Rent to Rent (R2R) is a truly phenomenal property investment strategy if you know what you’re doing and get it right. This strategy of leasing a rental property has personally given me so many opportunities in the HMO industry.
Read about why rent to rent has been a big part of my HMO business, how we created over £30,000 of recurring income per month through this, and tips to help you get started in R2R below or listen to the full episode on The HMO Podcast.
What Is Rent to Rent?
Rent to rent involves renting a property from a landlord. You pay them ‘x’, and with all of the necessary permissions, you usually will do a refurbishment to add rental value. And then you rent the property onto tenants, charging ‘y’. The difference between what you pay the landlord plus all of your costs and ultimately what you get from your tenants is your profit.
With this strategy, there are a lot of moving parts and considerations to make. Above all, you need the appropriate permissions to do this safely and legally. You inherit all of the letting responsibilities and would manage and maintain the property.
One of the main benefits of rent to rent is that it provides a way to reduce your capital input with the potential to earn strong and consistent recurring income. That money can then be reinvested into your HMO properties and building your business.
How I Created over £30k per Month through R2R
Let’s lift the bonnet on the R2R strategy! I want to show you what’s possible. We did our first rent-to-rent deal back in 2015, but I had actually been investing in HMOs since 2009.
That often sounds unusual to many people. But properties were cheaper in 2009, and then house prices started to increase. The HMO model also became more popular. This all made it more difficult to buy, and I ran out of cash to buy deals myself.
That’s when we decided to start doing rent-to-rent deals. It was actually a catalyst for me, and I co-founded Smart Property at this point. Taking advantage of the rent-to-rent model in the HMO space became a key part of building our business and has been for years now.
With the very first direct mail we did, we got a deal from it, and that deal worked consistently for five years. It took longer to get that second deal, but we got better and better at the rent-to-rent strategy and scaled the business.
Over a period of a few years, we took on a substantial number of properties, and some of those turned out to be phenomenal deals. At times, we’ve even earned substantially more than £30,000 a month from our R2R deals!
7 Tips to Help You Get Started with HMO Rent to Rent
When I look back, there are a few things that I can really pin down as to why we’ve been so successful. Here are seven tips to help you get started with HMO rent to rent.
1. Become Local Experts
The first reason we undoubtedly saw success through rent to rent is because we became local experts, and we were able to impart that knowledge to landlords. That gave us a massive advantage when it came to building trust and then negotiating deals.
We were able to reassure landlords and give them confidence that we knew what we’d be able to do with their properties. But we also understood what the professional and student HMO markets were doing, what occupancy challenges we might face, and what our rental achievements were going to be like.
2. Get the Agreements Right
Another important step is getting the paperwork right and understanding all of the legislation around rent to rent and property management.
We spent thousands and thousands of pounds on getting the paperwork for management agreements and leases done by solicitors. These agreements need to be robust. Make sure they don’t leave you open or in a predicament if you need to get out of the deal.
Through our agreements, we control costs in the deals and effectively use break clauses. This is the sort of level of context and detail that needs to be included. We’re then able to go into deals feeling confident about our responsibilities and liabilities, and it gives our landlords a huge amount of confidence as well.
3. Be Consistent
With R2R, be consistent with your marketing and messaging. Month after month and year after year, send mail and correspondence out, communicating with your landlord database.
Throughout our time investing in rent to rent, there have been dry spells along the way, and at those points, we had to reconsider what we were doing.
- Do we need to change the communication we’re sending out?
- Do we need to send it more or less frequently?
- Do we need to package it differently?
But overall, the consistency piece is one of the big reasons why we’ve been able to bring in so many deals over the years.
4. Pipeline Deals
You need to get used to the idea that you’re going to get rejected far more than you’re going to get your offers accepted, but don’t let that discourage you!
Last year, we completed a five-bedroom rent-to-rent deal, and it took us nearly three years to convince that landlord to give us the deal. We nurtured that contact, touched base periodically, and built that relationship, and we pipelined that deal in the end.
A lot of people get a no, and they never follow up with that landlord. But there’s a good chance at some point in the future, a no will turn into a yes.
5. Add Rental Value
Being able to genuinely add rental value is absolutely critical to the R2R model. It doesn’t work if you can’t do this as you’d have to rely on landlords agreeing to rent below market level, which isn’t a scalable model.
If you find creative and cost-effective ways of adding rental value, you can make a real success of the rent-to-rent HMO strategy. Over the length of the deal, the refurbishment you undertake can allow you to be more profitable in the end.
6. Negotiate Good Margins
This is often the biggest reason why most people who try the rent-to-rent strategy fail. They fail to negotiate good enough margins. This is about removing yourself from the emotion of a deal, and making sure you’ve got a good margin in there – no matter what.
There are going to be times when occupancy drops, when you get a huge number of maintenance bills to come through all at once, or when you have to consider dropping the rent, and you need to be prepared for this.
When you’re able to construct a deal with good margins, it’s important for you. But it’s also important for your landlord because if it works for you, you can make it work for them. And then you’re going to have happier tenants too. When that happens, everybody wins!
7. Take the Leap to 10-Year Deals
One of the reasons I think we’ll continue to be successful well into the future is that we recognised it wasn’t much of a leap constructing a five-year deal lease to a 10 year.
By doubling the length of the term in our rent-to-rent agreements, we could make twice as much money from nearly the same amount of work. And actually, we’ve found there are some landlords who prefer that, so, it’s become a service benefit as well.
I hope this has inspired you and gives you some context into how we’ve been so successful with our HMO rent-to-rent deals. I’m so proud of what we’ve been able to achieve! If this strategy is done right, anybody can replicate this, and it can open so many doors.
To learn more about R2R, become a member of The HMO Roadmap! We’ll be adding more and more resources and helpful lessons about the rent-to-rent model.
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!