In simple terms an individual or company rents a property for a fixed period of time and guarantees the rent for that period. The landlord gives their consent for the tenant to rent the property or individual rooms in that property out to other tenants. Any profit made by the tenant is for them to keep.
CONTRACT - As the tenant generally does not live in the property this tenancy agreement can not be agreed using an Assured Shorthand Tenancy (AST) agreement, as it is a commercial agreement between two parties the tenancy will be agreed using a Commercial Lease or Management Agreement.
WHY WOULD A LANDLORD DO THIS? - Being a landlord is not always hassle free. Landlords have to deal with issues and problem such as property voids & turnover of tenants, problem tenants, property maintenance, dealing with agents. This all takes time, and money. If a landlord does not have the time, money or inclination to deal with all of the above and more, they may decide that a guaranteed rent hassle free is good for them. They get paid the rent every month without fail, and depending on what they negotiate in the lease may not be responsible for the maintenance of the property either.
WHY WOULD A TENANT WANT TO DO THIS? - The advantage for a tenant is that they can make a monthly profit after all costs for managing the property. This is typically done in one of two ways:
R2RHMO - The tenant takes an HMO (House of Multiple Occupancy) property as a single let and then rents out all of the rooms individually. Depending on the condition of the property at the time they take the property on, the tenant may also choose to invest some money in to the property to add value to it. For example a previous student level of housing can be upgraded through decoration and premium furnishings to warrant a higher level of rent from Young Professionals. After collecting all of the rent from the tenants and deducting the running costs i.e. rent to the owner/landlord, utility bills etc they make a profit every month.
R2RSA - The tenant takes on a property that is an ideal location for SA (Serviced Accommodation) which they market on Airbnb, Booking.com etc for short term stays. Again, the tenant will have additional costs to be able to achieve this e.g. refurbishing and furnishing the property to a high standard. The goal being that the nightly rates achieved more than cover the costs of the rent, refurbishment, furnishings and monthly bills in order to make a profit.
PROFITS - It is not unusual for a R2RHMO or R2RSA to make in excess of £500 PCM profit, which isn’t enough to live on if you only have one R2R property. However if you had say 6 to 10 R2R properties this would make a significant difference to your monthly income.
FINAL THOUGHT - How many R2R properties would you need to replace your current income?
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