Rent-to-rent: a good property investment or a murky minefield?

 

A listing on Zoopla has been flagged up showing a “rent-to-rent” property for sale, but it’s sparked some confusion and debate within the property industry.

Both Property Tribes and Property Industry Eye have opened discussions around rent-to-rent this week after Zoopla advertised a serviced apartment in London for £19,995 offering the investor the chance to rent it out for a net monthly income of £1,486.

The listing, which was seen on Friday last week, was later removed, and many commentators have taken to Property Tribes to air their confusion and disapproval of the advertisement, with community manager Vanessa Warwick writing: “If they [rent-to-rent properties] were to be listed anywhere, they should be in the ‘lettings’ section, not the ‘sale’ section. Very misleading to consumers who may not understand what a rent to rent deal is.

“This is really concerning that Zoopla is being used for such activity when there are so many pitfalls for both the landlord and the individual undertaking the R2R activity – all totally unregulated – a lot of people going to be stung by this. When it all goes pear-shaped the R2R seller will be long gone with their £20K imho.”

What is rent-to-rent?

Also known as “guaranteed rent”, rent-to-rent is where a property owner lets a property out to a person or business for a fixed amount of money – either paid monthly or in a lump sum like in the Zoopla listing – and gives them permission to act as “landlord” to rent it out or sub-let it themselves.

The benefits to the property owner are getting a pre-set, guaranteed income or amount of money from the person who takes it on, while retaining ownership and without having any of the hassle of being a landlord themselves, such as finding tenants, dealing with void periods where the property might be empty (including the bills associated with this such as council tax), or chasing up missing rent payments. The property owner will also be the one to continue to benefit from any capital growth.

For the person taking on the property – the landlord – money can be made by sub-letting the home at a higher price than what they are paying to the owner, particularly if it is used for short-term lets which can bring in more money per night than long-term, although this comes with the added risk of money being lost whenever the property is unoccupied. Furthermore, the landlord avoids the hassle and expense of owning a property, such as stamp duty, legal costs, deposits and mortgages.

Is it legal?

Rent-to-rent can be done legally, provided all the correct contracts are drawn up and due diligence is carried out by qualified professionals. Sub-letting a property can be done with the owner’s permission using commercial or corporate tenancies, managements agreements, leases or guaranteed rent schemes.

However, transparency and the ethical implications are more questionable, as tenants may ultimately pay a higher price to the “landlord” who is trying to make as much money as possible from their investment, and it is unclear whether the tenants who let such properties are made fully aware that they are rent-to-rent – and therefore not owned by the person they believe is their landlord.

There was one high-profile case in 2013 where successful rent-to-rent “guru” Daniel Burton, then 25, went missing, which left multiple tenants across London out of pocket as they were unable to get their deposits back. He had previously publicly claimed to be making £35,000 a month by sub-letting properties across the capital, and ran courses on how to recreate his success, including methods that meant tenants were no longer protected against eviction.

At the time, Vanessa Warwick commented: “This case once again highlights how landlords and tenants should let through accredited agents with professional standards and client money protection in place to minimise their risk of losing money.”

It seems that while there may be benefits to the rent-to-rent method, and it is possible to do legally, it is generally viewed as a rather murky industry that many property owners might be better steering clear of.

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Rent-to-rent: a good property investment or a murky minefield?

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