Rent To Rent Explained | I Wish I’d Known This Before… Scam alert

Podcast Hosts:

Gemma (Host)
Ifthikhar (FD/Ifthi) – Mortgage Broker, Accountant, and Founding Partner at WIS

Introduction

Gemma:
Today we’re looking into rent-to-rent and whether you can secure a property with no money down.
With Section 24 impacting landlords, some are exploring alternatives.
Rent-to-rent is often promoted as “no money down” and “no risk,” but we’ll break down the reality.

Q&A Discussion

Q1: What is rent-to-rent?
Ifthi:
Rent-to-rent means you rent a property from a landlord and then rent it out to others.
Example:
You rent a 3-bedroom property for £500/month.
Convert living space to a 4th bedroom, rent rooms individually at £400 each.
Total rent collected = £1,600; minus £500 rent to landlord and £500 for bills/maintenance = £600 profit/month.
Most commonly, properties are rented room by room, though renting as a single unit is possible.

Q2: Why is rent-to-rent popular?
Ifthi:
Five main reasons:
Profitability – Potentially high monthly returns.
Section 24 tax changes – Landlords can no longer deduct full mortgage interest, prompting alternatives.
No capital gains tax – Since you don’t own the property, you’re not liable.
Lower cash outlay – No need for a 25% deposit; only first/last month’s rent and minor modifications.
Stepping stone to property investment – Gain experience without large capital outlay.

Q3: Do you truly need no money?
Ifthi:
Some cash is still required: first/last month’s rent, small deposits, minor property modifications.
It’s cheaper than buying property outright, but not completely free.

Q4: Key considerations before starting rent-to-rent
1. Mortgage Company / Landlord Consent
If the landlord owns the property outright, it’s straightforward.
Complications arise if there’s a mortgage:
Many buy-to-let mortgages prohibit subletting.
If landlord breaches mortgage terms, the risk falls on you.
Advice: Ask questions and verify arrangements upfront.
2. HMO License
May be required if you have 5+ tenants.
Rules vary by council.
Check council websites before proceeding.
3. Planning Permission
Usually not needed unless you structurally alter the property.
Converting living space into bedrooms may require permissions.
Ensure compliance to avoid legal issues.
4. Risk of Vacancies
Empty rooms reduce profit.
Market research is essential: choose high-demand areas near towns, transport links, or universities.
Check platforms like SpareRoom to gauge rental demand and pricing.
5. Returning the Property
Must return the property in the original condition.
Costs may include removing partitions, repairs, and maintenance.
6. Securing a Property as a New Rent-to-Rent Landlord
Landlords may prefer experienced operators.
Leafleting and networking can help secure properties.
Often a win-win: landlords receive rental income, you earn a profit.
7. Workload
Rent-to-rent is labour-intensive:
More tenants = more issues, turnover, and maintenance.
Common areas must be kept clean, repairs handled, and tenant conflicts managed.
Furnished properties may require additional maintenance.

Q5: Legal Considerations
Contracts: Essential to have agreements with both landlord and tenants.
Templates exist, but solicitor review recommended to avoid mistakes.

Q6: Downsides of Rent-to-Rent
Time-intensive – Managing multiple tenants is demanding.
No capital growth – You don’t own the property, so no appreciation.
Exit and maintenance costs – Must restore property to original state.

Q7: Who is rent-to-rent suitable for?
Ideal for those looking for experience in property management without high capital.
Not ideal if you’re busy or seeking passive income.
Can be a stepping stone to saving for your own property.

Q8: Potential financial benefit
Example: Saving £400/month profit.
1 year = £4,800; 2 years = £9,600.
Profits can be used as a deposit to buy property.

Closing Remarks

Gemma:
Rent-to-rent has pros and cons: profitable, experience-gaining, but labour-intensive.
Proper research, legal agreements, and market knowledge are crucial.
Reminder: Points may not apply to everyone. Always speak to a qualified advisor.
A mortgage is secured against your home or property and may be repossessed if repayments are missed.