Rent 2 Rent: a high cashflow scheme, but who bears the risk?

Rent to rent, also known as rent 2 rent and let to let, is the latest property investment strategy that is enticing would be investors. It is a high cash flow , no-money-down strategy that allows the investor to make money without owning a property. This all sounds attractive but how does it work? And what are the risks?

Rent 2 Rent: a high cashflow scheme, but who bears the risk?
K&G Lettings Limited Rent 2 Rent

Rent 2 Rent allows an investor to start earning money by renting a property from an existing landlord and sub-letting it. Using this strategy means the investor has low overheads – no mortgage to pay, no renovation costs, or maintenance costs. From the investors perspective it sounds ideal, no or limited outlay and high levels of income. It appears that the trick is convincing existing landlords to hold the risk and allow the investor to use this strategy.

The Rent 2 Rent scheme is a complex area which requires robust legal agreements to protect all parties – tenants and landlords. Investors using the strategy should have a thorough understanding of how to manage a rental property including factors such as deposits and licensing of Houses in Multiple Occupation. For example, renting out individual rooms usually can mean that the property becomes a House in Multiple Occupation and will require a license. Without a license heavy fines can be levied.

For landlords Rent 2 Rent can mean you are shouldering the risk without receiving the rewards. The rent offered by a Rent 2 Rent investor is often below the market rate for the property and the investor may provide little protection to the landlord – especially if they operate as limited company. For example, there are well publicised cases where:

  • the investor has stopped paying the landlord; and,
  • cases where investors have absconded, leaving the landlord to clean up the mess.

Often there is no point in the landlord pursuing the investor as the they are unlikely to have any assets.

This article has helped to highlight some of the risks and rewards for both the investor engaged in Rent 2 Rent and the landlord contacted by a Rent 2 Rent investor. Here at K&G Lettings Limited, we do not recommend a landlord enters the Rent 2 Rent sector until it becomes more established. K&G Lettings Limited is happy to help investors to make the correct choice for their situation, using some of the more traditional and safe investment methods.