Are you considering starting a rent-to-rent (R2R) business? I’m a huge fan of using R2R as a part of your HMO business, and I’ve been investing in this strategy for over seven years. During that time, I’ve turned over millions of pounds in rental income, created some amazing accommodation, and built some fantastic relationships with landlords!

While there is a stigma attached to rent to rent (for good reason in some cases), it can be an incredible strategy and a great way to service tenants and landlords when implemented in the right way. 

Read below or listen to the full episode on The HMO Podcast for a beginner’s guide on building a HMO rent-to-rent business. 

What Is Rent to Rent?

Rent to rent involves leasing a property from a landlord by agreeing to pay them ‘x’. A contract is put in place for you to manage the property for a set period of time. 

Through the agreement, you’re allowed to do certain things to the property, such as make improvements or change the furniture. You then rent the property out to tenants and charge them ‘y’. 

The difference between ‘x’ and ‘y’ less any bills and operational costs is your profit. This strategy can be fantastic and can provide a number of opportunities in the HMO industry in particular.

Why Is R2R So Popular?

For starters, R2R is so popular because it’s a model of arbitrage. This makes it very simple and easy to understand. Additionally, the barrier to entry is much lower than buying and owning your own assets, especially HMOs. 

While rent to rent requires substantially less capital, you can still generate similar amounts of income and profit – just without capital appreciation. For many people, it’s seen as a gateway to buying and owning your own assets. 

You’ll be doing 90% of what’s involved in actually owning HMOs in the first place! So, while it’s not the same as owning property, rent to rent can help you build a solid cash-flowing business with value that will help you invest in assets later on. 

Who Is Rent to Rent For?

Just because the concept of R2R is simple and easy to understand, doesn’t mean the actual implementation of it is. It really isn’t. Because of this, rent to rent is not a model that will work for everyone. But it may be for you if:

• Your objective is to generate high cash flow relative to that amount of money you’re investing.
• You are dedicated and committed to managing properties.
• You have the patience, time, and inclination to do the work.
• You see the value in building a property business as part of a longer-term strategy to grow your own portfolio or bigger property business.

If you think rent to rent is an easy way to make money super quickly, stop now, because that isn’t the case! It’s very difficult to make money in the short term, particularly if you want to scale your business. To effectively do that, you’ll need to invest by hiring staff and setting up systems and processes.

8 Steps to Get You Started

So, what do you need to do to start building a rent-to-rent business? Here are eight steps to help get you started!

1. Recognise the pros and cons of HMOs and the rent-to-rent strategy.

You need to do a lot of research on what’s involved in rent to rent, managing properties, and owning a HMO property business.

2. Understand the legal requirements of property management.

There’s a lot of legislation governing what you can or cannot do and what you must or must not do when it comes to letting and managing properties. 

Even the contractual agreements and the legalities around that are very complicated, so you need to develop a very thorough understanding of all of the legalities involved. And you need to have a serious commitment to stay on top of all of this.

3. Create a compliant business structure.

Your business will need to be set up in the right way with registration from the appropriate bodies before you can start. You can’t just pop up a rent-to-rent business without this. You have to set up your company structure in the right way and make sure that you’re compliant.

4. Learn how to appraise rent-to-rent deals and the local market.

R2R and HMOs don’t work everywhere. They work in many places, but you need to understand why and what’s required. Rent-to-rent deals are incredibly sensitive to things like population size, rental achievements, and refurbishment and utility costs, so you need to effectively appraise deals.  

If you get this wrong, the real risk is that you build deals that are too thin, and they won’t have enough of a margin to generate any income. The cash flow has to be there every single month – no matter what the circumstances are!

5. Access working capital.

When it comes to rent-to-rent, you can get away with much less capital than when buying properties, but you will still need some to get your business up and off the ground. The amount needed largely depends on what you’re planning to do with your first projects.

I usually spend about £10,000 to £12,000 on average refurbishing a property through R2R. In exchange for that, I negotiate good rents with landlords. I invest our money to really improve the property and force the rent up. But it’s also possible to do deals where the landlords invest the capital to improve the property. 

However, no matter what, the more capital you can get your hands on, the quicker you’re going to be able to grow. You’ll then be able to take on more projects, do more refurbishments, and invest in more infrastructure.

6. Create an effective sales and marketing strategy.

If you don’t have a good sales and marketing strategy, you’re not going to be able to bring any R2R deals on! You need to be able to do this and then negotiate deals and actually bring properties on board. So, you need an effective sales and marketing strategy from the beginning. 

7. Get the right contracts and paperwork in place.

With R2R, you need proper contracts. My advice is to go to a solicitor or make sure whatever contract or agreement you do get is reviewed by your solicitor. 

If you’d like to get your hands on some fantastic rent-to-rent agreements, including a lease and management agreement, sign up to The HMO Roadmap as a premium subscriber. I still suggest that you get them reviewed by your legal team, but it’s a great starting point.

8. Remain focused, dedicated, and committed and have a resourceful attitude.

Finally, if you want to build a rent-to-rent business, you need to be seriously focused, dedicated, and committed, while having a very resourceful attitude. 

You need to know how to keep costs low and maximise the return on every pound you invest into your business. And as R2R is a very sensitive model, you also need to be resourceful and creative when it comes to projects and how you do refurbishments. 

So, those are the eight things you need to understand and execute before you even think about starting your rent-to-rent business! I hope I’ve gotten you excited about R2R, clarified a few things, and dispelled some myths about this strategy. 

If you want to take this to the next level, then drop an email to info@staging.thehmoroadmap.co.uk and tell us that you want to be added to the waiting list for our beginner’s rent-to-rent course. We haven’t set any date dates yet, but if you reach out, we can let you know once some dates are confirmed.

To learn more about R2R, sign up for The HMO Roadmap. We’ll be adding more and more helpful resources and lessons about the rent-to-rent model. And as this strategy is frequently discussed in our free Facebook Group, come and join us over in The HMO Community!

About the Author:

Andy Graham is the founder and the lead trainer at The HMO Roadmap! He is also the co-founder of The HMO Mastermind and Smart Property, a specialist HMO property investment and management company. He writes as a regular columnist in different magazines about a variety of HMO topics and is the host of The HMO Podcast! Follow Andy on Instagram!