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Lots of people using the “rent to rent” strategy as a supposed way of generating cash flow, without needing a mortgage or lots of capital. But is it really a viable business or just a “nice idea”.
If you managed to convince someone with a rental property to enter a rent to rent contract, then would they have to inform their mortgage company of the changes, should you wish to make it a multi-let?
It's definitely a viable model but it has huge risks. Usually it is only done when a long lease is taken and then sublet ideally on a portfolio basis. Housing associations are the best example of where it works.
I always want to understand how the middle is adding value. If there is not enough value add then surely the tenants should go direct and the middle man is an agent and taking the risks of a principal.
Chartered Accountant, Tax Advisor and Mortgage broker
(and BTL portfolio owner)
I see you are asking a lot of questions about property education. (Your second thread asking the exact same question has been deleted by the Moderator as duplicate questions/threads are not permitted).I would recommend you read these two threads:Property education, training, and mentoringAre all property education courses a scam? I will say straight up that I am not a fan of Rent To Rent and regard it as a method for wealth creation experts to attract the mass market audience of people without much money who want to get into property. The trainers get very wealthy from selling these courses, but for the strategy itself, the margins are very slim imho and you DO need money to run it.If someone has a standard BTL mortgage on their property, it may well have a clause prohibiting sub-letting. The landlord would certainly need to notify the lender.If you turned it into an HMO, the local authority would notify the lender, so they would find out eventually and the lender would not be a happy bunny.Mortgage products are loaned on the specific basis of the client profile and the property profile at the time the loan is applied for. If that is changed, the lender will regard it as a breach of the terms and conditions. They may increase the interest rate, or, in extreme cases, call in the loan.Leases for leasehold properties also very often have sub-letting clauses that prohibit sub-letting activity.For these reasons, legitimate Rent to Rent can only really be undertaken on freehold houses with no mortgages on them. However, whenever I have run the numbers, the margins are too slim for my liking. I know one Rent to Rent trainer who admitted to a friend of mine that he made £100.00 net profit per month per property. Therefore, one void room and you are underwater.
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
Venessa, thank you for your concise and honest answer. The points you’ve stated are pretty much what I was thinking to myself to be honest. Mostly It’s used as a lure by property gurus to entice people with little or no capital into training courses. I’ve not had any genuine feedback from anyone who’s been successful using R2R.
R2R only works financially when a non-HMO single family let is turned into an HMO.
If the mortgage co. is aware of this change and happy about it is not often talked about.
Whether the property is then licenseable to the council is not often talked about.
What will happen if the R2R'er can't pay the amount agreed each month is not often talked about.What happens if the R2R'er gets their sums wrong and can't let out the rooms is not often talked about.
Basically all of the important details are not often talked about.
or when a single let is turned into Serviced Accommodation, R2SA, I believe this can work financially too......However as been said that depends on whether the Landlords mortgage allows this type of rental if mortgaged and also whether their lease allows it too. (In London you have the 90 day rule)
Even with this route you would still need cash to set up, fully furnishing, white goods and kitchen appliances, TV's etc and have a reserve for any eventualities.
What happens if the place gets trashed over a weekend? This can happen, have you got the cash reserves to make it good? You still have to pay the landlord his guaranteed rent, have you got enough funds to cover the rent if you can't rent the accommodation out for a period of time?
Who will manage the property, the bookings? do the cleaning and laundry with minimum 2 night stays you could have 15 changeovers a month! If your doing yourself are you prepared to do all that work? If you pay someone to do those things it will eat into your profits heavily......
Don't get me wrong there is money to be made, but it's not as easy as these property guru's would have you believe.
Great little thread and some really good opinions and comments. Interesting read.
Transparency notice: OneandOnlyPro is a commercial partner of Property Tribes.
Season 3 Episode 5 Nightmare Tenants, Slum Landlord was on this morning telling the story of Teorin and Collette who had high hopes when they let out their five-bedroom family home, but it wasn't long before their tenant stopped paying rent - and then turned the house into a hostel for holiday-makers. Quickly running out of options, the couple turn to eviction specialist Chris Sharpe for help.
This is a great example of a Rent to Rent / SA that was done without the knowledge or approval of the Landlord that cost the couple £15k in lost rent in addition to costs to evict the tenant and put the property back to its original condition.
One things for sure if someone called David Kamm wants to rent your large property and it's this guy, run a mile!
Saw an article today where there is some legal guidance on this issue, applicable to if the landlord is aware of the sub-letting or not.The freeholder can apply to the First Tier Tribunal for a determination that the leaseholder is breaching their lease under section 168 of the Commonhold and Leasehold Reform Act 2002 - one case in the Upper Tribunal - Nemcova v Fairfield Rents Ltd - is notable.The lease allowed sub-letting but provided that the premises must be used “as a private residence.” Its that instance it supported the decision of the First Tier Tribunal that the short terms lettings arranged by the leaseholder were a breach of covenant.
I've noticed with these R2R threads that the person asking the initial question never usually comes back with any further information/thoughts.
And then X months later we get the same question again from another person, usually after it's recently been punted as the best thing since sliced bread on another 'boot camp'.
I think this post from facebook goes some way to answering the title of the thread: