to being a landlord are transferred from the property owner (the lessor) to the investor (the lessee) in much the same way as when a leasehold flat is purchased. For example, if the property is sublet without a Gas Safety Certificate and subsequently explodes in the middle of the night killing all occupants, it would be the lessee who would be responsible, not the freeholder/owner/lessor of the property.
The second business model is a management contract which is the model used more traditionally by letting agents offering Guaranteed Rent. In this instance the landlord remains ultimately responsible for the laws governing landlords but could sue his agents for negligence if necessary. This arrangements, is therefore, inherently more risky for nproperty owners. They should do their due diligence such as checking contracts to be clear on who is responsible for what and to ensure that the investor/management company they are working with are adequately insured for professional negligence under their professional indemnity insurance policy.
Clearly there is huge demand for rent to rent, otherwise we would never have seen the likes of Northwoods having built such a successful business on the back of it, neither would we have councils, FTSE 250 companies and Housing associations offering varying for of rent to rent deals.
As for the privateers, well there will always be good and bad ones and without any form of regulation it really is a case of caveat emptor.
So, to end I have two requests:-
1) Please share any rent to rent success stories you are aware of
2) Please share the questions you would ask as part of your “due diligence” if you were considering rent 2 rent, either as a property owner, investor/manager or a tenant.
If you want to share cautionary tales regarding rent 2 rent please see THIS THREAD as any comments which are not relevant to this particular thread will be deleted.
Details of how to get hold of professionally drafted Rent to Rent contacts can be found via THIS LINK.
I look forward to reading your comments.
Regards
Mark
Mark Alexander - Founder of Property118
13:52 PM, 30th July 2013, About 11 years ago
Reply to the comment left by "Paul Absalom" at "30/07/2013 - 13:43":
Can you provide an indication of premium on that basis please Paul?
Say a terraced 5 bed residential property located in the provinces with a rebuild cost of let's say £250K
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15:05 PM, 30th July 2013, About 11 years ago
Re this insurance issue; I remember a very informative thread here lead by Ben Lewis all about the problems of certain tenant types.
What if there was a household of former arsonists and insurance was not available at any price. or the insurance premium was unsustainable as far as a HA was concerned.
A CRB check would be needed to ensure so such tenant type would reside in the property.
After all it is not much use to the LL when the HA hands back a burnt out shell stating the insurance wouldn't pay out because one of the ex-offenders who burnt the place down was NOT notified to the insurance company as an material fact and therefore the policy was voided.
Would the HA contact the insurance company with a CRB check for every tenant.
There is also the issue that once a tenant; any further offences MUST be reported to the insurance company.
The very nature of most of these HA tenants means they will commit material fact offences.
How will the HA know!!.....................................Ans they WON'T!!
If a claim is made the insurance LA will start digging around as to who was occupying the property.
The only way for such a situation to be viable is for the HA to arrange insurance otherwise the LL is totally exposed.
It is most probable that these large effective R2R HA operators do arrange the insurance because of their special needs.
Leaving it for the original LL to provide will not be viable or effective!
Mark Alexander - Founder of Property118
15:11 PM, 30th July 2013, About 11 years ago
I have spoken to Paul Absalom offline about the questions I have raised. he is not in the market to offer this type of insurance, save for existing portfolio clients who may have one or two properties of this nature within their portfolio. Therefore, he does not wish to provide indicative quotations. I respect that decision.
What Paul did say though is that most brokers/lenders will insurance these risks but will inevitably charge more.
The terms of the Rent to Rent contract drafted by Justin Selig for the benefit of Property118 readers also deals with insurance related issues so let's draw a line under that and get back to the questions I raised in the thread please.
QUESTIONS
1) Please share any rent to rent success stories you are aware of
2) Please share the questions you would ask as part of your “due diligence” if you were considering rent 2 rent, either as a property owner, investor/manager or a tenant.
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15:36 PM, 30th July 2013, About 11 years ago
Mark I appreciate you wishing to get away from the insurance question BUT it is the MOST important question when a PRS LL is considering R2R.
Unless the LL knows that no matter WHAT type of tenant is taken on by the R2R operation that the insurance will cover everything, then NO LL in their right mind would use a R2R operation.
Perhaps some; if any of the R2R success stories have been so because they have NOT had to face the insurance question.
One day there is going to be a calamity at one of these R2R properties; then we'll see if the LA accept the insurance claim.
BEFORE I even would consider R2R I would wish to determine ALL the insurance issues of operating one of my properties aona R2R basis!!!
The very nature of R2R; especially with HA tends to attract the lower end of the spectrum as far as the quality of the tenants extends!
It would be interesting to hear how Northwood deal with this thorny problem as I consider it fundamental to the DD for even considering using the R2R process.
Mark Alexander - Founder of Property118
15:43 PM, 30th July 2013, About 11 years ago
Reply to the comment left by "Paul Barrett" at "30/07/2013 - 15:36":
The simplest way is to ask the lessor (rent to Rent company) what types of tenants they will be subletting to, then insure for this risk and add a condition to the lease on that basis, simples!
Therefore, if the business of the lessor is providing short term accommodation to Asylum seekers or as you suggested, rehabilitating arsonists as an extreme example, that's all dealt with in the lease and insured up-front.
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16:51 PM, 30th July 2013, About 11 years ago
Reply to the comment left by "Mark Alexander" at "30/07/2013 - 15:43":
I appreciate your take on this; but in light of the fact that insurance issues are very rarely 'simple'; I would have extreme doubts as to whether ALL the insurance issues would be addressed by the R2R operator.
But yes as you advise I would wish to know CHAPTER and VERSE form the R2R operator as to what the insurance situation would be if I took on a R2R operator.
I somehow doubt whether many R2R LL have bothered to enquire as to this situation from their R2R operator!!!?
Mark Alexander - Founder of Property118
18:29 PM, 30th July 2013, About 11 years ago
Reply to the comment left by "Paul Barrett" at "30/07/2013 - 16:51":
Thank you Paul, so we now have our first set of questions which property owners considering r2r should ask as part of their due diligence, i.e.
1) Will I be covered by insurance?
2) How many occupants does your r2r contract allow to reside in my property
3) Does your r2r contract indemnify me against any risks which my insurers will not cover?
4) What type of tenants will be living in my property?
Funnily enough, these points are covered in paragraph one and schedule 1 of the commercial lease which Justin Selig drafted for rent to Rent operators to offer to property owners.
Now, what other questions should property owners ask a r2r company or do as part of their due diligence before signing up and handing their property over?
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Vanessa Warwick
12:40 PM, 1st August 2013, About 11 years ago
Ah ha! I have come across a successful Rent to Rent story!!
Landlord Action have just tweeted:
The purchaser buying our landlord's #property has paid a tenant who was subletting, £7K to vacate, to gain vacate possession!
So sub-letting proved to be very lucrative to the tenant. 🙂
Mark Alexander - Founder of Property118
13:01 PM, 1st August 2013, About 11 years ago
So have I Vanessa, a landlord via this thread lets half of his portfolio to Housing Association and he swears by it >>> http://www.property118.com/letting-to-a-housing-association-good-idea/41015/
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Kim Stones
15:35 PM, 2nd October 2013, About 11 years ago
Hi Mark
Sorry I didn't post earlier.
Your question was about HMO To Rent as I call it . We have been doing this since April 2009 by accident almost at first then full on . We are Doncaster based which has its own chalenges but R2R as been very successful for us . We have 23 now our latest is 4 HMOs with the same landlord all in Doncaster town centre we will make over £30,000 per year net profit from this one deal . Our first deal is a 6 room HMO we make £1000 per month. We make between £400 and £1000 per month from each deal we have also 9 via Martin and Co Lettings a national franchise.
Hope that helps
Kim Stones
Tel: 07979690484
website http://www.kimstones.co.uk