The so-called Rent To Rent business model is well-suited to some particular properties in some areas of the country, a lettings agent claims.
Rent to rent occurs when a company, local authority, or an individual rents a property from a landlord owner and guarantees to pay rent for an agreed term, regardless of whether the property is occupied or not.
The landlord owner subsequently gives consent to the third party to then rent the property out to other tenants. In essence, the rent-to-renter sublets the property to an occupier tenant (or tenants), usually at a higher rent than is paid to the landlord owner.
The advantage to the landlord property owner is they receive rental income regardless of whether the tenant pays or if there is a void period. There are also no call outs or repairs to worry about and the property is returned in the same state as it was provided once the agreed term ends. For the third party taking on the property, the benefit is the potential to make a profit on the sum they rent the property for, versus the guaranteed rent they must provide to the landlord.
It’s become increasingly popular amongst landlords who want a hands-off approach to rental market investment, as well as a more steady and certain income from their portfolio.
The analysis of potential rent to rent opportunities in the current market, conducted by the agency Benham and Reeves, shows that there are as many as 4,711 rental properties that have been on the market for some time without securing a tenant, all of which could potentially pivot to a guaranteed rent model.
Of this 4,711, 30.6% are located in the South East, suggesting that landlords within the region stand to benefit to the greatest extent by moving to the rent to rent model.
The South East is followed by the East Midlands at 16.1% and London at 12.5%, with the East of England also home to double-digit potential at 11.4% of the national total.
The area with the lowest level of potential opportunity is the North East, which makes up just 2.4% of all rent to rent investment opportunities in the current market, followed by the West Midlands (7.0%) and the North West (7.2%).
Benham and Reeves director Marc von Grundherr says: “Rent to rent is arguably a model that has flown under the radar within the buy-to-let sector, but it is growing in popularity amongst landlords and this is largely due to the benefits it can offer.
“Whilst the level of guaranteed rental income may be lower than the sums they might secure via the traditional route, many landlords don’t see this as a ‘loss’ once they consider the time and cost of managing a property themselves, not to mention the rental income lost to void periods and problem tenants.”
