How To Use The Rent-To-Rent Strategy To Supercharge Your HMO Portfolio

The rent-to-rent (R2R) strategy is great for those with limited capital, but it’s also a great way to get into the market and build cash flow, experience and contacts. If you’re already managing a HMO portfolio and have established your presence in the industry, you likely grasp the essence of the R2R model and understand the numbers, refurbishments and management.

Given that your goal likely involves generating cash flow, incorporating R2R into your investment strategy will align perfectly with your objectives. So, let’s talk about how you can use the rent-to-rent strategy in parallel with buying HMOs.

Read below or listen to the full episode on The HMO Podcast to explore how you can use the rent-to-rent strategy to supercharge the results in your HMO portfolio!

Using R2R Cash Flow to Help Grow Your HMO Portfolio

Building a HMO portfolio is generally quite a slow and frustrating process. Falling short or overspending somewhere could really impact your ability to buy the next property. And that means you may have to wait and save or borrow more money through private finance to make the next deal work.

But R2R can help you build cash flow, which could then help you grow your HMO business. If all of your income can be accumulated and you can save £100,000 per year, that’s the deposit for an average HMO deal, right?

If you’re able to save that amount through your cash flow, it really doesn’t matter how much capital you’re able to recycle in each deal, because you know that you’ll still be able to buy another one each year! At that point, you can really put your feet up and enjoy the ride. And you could stop trying to sweat the assets and recycle capital as aggressively as possible.

The level of cash flow possible through the rent-to-rent strategy makes this easier. A couple years down the line, you could be making £200,000 per year. You could then invest in two HMOs every single year, and it can really start to compound!

That would be a fantastic position to be in. But it’s getting to that tipping point that is so difficult for HMO investors. And it would be challenging to do simply from HMOs that you own, where you’ve got a big mortgage and all the costs and expenses.

But what if you could take some capital, stretch it and get between 5 and 10 times the return for every pound? That is exactly what you can do with the rent-to-rent strategy. So rather than put every single penny into buying your next HMO, keep £15,000 aside for a R2R deal.

If you find a rent-to-rent deal, stack it all up and have the contracts in place, you could take that amount and sign a five-year contract with a landlord. You could then still make the same £200 to £250 net cash flow per month per room. What if you did another one and another?

That starts to become a pretty chunky figure, alongside what you’re already generating in your HMO portfolio. So, this can really accelerate the growth of your HMO portfolio – it’s the fuel to supercharge what you’re already doing!

Leveraging What You Already Know and Do

If you own a couple HMO properties, you likely understand where you’re investing, what’s involved in a refurb and what the market rents are and you probably have some good contacts with agents, landlords, builders and tradespeople and know what’s involved in management and the costs of running and operating a HMO.

All of these skills, knowledge and experience are a great foundation to be able to apply to R2R. You’ll just need to learn how to market, negotiate and stack up these types of deals, which are more sensitive to the numbers than owned HMOs.

You also will need to learn about the sort of paperwork to use for these types of deals, how to construct good deals with your landlords that are fair and a win-win for all parties and how to force the rental value up with very small refurb budgets.

But that is all pretty easy to get your head around. So, this could be a really great model alongside what you’re already doing. And it won’t take a huge amount more of your time or effort!

Imagine you went out and did a few deals and each one of those makes upwards of £200 net cash flow per month per room… What would that mean for you and your HMO portfolio? You’d of course have a few more tenants and properties to manage, but if you’re already doing that, that’s not a huge leap!

Concluding Thoughts

A lot of people seem to overlook R2R because it’s seen as a strategy reserved for people with a limited amount of capital to get started with no experience and bad credit. But it’s simply not true…

The rent-to-rent strategy is for anybody building a HMO portfolio. If cash flow is part of your objective, then leveraging all your skills, knowledge and experience that you have and some capital in a different way can be the fuel that you need to supercharge the results in your HMO portfolio. And this is something that could completely reshape the trajectory of your business!

Sign up for The HMO Roadmap to gain access to all the tools you need to start and scale up your own rent-to-rent business! This can help you build your knowledge, and we’ll be adding more helpful lessons, resources and case studies about the R2R model.

If you have any questions or want to come and discuss anything about R2R, come join us over in our free Facebook Group 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. 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!