How to get into property even if you don’t have a deposit
By Stephanie Taylor, co-founder of Rent 2 Rent Success
Often people think that to start a property business they need to have lots of money to buy properties from the beginning. However, there are other ways to get into property and make a good income, without ever having to make a big investment by buying a property yourself. We’re all familiar with the idea of big corporations controlling assets rather than owning them and building huge businesses:
● Facebook, the world’s most popular media company, creates no content
● Airbnb, the world’s largest accommodation provider, owns no property.
And that is how a strategy, known as ‘rent-to-rent’, works too; control rather than ownership. This type of approach means you don’t make to make an enormous financial investment to get started. It’s the strategy that changed my life back in 2016. Together with my sister, we’ve attracted contracts worth over £2m, escaped from our jobs and built a team.
So, how does rent to rent work?
1. You sign an agreement to rent a property, usually for a term of three-to-five years;
2. You pay the owner or letting agent a guaranteed rent and usually you take on paying the bills, just like a normal tenant;
3. You improve the quality of the rental property before renting it out to tenants for a higher rent than you&’re paying the owner;
4. The difference between the rent you receive from tenants and the rent you pay the owner or letting agent after the property running costs is the profit that you make for your business. Further information on rent to rent is here.
While the basis of rent to rent is pretty straightforward, the ‘trick’ is finding properties that you can add value to so that you can earn a good income from managed properties.
Is rent to rent legal?
The most common question I get about rent to rent: Is it legal? For many people, subletting is code for doing something dodgy. There have also been a lot of terrible stories of people profiteering from overcrowding properties. These rogue landlords often don’t have properly licenced HMOs (house in multiple occupation), meaning the property may be unsafe for more than two people, yet they are cramming three or four people per room. Rent to rent is a very different proposition. Rather than taking advantage of people, rent to rent aims to add value to properties, turning them from scruffy, poorly-maintained properties into warm, comfortable homes ─ something the property owner may not have the time, money or energy to achieve.
The model has actually been around for a long time when it comes to commercial property. Commercial leases are long-term ‘full repairing and insuring’ leases, where the tenant takes on all the costs of repairing and insuring the property. Now the model has been adapted for residential landlords.
So, rent to rent is perfectly legal when it’s done with the full knowledge and consent of the owner and when the correct contracts are in place. If you are still concerned, you might be swayed by the fact that rent to rent is recognised by the UK government’s Property Ombudsman, the Property Redress Scheme (PRS). 1 Why would a landlord give a property to me?! This is the next most common question I get asked. Even if people understand how rent to rent works and accept that it’s legal, they absolutely draw the line at believing that any landlord or letting agent would give a property to them. The ‘secret’ is that HMO landlords and letting agents have problems that you can solve. Landlords and letting agents want the rent paid on time and the property looked after. And these are things you can offer in a more specialised and focused way than a high street letting agent. For example, where a high street letting agent may have hundreds of properties, you will start off with one so can provide a more individual service. When you learn how to describe your solution effectively, you become an irresistible option to your perfect customers. They know you can be relied on to keep the property in good condition, provide a good service to your tenants, and that they will receive their rental income on time every month.
How much time and effort does it take to be a rent to rent landlord?
In the beginning, it’s going to take you a few hours a week as you’ll be moving furniture around and completing improvements within the properties you manage. Once you get set up, it will probably take you a few hours a month to keep the property looking nice and the tenants happy. If you have, say, five rent to rent properties in your portfolio, you’ll spend around 15-20
hours a month on maintenance. Even with an average profit of £500 per month, per 1 https://www.theprs.co.uk/news/how-does-guaranteed-rent-or-rent-to-rent-work property, after bills and running costs, you’ve got a profit of £2,500 per month. That’s £30,000 a year for working a lot less than 40 hours a week while building your profile in the property world.
Is rent to rent right for you?
The events of 2020 mean many of us have started to question our old ways of thinking. It was always seen as ‘normal’ and ‘safe’ to rely entirely on one source of income. Yet so many of us have found that the ‘safety’ of our role is not what we thought. Having your own rent to rent business is great in the short-term for an additional income stream, and in the longer-term it's a good first step to buying your own investment property. Of course, rent to rent comes with risks. You need to ensure that you understand it fully and your business is legal and compliant. If you like the idea of having more freedom in your life and property appeals to you then rent to rent is worth investigating to see if it is for you.
ABOUT THE AUTHOR
Stephanie Taylor is co-founder of HMO Heaven and Rent 2 Rent Success. Stephanie launched Rent 2 Rent Success to help professionals who want to get involved in property, but feel stuck as they’re worried they don’t have enough time, money or knowledge to get started. Through her inspirational Rent 2 Rent Success YouTube channel, podcast and website, Stephanie debunks the myth that you need large sums of money to get started in property. Her book ‘Rent 2 Rent Success, our ethical 6-step system to get you started in property without buying it’ is now available.
Find out more
1. Learn about Rent to Rent from the government’s property ombudsman The Property
2. Find out how to do rent to rent ethically with the Free Rent 2 Rent Success Guide