LANDLORDS – Should you accept that rent to rent deal?

Hi, this is Tom Soane and welcome to another episode of the Anonymous Landlord and today we’re talking about why a landlord would or would not accept an offer from somebody who’s looking to do a rent to rent deal or rent a rent property investment on a landlord’s property and just before we get started a rent to rent is where somebody comes along and offers you a guaranteed rent or they offer you a company let or something like that, where they effectively guarantee your rent for you and then re rent it out, or sublet it out to other tenants as a HMO, which is a house of multiple occupancy or as an Airbnb or a holiday let, or they just re rent it out for a profit themselves. It sounds great for the rent to renter, but on the face of it, it doesn’t sound great for a landlord but it might actually be. 

So I wanted to give you a few pros and cons a few ideas so that if you’re ever made an offer on your rental property by a rent to renter then you know hopefully a few different parts to it so you can make a good decision. It’s not a bad thing by the way, it suits some landlords more than others and you’ve always got to try and think about it from all sides to make it work for you.

So first of all, yeah rent to rent is basically where somebody will make you an offer on your property rental, they will then agree to a rent so for example, if your normal rent is a thousand quid and somebody comes along and offers you 750 pounds a month, as a guaranteed rent, paid month in month out, does it matter whether tenants pay or not, the rent to renter will guarantee that rent. 

Now, that’s good from a landlord’s perspective because it means you get a secure income. There are a few things that you will need to check, which I’ll come on to in a minute but then that person, that rent to renter will then re rent the property out. 

Now they can do that as either a standard let which maybe then they’ll re rent the property out for a thousand. They take the 250 pounds per month profit and they will in turn manage that property, look after the maintenance and in a lot of instances, they will carry out light refurbishment works, maybe even other refurbishment works, who knows. But if it works for them as a property investment, then that’s how their offer will be calculated. 

So they’re not going to make you an offer on a property that needs a full ten thousand pound refurbishment and they’re not going to make you an offer which will generate them a hundred pounds, a month profit. They’re going to make you an offer which warrants their investment in your property. Now that’s if they’re just doing it as a standard let, you could also do it as a HMO. 

So for another example, if you’ve got a big house and it’s adequate and suitable for a house of multiple occupancy or a house share, then the rent to rent investor may well make you an offer which is again. They might make you an offer of a note 750 pounds a month and then they’re going to, they’re going to rent it out room by room and they may well make, I don’t know, 1,800 pounds a month and they take the profit.

Which seems like, you know, any, you would you would probably think that a landlord might think. Well, hang on. Why don’t I just rent it out as a HMO? Yep, absolute valid question and we’ll come on some counter-arguments to this in a second, but then the, the rent to rent investor may well, rent your property from you and then re rent it out as an AirBnB or a holiday let which again, they guarantee the rent and the landlord so the landlord doesn’t really- shouldn’t really be bothered what they rented out as because the rent to rent investor is guaranteeing the rent, is guaranteeing the property maintenance, is guaranteeing the management of the property. 

So really as long as it’s all above board which again I’m going to tell you in a second about properties that sorry things to check and look out for and as long as it’s all above board and legal & compliant then it doesn’t really matter to the landlord you might be one of those landlords that just once easy peaceful life, get your money each month, move on to the next month, get you money, move on and get you money and so on without having any involvement in the property. 

Now if that’s profitable for you then you might want to consider this because remember, your property is nothing more than a vehicle which is designed to make profit and the best investors, the anonymous landlords, their property is nothing more than a vehicle that’s designed to make profit without them and that’s the key and this is one way to do it. 

Now you might make less profit but if you carry out the right due diligence and research on the investor and the investor has the right capital behind them, the right structure behind them and is compliant and legal then actually, you can make profit Mr. and Mrs. Landlord with very minimal risk because your rent is guaranteed so it could be an option to consider. 

Now, what are the risks? Well, first of all, You are effectively taking on a business-to-business contract. Now, what does that mean? Well, if you are doing a private individual to private individual contract, then you are given much more leniency in the legal system, in the courts, and it’s like a fair and reasonable leniency as well. 

So a judge, if it ever went to court because the rent and renter, didn’t pay the rent or the property was damaged, or somehow, there was some money owed to you for something, and you went to court. 

If this was an individual private contract, then you or a consumer contract, then you may well be. I know you may well lose a bit because the judge might say, well, you know what? Yeah, I can see they owe you this money, but I can see that they are just a person. They don’t really, they didn’t really mean to, it’s not anybody’s fault, blah, blah, blah, blah. And you may well lose a bit of money on that. 

However, this is a business to business contract. So that means the legal system doesn’t take that sort of leniency and it’s the same both ways. So if they owe you money, the chances are that judge. Will just say, do you have a contract? Yes. Does that person-does that contract include liability for this money owed? Yes, case closed, you owe the money. Move on. Pay it, county court judgment.

And similar in the other way as well because if it turns out in some way that you end up owing the rent to rent investor money. Perhaps, you renege on a contract or something then the judge will look at it and say, do you have a contract? Yes. Does that contract state that you owe this money? Yes, case closed. You owe the money. 

So, in some cases, it’s a good thing to have a black-and-white contract like that. Where, you know, as a business to business contract, it’s cut and dry. There is no negotiation, but you should get a good lawyer to check over that contract, just to make sure that it is all above board, that it does protect you, because remember the lawyer must work in your interests.

So the second thing as well to check is the compliance of the rent to renter. If they’re going to rent that property out as a HMO or a house of multiple occupancy, then that rent to renter must have the HMO licensing if that’s required, must apply the correct planning if that’s required, because bear in mind, certain types of house shares, do require planning permission from the council.

So they must have all of those things in place, and there must be certain protections. If they’re running a business, they need the right business indemnity insurances, public liability insurances, all of those things that are required by a business enable in order to operate with the general public must be in place, and I would also check that they have adequate cover. If anything goes wrong and it’s the worst case scenario and, you know, there’s a fatality in your property, they need to be able to cover that because there is a risk that that is passed on to you. 

Again, you can go back to the contract and make sure that you accept no liability for those instances. Now, I don’t know how feasible they are in court but as long as you put those clauses in place that protect you as best as they can, then you should be all right. 

So you’ve protected yourself contractually, you’ve protected yourself as a business because whether you are-whether you own that company, in a limited company name or privately, technically, you are a business and probably will be treated as a business because you receive income and you have an expenditure and so on and so on so and on, you make profit. 

Then you’ve also made sure that the rent to rent investor is compliant that is very, very important. You do not, I promise you you do not want to have your property rented out as a house of multiple occupancy and then get stung because the rent to renter didn’t have the appropriate licensing, planning consent, permission to rent it out like that  plus if they’re going to rent it out as a HMO, they need to make sure that your property is suitable as a HMO. There are so many pieces of legislation now around HMO properties, I’m not going to go through them all right now, it’s a whole different podcast. 

So make sure that that rent to renter, provides you with that information and at minimum takes on the whole liability for that licensing, for any repercussions from non compliance that is vitally important. Also, this is just a personal preference if I was ever going to consider a rent to rent option, then I would insist that the rent to renter has the right capital, the right money behind them, the right financing the right credit score in order to support my rent. 

So if they’re going to pay me a thousand pound a month for example, I want to know that they are going to be able to afford that rent for at least a year at minimum and they’ve got the funds in the bank to be able to do that. If they don’t have that, then I would seriously consider why you would accept that deal. It’s just a risk because what would happen is, you’d agree to the deal, allow a rent to renter to go ahead and rent that property out and then the tenant doesn’t pay them rent so then they can’t pay you rent.

And all that happens is you go through that process, whilst the property is either empty or not paying rent and you’re not receiving rent. You go through a process of terminating a contract, evicting tenants, and so on, and so on, and so on and that takes time. And yes, you can go to court and potentially recover that loss. However, that also takes times during the time that you’re taking to go through that process, then you’re losing money every single month and especially if you’ve got expenses as well to pay. 

So do remember that, that rent to rent must have the right funds in place to be able to cover the rent for at least a year, more if I mean, preferentially, that’s the word, isn’t it? I would prefer, I would prefer if I agree to a five year rent to rent deal, I want to see that they’ve got funds to be able to pay it for five years. 

Now that’s a tall order, yes and there are other ways to do it but definitely get them to provide you with an experian credit score, a full experian credit score or ask your accountant to run a credit score on them sometimes accountants have access to that sort of software one way or another. They’ve got to do a credit score and especially you can do a credit score on their business if they have one that will get, be a good indicator about whether their business is financially viable. 

So yeah, try that out and see how that goes but also one other thing to check if you’re going to check the rent to renter’s financial viability or the financial suitability. Then ask if they have other rent to rent properties and this does two things. 

First of all, if they have other rent to rent properties, I would want to know how much that income or how much income they generate from the other renter in properties. Not revenue, how much income in profit, the business that wants to do a deal with you, how much they make on their other rent to rent portfolio.

And the reason you ask that is because if they come across, if they, if they rent your property of you and they can’t pay the rent, then the other rents that they receive should be able to just put to support your rent and that is the rent to rent model. It’s a very simple model. It’s like, it’s like banks. What they do is the banks will lend out a load of money and if they lend to somebody who’s higher risk, then they’ll increase the interest rate because then they know that let’s say 10% of all of the loans they lend out are going to default, then the interest that they’re charging on the other loans will cover that loss and it’s the same in rent to rent property. 

If you’ve got ten properties all earning you 5,000 pounds in net profit, then you can afford to pay the rent on the percentage that may not pay you, you can afford to still pay the rent. I was talking to rent to renters there, but hopefully, that makes sense. Basically what I’m saying is that if they’ve got profits coming in from other properties that should cover any of their properties that don’t pay rent, because the chances of a rent to renters portfolio completely stopping payment of any rent is very, very low. 

So yeah, I ask them what other properties they have as rent to rent in their portfolio that will be a really good question to ask. Ask them how much profit they make, if they’re not prepared to share that with you, I would question why it’s a business. Why wouldn’t you want people to know how much profit you make if it is a legitimate business? Then you can pretty much check out that all on Public Information. So I would question why not? Maybe you could ask to see their accounts, something like that.

You kind of get where I’m going here. Mr. and Mrs. landlord and you may well be offered. You may have already been offered a rental rent but not realize it, you know, when someone comes along and offers a company let or someone comes along and offers you a guaranteed rent, as an individual ten the chances are, they’re probably offering you a rent to rent deal. And again, I go back to what I said at the beginning rent to rent is not a bad thing. You shouldn’t avoid it because some people actually benefit from it and it works for some people, it’s a way of making profit and being completely hands-off.

Now, you could argue that there are some companies, letting agents that will also offer you a guaranteed rent and you know, that might be another route to look at but if you’re a landlord that would accept a lower offer and you’re happy to just stay completely out of it, then it might be worth considering but make sure you do your checks. 

So what are the risks as well? I mean like I’ve been through a couple of risks already but there might be a couple more. So for an example, if you have a property that is a rent to rent deal, then the chances are the rent to renter, the person that’s renting directly from you is going to be a business, and if they’re a business, then they might be a limited company and a limited company, just by the general essence of it means that they have limited liability. 

So if the shit hits the fan and they struggle to pay your rent and it goes all tits up. They can just close that company down and well nine times out of ten, be completely void of any contractual obligations they have with you. 

So there’s a couple of ways to protect yourself from that, but it is always a risk. I will tell you that and any investing is a risk, right? Any, any sort of thing like this is a risk,you can rent to a standard tenant and it’s still a risk. But if you check out that company that is offering you a rent to rent, I would want to know how long it’s been established. If it’s been-if it’s a newly made company again I’m not saying that’s a bad thing and you shouldn’t consider it but if it’s a newly formed company then they’re that person’s the owner of that business’ exit strategy or no hang on the owner of that business is exit from that company should be quite easy. 

If they don’t have many assets, they don’t have any, you know, cash in there or anything like that, if basically, it’s just a new newly formed company, they’ve gone out, done a rent to rent with you and then it all goes tits up. They can just close that company down, without too much problem. I wouldn’t have thought if they’ve been long-term established, however, then it’s much more difficult to close that company down. It has to be properly wound up, and they’ll be administrators with or insolvency practitioners, who would allocate the funds and so on and in some cases the owners can get into serious trouble but check how long that business has been established. Long-term business is a better thing, short-term business just means that you need to think about the risk a bit more. Also check out like I said earlier on how many properties they have in their portfolio and how long they’ve had those properties in their portfolio.

So if they’ve been going for a good amount of time and they’ve got a good number of properties in their portfolio. Then the chances are, they’re a decent company and they’re a decent secure company who is making good profit, which means your property and your income is much more secure. 

I don’t know why in this country, we begrudged businesses for making profit. We hate companies that make profit, where as I see any company that I work with, if I’m going to do business with a company, I want them to be making profit. I want them to be making profit already, and I want them to be making profit from me, because if they’re making profit already, then they are a secure company.

And if they’re going to make profit from me and I’m still making profit, right? I’m not saying that I sacrificed my profit for their profit, but if they’re making profit as well from me, then that means they are in the deal. They are going to be active in the deal. It means a lot to them, it’s going to be precious to them. They’re going to want to protect that profit so think about those things, don’t-never begrudge a company for making profit. In fact we should all be applauding companies that make profit. They do it compliantly and they do it legally and they do it honestly, and they make profit. Good on them. Good on them.

So just to wrap all of that up and by the way, I apologize in advance. No, I apologize in arrears if this episode maybe has a ton of information all thrown about in a bit of a scattergun approach, these drive-bys and a lot of these podcasts are completely unscripted, I don’t have notes. It just comes out of my head because as I always say these are the things that I think about on my way to the office. 

And it just all comes out, I just blurt it all out, and hopefully it forms into some sort of interest for you. And some sort of a, sorry just had a call coming in there. Yeah, hopefully, it forms into some sort of good advice. Good tips. Good information that helps you in your decisions but yeah, wrapping up then definitely definitely, definitely check the company that’s offering you a rent to rent. Check how much profit they make, check the longevity of their company. What you’re doing is you’re really analyzing the risk. Is that company a risk to your income, ignore the tenants that they’re looking to put in the property, ignore how they’re trying to rent the property out. That’s their problem as long as that company can pay you the agreed rent month in month out without fail then that’s a potentially good deal. 

[00:22:28] Secondly, make sure they are doing it compliantly, legally and they have all of the right accreditation, all of the right qualification, all of the right licensing, all of the right permissions, definitely make sure they’ve got the right insurance has this is a massive, massive thing, because you don’t want to take on any liability for their operation, that’s their operation.

[00:22:53] Make sure that the rent that you agreed is still profitable for you and I’ll give you an example, if I said to you that I would pay you ten percent return on your investment for absolutely nothing and you wouldn’t ever, ever, ever have to lift a finger or answer a call or do anything. It’s not a bad deal. When you consider that some people buy rental properties and manage it themselves for ten percent return on investment. I don’t understand that but hey some people that’s that’s it. What you could do? By the way, just a quick side note if you-if you want to buy an investment property and you’re looking at your, you’re happy with 10% return on investment, or 10 percent yield, then I would probably look for a different property and get an agent to manage, so that you get 10 percent net profit without having to manage it yourself. Anyway, that’s a whole different thing.

So yeah, make sure that the rent to rent value works for you and its profitable for you, but also make sure it’s profitable to them, please make sure that its profitable to them if its profitable to them, then it will make sense for them and it will make sense for them to protect it. They’ll be more likely to look after it and they’ll be less likely to jump ship as soon as anything goes wrong. That’s a very important one.

Now, the ways that somebody would do the rent to rent, like I’ve said at the beginning, they might either do it as a single let and let’s take a property, which normally would rent out for a thousand pound a month. 

They might offer you 750 pounds a month for a single let. They might offer you a thousand pound a month, which is your full rent and then they’ll rent it out as a HMO House of multiple occupancy, or they might rent it out as Airbnb and they may even offer you a bit more. If your property is suitable for an Airbnb, they may well do that.

So, all in all, if you’re going to consider a rent to rent deal, then don’t be put off by the term rental rent. I think that a lot of, there’s a bit of a stigma. Is that the word? There’s a bit of a bad taste in people’s mouths from the phrase rent to rent or subletting which I suppose technically, it’s, it’s not subletting. It is subletting. It’s, it is rent to rent, I don’t know. But really, it’s not a bad thing if you do it correctly. 

Now, here’s a little warning by the way, for any people that are thinking about doing rent to rent themselves. It’s high risk, it costs money, you’ve got to get it right, you must be legal, you must be compliant. Don’t please, please, please, Don’t try and do this without the correct compliance, licensing, consent, permission, all of those things must be in place. Otherwise, I promise you this a business to business contract, and you will be in serious trouble. Serious trouble, not just legally, but financially, as well because if you’ve guaranteed a rain for five years, you’ve got to pay it and if you don’t pay it, that landlord can immediately take you to court and it’s a bad thing for you. It’s a bad thing for the landlord, and it’s a bad thing for the tenants involved. 

So please, if you’re going to get in to rent a rent, please do it, right and hey look by the way, if you want to get into rent to rent and you want some advice on it. Give me a shout. I’ll happily set up a discovery call with anybody who wants to do rent to rent deals and I will give you some help and advice and some tips on where to find rent to rent deals, but also how to do them properly. 

You can also go on training courses. One of the-there’s tons actually. I won’t go through them now but Ryan Luke for an example. He’s been on my podcast many times, he is a rent to rent specialist but he does it the right way. He does it the right way, he does it compliantly, does it legally, does it profitably and those are the people you need to follow, watch out for rent to rent, experts so to speak that you have to pay for to give you their advice, find out what they’ve done, find out what they’re doing and find out who else is following them.

Yeah Ryan Luke is a good one on rent to rent. I’ve done a couple of podcasts with him actually where he talks about rent to rent. So to give them a listen but failing that if you’d rather talk to me, then give me an email Tom@pinkstreet.co.uk or message me through my Facebook page and we’ll set up a discovery call. Which is a fancy way of saying, we’ll have a chat. I call them discovery calls because they’re nice and gimmicky and I do love a gimmick. 

Yeah, we’ll set up a discovery call and I’ll find out what you’re looking to achieve and I’ll give you some advice on how you can get into rent around yourself. Or if you’re a landlord and and you want some advice on accepting or declining rent to rents, then give me a shout, you know, what, if you’re a landlord or property investor, and you want some advice or some help, then give me a call bahaha give me a shout out, give me an email, whatever it is and we’ll set up a discovery call. 

But until then I hope that helps and remember the Golden Rule here is that your property, It’s not your baby, it’s not your pension, it’s not your life, it’s not your anything. Your property is nothing more than a vehicle which is designed to make profit without you. That’s what you’ve got to go with, your property is a vehicle which is designed to make profit without you. 

And there’s so many parts to that, I’m not going to go through them now, but think about it like this Mr. and Mrs. Property investor and Mr. and Mrs. Landlord, if you spend all your time and effort managing your own properties, doing all of your own compliance and doing your all your own legislation, management, lettings blah blah blah blah but you’re not doing it as well as an expert could do. Then your property is not making profit without you and you could also be running the risk of getting it wrong. You know, there are hundred and seventy six pieces of legislation to do with lettings mind-blowing. 

So that is a 30 minute podcast. I was aiming at 20 but there was a lot of information in there and hopefully you got something from it. So I will leave that with you. Thank you very much for listening and give me a shout by the way if you have any ideas on podcasts episodes that you’d like me to talk about. Until then I will speak to you soon.