Photo by Innova Property

Are you contemplating whether or not rent to rent (R2R) is the right strategy for you? I’m a huge fan of rent-to-rent, it plays a key role in my property business, and it’s one of my top priorities every single day. A lot of people make it out to be easy, but there are a number of challenges that come with R2R. And it’s just not for everyone!

Read below or listen to the full episode on The HMO Podcast about the pros, cons, and ugly truths of rent to rent, how to know if it’s the right strategy for you, and steps to help you get started. 

By the end, you should be able to make a more informed decision about whether rent to rent is right for you or not, and if it is, how to actually go about doing it.

The Pros of Rent to Rent

First and foremost, rent-to-rent is a low-capital strategy. It requires less capital than buying properties, and building a rent-to-rent business is one of the best ways to stretch the capital you have much further. If you’re investing in HMOs and managing properties, it can also fold beautifully into what you’re already doing. 

Another important benefit is that rent-to-rent is a recurring revenue stream. If you do it right, it provides very predictable income and the opportunity to earn great margins on gross profit. 

On top of that, R2R is super scalable. It’s easy to rinse and repeat the strategy. You can put systems and processes in place to help you do it again and again. And finally, as most people do rent to rent badly, or at the very least not particularly well, this creates fantastic opportunities!

The Cons of Rent to Rent

Now, let’s move on to the negatives! One of the biggest cons of rent to rent is that it predominantly involves property management. This takes a lot of time, energy, and effort, and can be quite stressful and challenging. 

Alongside that, there are lots of liabilities, regulations, and legislation involved. You’ve got to make sure your tenants, tradespeople, and staff are safe. And when you’re managing properties and doing refurbishments, there’s a lot that can go wrong. 

Rent to rent is also very sensitive to small changes in operating costs, occupancy levels, and rental values. This is because of the way you have to stack deals. And finally, R2R has a bad reputation, so even if you do a good job, you’re often considered guilty by association. 

The Ugly Truths of R2R

When it comes to rent-to-rent, there are a few areas that aren’t as frequently talked about, so here are some of the ugly truths of this strategy and what to expect from it.

For starters, rent-to-rent deals are hard to come by. You have to work really hard, be extremely consistent, and effectively invest in marketing and advertising in order to find deals. That’s going to cost you money before you even get a deal on board, and it’s going to take time. 

While the strategy is fairly low in its capital requirements, it still requires a decent amount of cash. One of the ways we’ve been able to do it so well is because we refurbish the properties, which costs money. So, don’t get too carried away and consider how you’ll fund your deals.

Another ugly truth about this strategy is that landlords can be really challenging to work with. Often, they’re picky, stubborn, and tight, which means they can be tough to negotiate with. And sometimes you’ll have to walk away, which can be really frustrating.

On top of that, property and tenant management is extremely hard work. You have to deal with tenants and guarantors, and their expectations are only increasing, making your job even more difficult!

Additionally, the wind in your sails can change very quickly. You can have great occupancy and lots of happy tenants one minute, then all of a sudden, you could be facing huge problems with occupancy. No matter what, you’ll have to manage that problem and figure out how to start filling rooms again.

How to Decide If It’s the Right Strategy for You

There’s a lot to take in and consider here, so how do you know if rent to rent is right for you? It certainly isn’t for everyone, especially as we all have our own plans and objectives. 

If you’re unsure if R2R is for you or not, start by asking yourself the following questions:

• Do you want to be in the HMO space and be involved in acquiring, refurbishing, and managing HMOs?
• Is building cash flow your primary objective (above creating equity)?
• Are you totally committed to doing everything that’s required to build a rent-to-rent business?
• Are you prepared and capable of being a property manager?
• Are you good with people?

If you’ve answered no to some of these questions, then rent to rent probably isn’t for you. But if you answered yes to these, it could be a great strategy for you!

8 Steps to Help You Get Your Rent-to-Rent Business Started

If you’ve found that rent to rent is for you, then you need to start thinking about what you need to do to make it happen. So, here are eight steps to help you get started building your rent-to-rent business!

1. Set aside time to work on it.

To get started, you need to carve out some time to work on your rent-to-rent business and get it off the ground. You need to be dedicating at least a few hours a week as a bare minimum but ideally more. There’s a lot that you’re going to be required to do and figure out to make this happen, so you need to find the time to put into this.

2. Build a solid foundation of knowledge about HMO management and legislation.

With the time you’ve made available, start developing a really solid foundation of knowledge. You need to understand what’s involved in HMO property management, legislation requirements, and your legal obligations as a landlord before you start taking on deals.

3. Understand where the strategy does and doesn’t work. 

You also need to understand where the HMO rent-to-rent strategy does and doesn’t work. It doesn’t work everywhere, and the opportunity is slightly different in every location. Once you’ve built that foundation of knowledge, undertake a location analysis to figure out if it will work where you’re based or whether you need to look at different areas.

4. Learn how to stack R2R deals. 

Stacking rent-to-rent deals are different from when you’re buying HMOs, so you need to know how to do this effectively before you start making offers.

5. Figure out how to negotiate really well with landlords. 

Understanding how to make good offers, improving your negotiating skills, and having confidence with making offers and negotiating is so important with R2R. So, spend some time on this and do your research as you’ll also need to know when to say no and walk away. 

6. Find some starting capital.

Some working capital is needed in order to be able to get started with rent to rent. You ideally need at least £15,000 to start a decent rent-to-rent business. It doesn’t matter whether you’ve got it saved up, are borrowing it, or have it through a business partner.

You need this for advertising and marketing, so you can actually find deals. And you also need money to invest in your brand and business infrastructure and to start doing refurbishments. 

7. Get the right contracts in place.

With R2R, you need proper contracts and the right paperwork. Without these, you’re going to struggle to negotiate with any landlords. I suggest going to a solicitor or making sure whatever contract you do get is reviewed by a solicitor.

If you’d like to get your hands on some fantastic rent-to-rent contracts and paperwork, including a management agreement and lease, become an annual member of The HMO Roadmap. I still recommend that you get them reviewed by your legal team; however, it’s a great starting point.

8. Immerse yourself in a rent-to-rent community. 

Find a community to get involved with as it’s helpful to be surrounded by people you can share your wins and losses with and get advice from. This can help you get the support and guidance that you need because it’s going to be tough at times!

Concluding Thoughts

There’s a lot to think about when it comes to rent to rent. And of course, there’s, even more, to learn and get your head around if you want to do this successfully, but I hope this has helped manage your expectations, prepare you for what it’s like, and make sure that it’s the right strategy for you.

Sign up for The HMO Roadmap if you want to start and scale up your rent-to-rent business. This can help you build your industry knowledge, and we’ll be adding more helpful lessons, resources, and case studies about the rent-to-rent model.

Interested in my R2R beginner course? Email me at info@staging.thehmoroadmap.co.uk to get notified when it’s ready. And if you’re looking for people who can support, help, and advise you along the way, join 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 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!