‘Rent To Rent’ Millionaires In The UK

Hi Mark, an interesting article. You make some great points and I agree that Rent to Rent is seen as a strategy for newbies, however there are many benefits for experienced investors to use rent to rent on larger properties which can create significant income with out the need for deposits or having to get mortgages in place. The problem is that many people who "try" to do rent to rent just don't know what they are doing and that's why there are some horror stories. To answer your questions there would bee any Rent to Rent Millionaires because they don't own the property and usually give it back to the owner in 3 to 5 years.In my view a better tool to use is Purchase Lease Options where you get the right to buy as well as gaining cash flow in the meantime. Kind regards Simon

I would be surprised if there are any. Covid saw many of them off, but in my view failure is built into the model anyway. The only way to make a half decent income is to scale up to the point where there is only minimal contact with each property, but as the HMO manager, ( in most cases), thats the opposite of what is required. Coupled to this is the issue that its almost always a bad deal for landlords and most look for a way out after a while.

"To answer your questions there would bee any Rent to Rent Millionaires because they don't own the property and usually give it back to the owner in 3 to 5 years".
Simon, could you kindly clarify the meaning of the above sentence, although I perhaps follow the gist, as it somehow doesn't seem to reflect the good reputation of the Simon Zutshi group of companies?

I've been doing rent to rent (R2R) since 2004, and have probably made every mistake possible in that time. I now operate this on a "not for profit" basis as supported housing, as this is the only way I've found that it can be done as a viable and sustainable business model.

What I have found during the 18 years experience of R2R, is that (private landlord) R2R can work well for the R2R operator while ever they are lucky enough to have full occupancy and good tenants who pay their rent and don't cause any damage.
However, as soon as there are voids, non-paying tenants, or worse still, anti-social tenants (damaging property, being violent, noisy, etc), then the whole model falls apart as most private R2R operators do not have sufficient capital to deal with the issues, particularly if it starts happening at multiple properties.

There will be some private R2R operators out there who have only experienced great tenants and no problems, so they will still believe in the R2R strategy, and be earning a living from it. (When they have sufficient income from this they may perhaps then invest that into purchasing properties, so they get a better return).

However, I believe there will be far more people who have tried to operate R2R and found it to be far more problematic and costly than they had been led to believe, hence the "horror stories" of those who have stopped trading and have left the property owner with problem tenants and a damaged property.

- For these reasons I don't think it is very likely that there will be any R2R millionaires.

However, councils, housing associations, charities, etc, have operated R2R schemes for decades, under different names, e.g. Housing Association Leasing Scheme, Private Sector Leasing Scheme, etc. The way these work may vary a little from one scheme to another, but essentially it is about getting all the operating costs covered via the Housing Benefit system and grant funding (HB for the property costs, and grants or commissioning for the non property related costs, such as the provision of support to tenants). - This can work very well for the property owners, and more and more property owners are seeking out supported accommodation providers to lease properties from them. However, again there are many "newbies" (supported accommodation providers) trying to enter this market and not really understanding the specialist requirements or the sheer level of work involved.

Have seen a strategy work where there properties were rented in return for covering the mortgage repayments. The house was then converted to increase letting space/yields (e.g. loft conversion, change to HMO or student lets, etc.). This only worked where the rent payable to the owner was simply the mortgage and where the person had the skills to cheaply convert to a higher yield property. Limited opportunities for this exist, but it was a working business model.

Hi Mark... is it acceptable to let a property to a company i own which effectively takes the extra cash above my thresholds ...s24...for efficiency? Would this work under your r2r contracts ?

Reply to the comment left by Accommod8 at 16/05/2022 - 10:34
Sorry Typo in responding quickly, It should say the answer to the question is NO I don't think there will be many property millionaires from Rent to Rent because in my opinion a millionaire is someone who has £1m+ in assets. That does not mean that Rent to rent is a bad strategy. Far from it. I think it's very powerful to create cash flow but because you generally give the asset back to the owner after 3 to 5 years it does not build you asset value. I hope this clarifies by comment. Kind regards Simon

Simon-Understood and thanks.

I know of some HMO landlords who ran out of funds to acquire new houses who have done R2R successfully. Some of them are millionaires but they did not become so from just R2R.
I regularly receive letters from £100 newly-formed companies telling me how difficult my life is running an HMO and how much easier it will be if I let them run it. They will even "guarantee" my income for 5 years. What's not to like?
Most of them cannot even produce letterhead that complies with the rules relating to companies - e.g. they omit company number and registered office. None of them tell me how much experience they have in actually running HMOs in my area. They certainly don't offer to provide references. One chancer even wrote four letters to four different named landlords at my address. Turned out they were other landlords on the HMO Register. I assume his mail merge software had a glitch.
There are a few honest, competent people who may make it work but landlords should know they are taking a massive risk. If I were minded to employ an R2R landlord (and I am not) I would want as a minimum:
1. a personal guarantee;
2. evidence of 5 years' experience running HMOs;
3. to see other HMOs they are running; and
4. references from their clients.

Ian- That sounds like sound common sense.
I also would not remotely consider entering into such contracts without thorough vetting and also a good number of face to face meetings to gauge their commercial nouse.