Property Hawk the landlord's homepage since 2006
Free Tenancy Agreement FREE tenancy agreement
Free Landlord Software FREE landlord software
Home | Property Manager | Free ASTs | Landlord Forms | Mortgages | Insurance | Inventory | Magazine | Landlords Bible | Directory | Forum | Training | News / Blog |

Thursday, July 04, 2013

Rent to Rent warning

The 'get rich from property' talk on the internet is now all about Rent to Rent.

For those landlords that don't know about it, you should. Not necessarily because you should give it a go, but because you might want to keep an eye out that one of your tenants isn't up to it.

The basic premise is that a property is rented from a landlord and then re-organised so that it can be then sub-let, with the intention that the sub-let rents are in excess of the basic rent. Therefore garnering the original tenant a healthy profit. If this investor can repeat this same system on multiple properties the potential profits are reported to be very nice indeed.

The example cited in a recent Guardian article, one investor, 25 year old Daniel Burton reports to be bringing in £35,000 in rent per month. It doesn't say whether this is profit after paying rent to his landlords or just the rent he gathers from his 200 tenants.

Burton describes how he seeks out rental houses where the landlord has failed to maximise the rent potential, then looks to "jack up the rent" through the Local Housing Allowance. This might be done by partitioning up rooms or converting living space to bedrooms.

Some  Rent to Rent investors use middlemen to pose as normal tenants to sign the tenancy agreement and then let the rooms out individually. This means that the tenants they move in are occupying the property with no legal right as well as putting the landlord who actually owns the property in a situation where they break the restrictions of their landlord insurance, BTL mortgage and potentially the local councils requirements for Houses in Multiple Occupation.

Landlords need to keep a check on their rental properties that they don't have a lot more tenants than they bargained for.

Now here's where the real money lies for those involved in this industry. 

There are plenty on the well trodden 'get rich from property' lecture circuit promising to teach fresh new investors how to make a fortune from Rent to Rent. They use the classic sales promises, corny phrases like "turbo charge your investment" and "infinity profit." 

As is always the case with these property rich schemes, the practitioners  will tell you how to do it for a small fee - £500 ish for a day seminar. 

There's no doubt they are making far more of a killing from that, than renting out  rooms. 

In terms of hitting the right market with the right product this scheme is perfect. It's selling the millionaire dream to those people who probably don't have much money, but are desperate to be millionaires. 

I'm guessing that many of those at these seminars are renting the same tiny little cupboard rooms they're proposing they should create. Let's just hope that they've not just wasted next months rent.

You can listen to Daniel Burton talking about how he makes his Rent to Rent system to work.

Bookmark and Share

1 comment:

Robert said...

I don't see a problem with a rent to rent process so long as it is done with the permission and knowledge of the property owner so that the owner can take out insurance to cover this situation, and the property is made to meet the HMO regulations.