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.