“Rent to Rent” –
The Ultimate Guide

The first step involves the rent to rent operator approaching a property owner in order to make suitable arrangements. It’s then a case of working out “win-win” terms that suit everyone involved.

For instance, a property owner (rather than sell up) may decide to lease the property for three to five years to a trustworthy individual or company who will take full control.

As part of the written agreement, the rent to rent landlord promises to pay a guaranteed rent amount back to the property owner. This lasts for the entirety of that lease period.

Note that this strategy is different to subletting – where tenants (often without the authority of the landlord) rent out rooms to other tenants.

The next step is for the rent to rent landlord to take control of the property over the course of the agreed lease term. There may also be an agreement for the property’s renovation and/or conversion into an HMO / multi-let property. Here, the rent-to-rent landlord may agree to pay for all of the costs. Other times, a specific joint venture agreement is drawn up between both parties.

The result is often that arrangements of this kind can take a little time to become profitable.

Nonetheless, the idea is to improve the value of the property in order to achieve the highest rental income.

Once all of the improvements are complete, the rent to rent business owner then arranges to rent the property to tenants.  This process is broadly similar to sub-letting. This landlord pays all the required bills. They also take on the costs and legwork of making improvements whilst maintaining the rooms / communal areas within the building. They will therefore need to have a “float” to deal with these ongoing expenses.

If, as a rent to rent business owner, you have been able to make sufficient positive changes to the building, you will be able to fairly charge an increased amount of rent.

Here’s where the acting landlord receives the return on their investment in the form of gross rental income. After subtracting the property owner payments and costs  – such as bills and other overheads – the remainder is profit.

At the end of the lease, the rent to rent landlord returns the property in a pre-agreed manner.  Should this not incur, the individual or company may be subject to financial penalties or legal action. Other times – assuming the endeavour is going well for all involved – property owners may well choose to renew the agreement.

Other times, the rent-to-rent landlord buys the property (perhaps at a pre-agreed price secured by an option agreement, for example).

Be sure to inform yourself of all the planning regulations related to HMOs in the local area. In most cases, the Local Planning Authority can help with this. Also, check the changes or improvements you will be able to undertake when renovating a house.

Failure to apply for consent or to understand the permissions you need may result in a hefty fine.  You’ll also be forced to return the property back to its original state (which will likely cost many thousands of pounds).

All HMO properties usually require specific licences obtained from the respective Local Authority. Indeed, a house cannot be legally converted into an HMO without one.For example, if three individuals who are not part of one family “unit” are all renting rooms in a single house – that property will legally constitute an HMO.

You should not involve yourself in the rent to rent process as a landlord unless you fully understand all the relevant requirements.

Non-adherence can result in financial penalties and even legal action. Note that the individual or company found to be at fault – i.e. anyone receiving income from the house or flat in question will receive a fine.

As with any planning breaches, you will also be required to convert the property back to its original state.

Many rent to rent operators work with flat (leasehold) property owners with the aim of renting out accommodation on a short-term basis. For example, if a property is located close to a popular tourist area, sporting or music event, it’s often possible to generate excellent returns.

However, most leases have restrictions that prevent such activity from happening.

Any deposit paid to you by the tenants of a property while you are their landlord (rent to rent or otherwise) must be registered at a government-approved scheme within 28 days.These are:

• The Deposit Protection Service (DPS)
• MyDeposits – including deposits previously held by Capita
• The Tenancy Deposit Scheme (TDS)

It’s always a good idea to check that the landlord with whom you have your rent to rent agreement is doing everything “by the book”.Primarily, check that the mortgage they have is suitable for an HMO, serviced accommodation or whatever type of property you are working with.

Indeed, most buy to let lenders do not allow for rent to rent arrangements. There is a good chance that if the mortgage company catches wind, the loan could be called in early and the property owner could face financial penalties. The property owner, however, may be able to find a commercial property lender that may be more amenable.

It’s also important to undertake credit and due diligence checks whilst researching their track record.

Should you discover any issue with their mortgage, access to capital or anything else that may affect their ability to run HMOs legally, you will need to demand that they make the required adjustments.

Remember – if you see serious red flags, it’s better to walk away.

The Property Redress Scheme (PRS) protects the rights of tenants and other consumers within the property industry. If you fail to register with this body as a landlord or rent to rent specialist, you may face a significant fine. It’s also a very good idea to register with the Property Ombudsman Scheme (TPOS).

Not only is registering with regulatory bodies a responsible thing to do, but it will also make you more credible. Property owners, for instance, will feel confident that you are a trustworthy partner. Positive experiences often then result in repeat business and facilitate the expansion of your rent to rent portfolio.

It is vital that you take proper precautions when approaching a rent to rent project. This involves checking that the property that you are managing meets to all health and safety, fire and other regulations. Renew all risk assessments on at least a yearly basis.

You should also take care to study the potential risks to your business – particularly from legal, regulatory and financial perspectives.  Remember also to account for potential void periods.

Sadly, there are multiple stories of rent to rent specialists unexpectedly getting caught up in illegal activity.

As part of the above step, you must look into arranging all of the certificates that are likely to be needed for the safe management of your property. All appliances provided must be PAT tested.  The building must have an up-to-date EPC with a minimum grade E.  This will increase to grade C in 2025 for new tenancies and in 2028 for existing tenancies.

You should also have an updated Electrical Safety Certificate produced every 5 years and a Gas Safety Certificate annually.

Be sure to undertake careful research into the paperwork you are likely to need and the regularity with which it should be updated. If you fail to do this, you run the risk of being caught out with insufficient documentation and getting into legal trouble.

Of course, it will also mean that you have not been properly testing certain fittings and services associated with your property – putting the tenants at risk.

Arranging the right insurance is vital for any person or company planning to take over the property’s management. You will usually need to arrange for buildings, public liability and professional indemnity cover at the very least. Most HMO mortgage lenders require landlords to have the right insurance before they will be willing to approve a loan.

If you are not sure what insurance you are likely to need, speak to a licensed broker and give them as much detail about your arrangement as possible.

You need to fully understand the amount of tax you will need to pay as a landlord working on a rent to rent basis. Most operators will run their properties through a Limited company, resulting in an annual corporation tax liability.  However, there are a number of running expenses that can be offset.

For those who receive the rent personally, income tax will apply.

If you evade or intentionally pay an incorrect amount of tax, you are likely to face hefty penalties. In extreme cases of tax fraud, the “perpetrators” may even face custodial sentences.

It is vital to always remain in control of your finances in order to protect your business interests. This will ensure that your rent to rent arrangement remains profitable. Before you get started, you will need to understand the costs that are likely to be involved in pursuing a rent to rent model. Try to anticipate the amount of income you are likely to receive.

Your findings should clearly reveal whether the enterprise is likely to be viable in a commercial sense. This should inform your strategy moving forward.

If things aren’t adding up, you will need to revise your approach, seek out further ways to improve things or simply cut your losses.  Indeed, a lot of rent-to-rent deals do not stack up financially.