Rent to rent. Is it a scam or the new way of working?

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There are a lot of letting agents getting calls from companies who want to rent properties with a view to subletting them out. This is often known as rent-to-rent companies.

These companies rent properties throughout the country and then look to do short term Air BnB rentals within them and make money. They often do it in an area where people are having a struggle to rent out their property. Rent to rent has been previously described as highly profitable and ethnically dubious. Depending on how you feel about the practise. Rent to rent means renting out a property from a landlord and then renting it out to a third party. A typical three-bedroom house with two receptions could easily be turned into a five-bedroom house share with a profit margin. However, the rent-to-rent companies do not understand that they may be breaking the law by doing this.

There is different rent to rent models with all the companies that advertise them, and they often say that these are hugely profitable. However, there are pitfalls for people which we will explain.

It is down to the individual landlord if they wish to do these types of contracts. The agreements can be attractive to an owner who wants an “hand off” approach, or maybe tired of the regulation and legislation around letting properties. The landlord receives a fixed reliable income for an extended period and does not have to deal with finding tenants, managing the property and dealing with the maintenance.

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There are organisations offering legal and professional ways for landlords to benefit from rent to rent.

However, landlords need to understand there are pitfalls with these options.

The models primary focus is the greed and relies on maximizing the rental income from the rent to rent by cramming as many people as possible into your property and charging them for the highest rent possible. Not only could this be in breach of the local regulations but potentially your insurance policy. You may void your policy if there are too many people within it then there legally should be.

A lot of the rent-to-rent companies that often take properties are shell companies. Ie that they have no history or no value to them. If therefore it goes wrong, and you must evict the tenant due to non-payment of rent you may be forced to them evict the sub tenants.

This happened recently to landlords who owned a three-bedroom property in east London. They used the local letting agent to manage their property and signed up on a guaranteed rent scheme. They did not do any background check on the letting agent. After receiving only one month’s full rent payments became sporadic and then stopped altogether. The agent became increasing difficult to contact and arrears reached nearly £7000. You should always do your background checks especially when it comes to any form of guaranteed rent that is being offered.

Tenancy agreement

You also need to look at the tenancy agreement that you are giving these rent-to-rent companies. If you allow subletting it is important that you are aware this may be in breach of not only your mortgage but technically your insurance. The insurance company will always require you to have some form of control over what tenant goes into the property and rent to rent companies can put whoever they wish in. So, this could invalidate your policy. It is therefore critical that you check whether you can do this before you even start. It is important that the landlord has control of who is living at the property. Professional agents will do some form of check on the tenants and/or will have a guarantor to go back to.

There are a lot of companies currently promoting seminars for rent to rent and providing people with details on how to do this. We understand from speaking to some letting agents that they are inundated with companies that are consistently asking whether they will rent the property out on a company let basis.

Unfortunately, again, people do not understand you cannot let a property on an assured shorthold tenant to a company. There is no such tenancy therefore in place and this would need to be in a completely different format.

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Rental Market

The rental market is currently at one of its highest it has been for many years. Properties are currently going and staying on the market no more than 22 days as confirmed by Rightmove. You should therefore consider whether you need to use a rent-to-rent company and whether it is the right thing for you. It is highly likely your insurance would not cover you as this is a specialist market, and you would need a different policy to cover you in this instance. There are limitations to this. Always check with us first.

There are other schemes out there that do provide guaranteed rent. However, you should always check what the guarantee rent includes and whether it is legitimate. You will find that some companies pay you up front for a year in advance. But there is a heavy cost for management fees in this regard.

It is always important to do research on any scheme you are invited to enter. It is so important that you understand the background to what you are being offered. As well as what it entails. You can check companies by way of googling reviews or all agents.

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