How to Start a Rent-to-Rent Business in the UK

Rent-to-rent business is a popular property strategy that allows you to generate income from properties without buying them. It involves renting a property from a landlord and then subletting it to tenants for a higher rent, making a profit from the difference. Rent to rent can be a great way to get started in property investing, especially if you have limited funds or can’t qualify for a mortgage. However, it also comes with some challenges and risks you must be aware of. In this article, we’ll explain what rent-to-rent is, how it works, what are the benefits and drawbacks, and how to start your own rent-to-rent business in the UK.

What is Rent to Rent Business?

Rent-to-rent business is a property strategy where you act as an intermediary between the landlord and the tenants. Rent a property long-term and sublet it to tenants, either per room or as a whole unit. Pay lower rent to the landlord and charge higher rent to cover costs and gain profit. Manage property, maintenance, and bills, and handle issues.

Rent to rent can be done with different types of properties, such as houses, flats, HMOs (houses in multiple occupations), or serviced accommodation. The most common types of rent to rent are:

• Rent to HMO: This is where you rent a property from a landlord and turn it into an HMO, a house shared by at least three tenants who are not from the same household. You then rent out each room individually to tenants, usually young professionals or students. Renting per room yields higher income but demands HMO compliance and increased effort.
• Rent to SA: This is where you rent a property from a landlord and turn it into serviced accommodation, which is a short-term let that provides hotel-like amenities and services. You then rent out the property on platforms like Airbnb or Booking.com to guests who are looking for temporary accommodation. Short-term rentals offer a higher income but carry risks due to seasonality and competition.

See also: How to Start a Car Rental Business in the UK

How Does Rent to Rent Business in the UK Work?

Rent to rent works by following these steps:

1. Find a suitable property: You need to find a property that meets your criteria, such as location, size, condition, and potential rental income. You can use online portals like Rightmove or Zoopla, or contact local estate agents or landlords directly. It would help if you also did your market research and due diligence to ensure the property is in high demand and can generate enough cash flow.
2. Negotiate with the landlord: You need to pitch your offer to the landlord and explain how you can benefit them by taking over their property. Demonstrate professionalism, reliability, trustworthiness, and assurance of hassle-free long-term income to gain their confidence. Establish contract terms, including rent, duration, break clauses, responsibilities, and permissions, through mutual agreement.
3. Sign an agreement: You need to sign a legal agreement with the landlord that outlines the details of your arrangement. The most common types of agreements are:

• The company let agreement is where you sign the agreement as a company rather than an individual. This gives you more credibility and protection as a business entity.
• Management agreement: This is where you sign the agreement as an agent rather than a tenant. This means that you are managing the property on behalf of the landlord rather than subletting it.
• Lease option agreement: This is where you sign the agreement as an option holder rather than a tenant. This means that you have the right but not the obligation to buy the property at an agreed price within an agreed timeframe.

Steps To take to make sure your property is legally protected

You should always consult a solicitor before signing any agreement to make sure it is legally valid and protects your interests.

1. Refurbish the property: Depending on the condition of the property and your strategy, you may need to refurbish the property before subletting it. This could involve painting, decorating, furnishing, installing safety features, or obtaining licenses or certificates. You should always get permission from the landlord before making any changes to the property.
2. Market the property: Promote your property through online platforms, social media, flyers, or word-of-mouth to attract tenants or guests. Craft an appealing listing highlighting property features, and benefits, and utilize captivating photos/videos for attention. You also need to screen and vet your applicants to make sure they are suitable and reliable.
3. Manage the property: Ongoing property management includes rent collection, bill payments, repairs, complaint resolution, record-keeping, and legal compliance. You also need to provide a good service and experience to your tenants or guests and build a positive reputation and relationship with them.

Related: How to Start a Successful Property Business 2023

How to Start a Rent-to-Rent Business in the UK

If you are interested in starting a rent-to-rent business in the UK, here are the steps you need to follow:

1. Identify your rental business idea: You need to decide what type of property and strategy you want to use for your rent-to-rent business in the UK. Do you want to rent out rooms, flats, houses, or serviced accommodation? Do you want to target students, professionals, families, or tourists? Do you want to operate in a city, town, or rural area? Do you want to focus on a niche or a broad market?
2. Conduct market research: You need to research your competition and your potential customers. Please find out how much they are charging and what they are offering. Find out what their strengths and weaknesses are. Find out what the demand and supply are in your chosen area and niche. Find out what the average occupancy and income are for your type of property and strategy.
3. Create your branding: You need to create a name and a logo for your rent-to-rent business in the UK. You also need to create a website and social media accounts to showcase your properties and services. Differentiate from competitors and attract ideal customers by creating a unique selling proposition (USP).
4. Prepare to launch: You need to set up your business legally and financially. You need to register your business as a sole trader, limited company, or partnership. You need to open a business bank account and get insurance. You need to understand SEO (search engine optimization) and how to rank your website on Google. You need to create a marketing plan and budget.
5. Market your rental business: You need to find landlords who are willing to work with you on a rent-to-rent basis. You can use various methods such as online platforms, networking events, leaflets, referrals, or direct mail. You need to pitch them your offer and convince them of the benefits of working with you. You need to negotiate the terms and conditions of the agreement and sign a contract with them.
6. Join a real estate investor club: You need to network with other property investors who can help you with advice, support, contacts, deals, funding, or partnerships. You can join online forums, Facebook groups, podcasts, webinars, or live events. Consider joining a mentorship or coaching program for guidance in setting up and operating a UK rent-to-rent business.
7. Pick a niche and choose a market: You need to narrow down your target market and niche based on your research and preferences. You need to choose an area that has high demand and low supply for your type of property and strategy. You need to choose a niche that has specific needs and wants that you can cater to.
8. Figure out financing: You need to calculate how much money you need to start and run your rent-to-rent business in the UK. Consider upfront costs (rent, deposit, furniture, marketing, legal fees) and ongoing expenses (maintenance, utilities, taxes, etc.). It would help if you also considered the potential income and profit from each property. You need to find sources of funding such as savings, loans, credit cards, investors, etc.
9. Conduct research and hire a property manager: You need to inspect the property before you sign the agreement with the landlord. You need to check the condition of the property, the facilities, the amenities, the safety features, etc. You also need to check if the property has any licenses or permissions required for your strategy such as HMO license or planning permission. You also need to hire a property manager who can handle the day-to-day operations of your rent-to-rent business in the UK such as finding tenants, collecting rent, dealing with maintenance issues, etc.
10. Systemize: You need to create systems and processes that can automate and streamline your rent-to-rent business in the UK. You need to use tools and software that can help you with tasks such as accounting, invoicing, booking, communication, etc. You also need to create policies and procedures that can help you with issues such as tenant screening, contracts, deposits, inspections, etc.
11. Manage the properties: You need to monitor and maintain the properties regularly. You need to ensure that they are clean, safe, comfortable, and functional for your tenants. You must also ensure that they comply with all the relevant regulations and standards. You also need to communicate with your landlords and tenants regularly and keep them updated on any changes or issues.

Related: 10 Best Lucrative Business Ideas With Small Capital

What are the Drawbacks of Rent-to-Rent Business?

Rent to rent business also has some disadvantages and challenges that you need to be aware of, such as:

• Legal issues: Rent to rent is not illegal, but it is not regulated either. With no defined rules or standards, this strategy carries legal risks and potential disputes with landlords, tenants, or authorities. Ensure a landlord agreement allowing subletting and adherence to relevant laws on tenancy rights, health, safety, licensing, taxation, and insurance.
• Ethical issues: Rent-to-rent business in the UK can be seen as unethical by some people, as you are profiting from someone else’s property without adding any value or improving it. Some landlords may feel that you are taking advantage of them by offering them low rent or exploiting their situation. Some tenants may feel that you are overcharging them or providing them with poor service or quality. You need to make sure that you are transparent and fair with all parties involved, and that you provide a win-win solution for everyone.
• Competition: Rent-to-rent is growing in popularity and competition in the UK as people seek property income without ownership. This means that you may face more difficulty in finding suitable properties or tenants, or in standing out from other rent-to-renters. Develop a unique selling proposition (USP) to differentiate from competitors and provide customer value and convenience.
• Risk: Rent-to-rent business in the UK involves more risk than owning a property outright, as you have less control and security over it. You are dependent on the landlord’s consent and cooperation, which may change over time or end abruptly. You are also exposed to market fluctuations and customer behavior, which may affect your occupancy rate and income. You need to have a contingency plan in case things go wrong, such as having an exit strategy, a break clause, or a reserve fund.