What is Rent to Rent?
Rent to Rent, or R2R as it is often abbreviated to, is a bit of a buzzword in the property investment circles right now… but what is it?
Firstly, there are normally two different types of R2R – these are R2R HMO or R2R SA which are often styled as R2HMO or R2SA. You may be wondering what the heck I’m going on about so I will explain.
A R2R agreement is where you offer a Landlord a Guaranteed income each month for their property as well as any other bonuses you agree with them such as taking over up-keep and maintenance. You will then change the use of the property to a more high cash-flowing strategy such as a HMO (where you rent the property out on a room by room basis) or a Serviced Accommodation unit (where you rent the property out on a nightly basis through an online agent such as Airbnb).
Let’s go through an example: You find a landlord with a 2-bedroom apartment and offer them the market rent of £500 per calendar month.
With their permission and the correct agreements, you use the property as a Serviced Accommodation unit. You charge £100 per night and on average have occupancy for 20 nights a month generating you £2000 in revenue.
Your profit is the difference between the two LESS all costs (Such as the bills & cleaning).
R2R is being used by many property professionals to create cash-flowing businesses with low initial capital costs.
However, R2R can be daunting if you aren’t clued up on the legalities involved in this type of business and it is imperative you have the correct contracts in place to make sure you are protected. It is therefore advisable to make sure you get educated before embarking on such a strategy. There is lots of free information out there, including Facebook Groups, as well as Books and other paid resources.
Whilst R2R might sound like a fantastic entry strategy to property for those with limited capital, it is definitely NOT passive income. What it does do is allow want to be investors to create sizeable property businesses that generate cashflow in a relatively short period of time. It takes a lot of hard work to build up a decent RSR business and involves dealing with tenants and trying to systemise as much as you can to make life easier for yourself.
If you are a R2R property investor we can help you finance the purchase of any furniture you may need for your properties without having to fork out large sums of capital up front. If you’d like to find out more get in touch with us today!
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