12:49 PM, 26th July 2013, About 11 years ago 26
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There have been some real horror stories of Rent to Rent hitting the press of late and that’s not necessarily a bad thing as it raises awareness of the strategy.
However, what I’m looking for now are some success stories from property owners, investors and tenants.
I know for sure that the “Guaranteed Rent” business model, badged “Rent to Rent”, “rent2rent” or “r2r” for short over recent years has been operated for decades by some major operators.
Some examples which immediately spring to mind are Northwoods Letting agents which operate a Guaranteed Rent model on an agency basis.
Housing Associations and councils also offer fully repairing leases to property owners and then sublet the properties and that also fits within the rent 2 rent business model. Generally these schemes are utilised to increase the availability of housing stock required to accommodate vulnerable tenants.
Group 4 security are another major player in the sector. They typically offer landlords 5 year FRI leases with permission to sublet too. G4 then utilise properties they are leasing for rehabilitation purposes.
For some property owners I can see the attraction, although it’s not a business model which appeals to me personally.
The allure of guaranteed rent, albeit below the market rental value, sometimes significantly, has to be one of the main features of attraction. For property owners who don’t see themselves as landlords, the ability to offload everything related to regulation must also be attractive.
My research has uncovered two business models to date. The first is the commercial lease model. This is where the investor leases a property from the owner and takes on the responsibility for all compliance as well as returning the property to the owner after an agreed period in the same state of repair. The contract terms for these arrangements tend to be for 5 years or less. This is so that notice can be served to enable the property owner to contract out of the provision of the Landlord and Tenant Act so that the owner does not become obliged to extend the lease. The responsibilities relating to being a landlord are transferred from the property owner (the lessor) to the investor (the lessee) in much the same way as when a leasehold flat is purchased. For example, if the property is sublet without a Gas Safety Certificate and subsequently explodes in the middle of the night killing all occupants, it would be the lessee who would be responsible, not the freeholder/owner/lessor of the property.
The second business model is a management contract which is the model used more traditionally by letting agents offering Guaranteed Rent. In this instance the landlord remains ultimately responsible for the laws governing landlords but could sue his agents for negligence if necessary. This arrangements, is therefore, inherently more risky for nproperty owners. They should do their due diligence such as checking contracts to be clear on who is responsible for what and to ensure that the investor/management company they are working with are adequately insured for professional negligence under their professional indemnity insurance policy.
Clearly there is huge demand for rent to rent, otherwise we would never have seen the likes of Northwoods having built such a successful business on the back of it, neither would we have councils, FTSE 250 companies and Housing associations offering varying for of rent to rent deals.
As for the privateers, well there will always be good and bad ones and without any form of regulation it really is a case of caveat emptor.
So, to end I have two requests:-
1) Please share any rent to rent success stories you are aware of
2) Please share the questions you would ask as part of your “due diligence” if you were considering rent 2 rent, either as a property owner, investor/manager or a tenant.
If you want to share cautionary tales regarding rent 2 rent please see THIS THREAD as any comments which are not relevant to this particular thread will be deleted.
Details of how to get hold of professionally drafted Rent to Rent contacts can be found via THIS LINK.
I look forward to reading your comments.
Regards
Mark
David Main
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Sign Up6:50 AM, 30th July 2013, About 11 years ago
Perhaps I missed it but none of the R2R articles I have seen have discussed insurance. The landlord policies I have taken out over the years have all restricted letting to AST/SAT leases only AND EXPLICITY DISALLOWED SUBLETTING.
R2R is an attractive option for me but the contract offered (by Northwoods) was a Short Assured Tenancy, which I don't think can apply when the 'tenant' is a company intending to sublet. I therefore couldn't do it as I couldn't find a landlords insurance policy that covered that particular scenario. If there is such a thing, can someone point me towards it?
Mark Alexander - Founder of Property118
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Sign Up9:53 AM, 30th July 2013, About 11 years ago
Reply to the comment left by "David Main" at "30/07/2013 - 06:50":
Interesting point David, it MUST be possible, otherwise there would be thousands of r2r deals which have been done over the decades with Group 4, Housing Associations, Councils and agents operating Guaranteed rent schemes such as Northwoods which are uninsured.
I doubt very much that's the case so hopefully a few insurance brokers will comment here.
Vanessa Warwick
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Sign Up11:42 AM, 30th July 2013, About 11 years ago
A bit thin on the ground so far with success stories?
Is R2R of interest to real landlords, or is it just another wealth creation scheme, the latest version of NMD designed to appeal to people who want something for nothing?
Mark Alexander - Founder of Property118
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Sign Up12:10 PM, 30th July 2013, About 11 years ago
Reply to the comment left by "Vanessa Warwick" at "30/07/2013 - 11:42":
What is your definition of a "Real landlord" Vanessa.
Is somebody who appoints a business like Northwoods to manage their property not a "real landlord" in your opinion? What about landlords who rent to Housing associations or councils, are they not "real landlords" either?
Where do we draw the line here?
I mean, are landlords who use any type of letting agency not "real landlords" for example?
I'm just playing Devils Advocate as you will appreciate.
.
Vanessa Warwick
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Sign Up12:12 PM, 30th July 2013, About 11 years ago
A "real landlord" is someone who understands that they have obligations to their tenants and have to adhere to over 70 government rules and statutes.
On that basis, they can self-manage or have a fully managed service/guaranteed rent, but their mentality is to serve their tenants, not just serve themselves and their desire for instant riches.
Hope that clarifies what I meant and thanks for asking ... 🙂
Mark Alexander - Founder of Property118
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Sign Up12:29 PM, 30th July 2013, About 11 years ago
Reply to the comment left by "Vanessa Warwick" at "30/07/2013 - 12:12":
I do like your words Vanessa and I might well use them.
However, I have spoken to landlords on this forum who may still be offended by that.
Some of those landlords own vast portfolio's of properties in Central London and rent them all to Housing Associations. Our combined financial wealth pales into insignificance when compared to theirs. However, they have no requirement whatsoever to understand any of the 70+ laws or indeed anything about letting, maintenance and management of properties or tenants.
Now this may just be semantics, we could call them "Property Investors" instead for example. However, they are still "real landlords". That's because their returns directly affect the quality of their due diligence in terms of what/where they purchase, their taxation strategies and more.
Further thoughts?
Possibly a new thread on PT with a link back to this discussion?
If you do start a thread, please post a link here 🙂
.
Paul Absalom
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Sign Up13:23 PM, 30th July 2013, About 11 years ago
Reply to the comment left by "Mark Alexander" at "30/07/2013 - 09:53":
There are 2 issues here….
1. If any your landlords rent a property themselves which was on a single AST and then re-let it on an HMO/multilets basis pocketing the balance in additional rent… there are no insurance issues as presumably the owner landlord has it insured already… He may ask the landlord subletting what type of sharers are occupying the property (eg) students, multilets to working sharers, multilets to DSS sharers… if your landlords were the ones sub-letting.. but if this is accurately declared the insurer will cover the property…. Some insurers charge a higher rate for HMOs or students… we don’t, but we do for DSS multilets!!
2. If however your landlords are the ones letting their owned property out on a corporate let to a Lettings Ltd Co who then takes out a 2-3 year lease and then this Ltd Letting Co then fill up the property themselves and don’t declare the type of final end tenant, then I guess yes there will be a problem!.. Insurance is about perceived risk and charging an appropriate rate for that risk… Not knowing who will occupy the property causes all sorts of issues as the tenancy group is a “material fact” in determining the premium or appetite to insure… If it is a straightforward working or student sharers property there should be no problems but what if the Co let it to asylum seekers, hostel for drug addicts or criminal re-offenders !! I guess that we could arrange cover at a slightly higher premium as long as there was something in the lease restricting the type of tenants that could be placed in the property.
Mark Alexander - Founder of Property118
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Sign Up13:26 PM, 30th July 2013, About 11 years ago
Reply to the comment left by "Paul Absalom" at "30/07/2013 - 13:23":
Hi Paul
Please forgive me but I can’t really see the difference between the two scenario’s you have given.
This is the likely scenario.
Property Owner is approached by a Housing Association, Council, Group 4 security or privately operated Rent to Rent Scheme.
The Rent to Rent operator offers to lease the property on a commercial basis for up to 5 years. The lease permits the lessee to sublet.
The property owner is responsible for the insurance and has no idea what types of tenants the Rent to Rent company will rent to and has no control over that. Therefore, we must assume the worst case scenario, for example Group 4 use the properties for the rehabilitation of offenders.
Thousands of these deals are done every year. Therefore, the properties must be insurable.
Well that’s my logic, what are your thoughts on this basis?
.
Vanessa Warwick
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Sign Up13:28 PM, 30th July 2013, About 11 years ago
Semantics Mark!
Feel free to start a discussion on PT with my words and link back here. 🙂
Paul Absalom
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Sign Up13:43 PM, 30th July 2013, About 11 years ago
Reply to the comment left by "Mark Alexander" at "30/07/2013 - 13:26":
I guess all properties are insurable at a price... If there is no end tenant information available then yes an insurer will rate on the worse case scenario basis. All any property owner can do is to gather as much relevant information as possible and relay that information to their insurer. The important thing here is to fully disclose the situation to your insurer.