9 Signs Rent-To-Rent Is Right For You
Is Rent-to-Rent right for you?
Discover if Rent-to-Rent is for you and nine signs that can help you make that decision….
In today's episode, I will share with you nine signs that Rent-to-Rent might be a good strategy for you. It's not for everyone, but if it is, I don't want you to be saving up for six months when you can try and make a passive income today!
Number 1 - Do you want to focus on cashflow
The reason is that if you want to make a purchase, this might take a year to complete, then two years to refinance and get your money out. With Rent-to-Rent, usually, I have been able to break even after only a few months. Once I have taken my money out of the deal, I'm then cash flowing quickly.
If you want to focus on cash flow, then, in my opinion, there is no better strategy than Rent-to-Rent.
Number 2 - Can you get a mortgage?
If you cannot get a mortgage, maybe you live in an expensive area, perhaps you are self-employed, or maybe you are a student. Rent-to-Rent is a way of getting into property without the need for mortgages, and you don't own the property. You control it.
Number 3 - You have poor credit
The great thing about Rent-to-Rent is you don't need credit, mainly if you're doing a deal directly with the landlord (Direct to Vendor). I've never had a landlord credit check on me. On the other hand, agents can be challenging as they may run a credit check on your business.
Number 4 - You cannot afford large deposits and stamp duty
I've recently completed a purchase, and we have had to put down a 25% deposit, £50k. A further £4-5k for stamp duty and a couple of thousand in legal fees. The refurb has cost £30k, which totals around an £85k investment.
In contrast, my Rent-to-Rent deal investment averages around £5-6k, and in many cases less.
Listen to this weeks episode to find out five more signs that Rent-to-Rent might be the strategy for you!
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Podcast Transcript↓
[00:01:04] Simon here and welcome to another episode of the pod, where we talk all things property. Creative cashflow. And of course, how to be financially independent today, not in 25 years. That's the motto. We don't want to wait. We don't want to save up for six months a year. We want to try and create passive income.
[00:01:28] We can rely on right now. And on today's episode, I'm going to be breaking down nine signs that rent to rent could. Be the right strategy for you, or maybe this is the episode that lets you know, that it's not for you, but either way stay tuned as you're going to get massive clarity. If you're brand new to the podcast, please subscribe, drop us a review.
[00:01:55] It really, really makes a difference and helps more people find us. So. Be sure to please subscribe. And as always, if you've got any questions, if you want to reach out, hit me up on Instagram at Simon Smith online. So let's get straight into it. Nine signs rent to rent is right for you. Number one, if you want to focus on cashflow, I don't think there's a better strategy.
[00:02:23] And the reason I say that is because in my purchases, it might take me a year. Two years in a belt in refinance to get all my money out. Whereas with most of my rent to rent deals, I'm out within a few months. And once I'm fully out I'm then cash flowing quickly. And my average cash flow per deal probably ranges from around 500 pounds up to as much as 1500 pounds.
[00:02:56] I think my biggest deal was netting me 1800 pounds of full occupancy at one point. And that's on the HMO side, on the serviced accommodation side. It is not abnormal. You see over 1500 pounds per month when you get the right big, big bookings in. So if you're after cash flow, rent to rent is definitely without doubt for you because the return.
[00:03:26] Will be infinite. Number two, if you're not able to get a mortgage. So this means maybe you're living in an expensive area where you can't afford the property prices down London or wherever, or perhaps you're in a situation whereby you're self-employed or you're just graduating as a student or something like that.
[00:03:50] You've got no earning. That you can, um, show and therefore you'd be ineligible for a mortgage then rent to rent could definitely be for you because it's a way of getting involved in property without mortgages, remember rent to rent. We don't buy to let, we don't buy to let we control the property. We don't own it.
[00:04:15] And the best comparison is it's almost like leasing a building. And then what you do is legally. Yep. I said it legally sublet the property with full awareness of agents, landlords, all parties involved, but bottom line, no mortgage required for rent rent. Number three, you have poor credit. Great thing about rent to rent is you don't need credit.
[00:04:43] Particularly if you're doing deals direct to landlord direct to vendor. I've never had a landlord to a credit check on me, not knowingly. Anyway, agents on the other hand can be a little bit more tricky because they'll want to run a check on your business. And if your business is new, which it may be, then they'll want to do one on you personally.
[00:05:08] Also, if you're a director of the company, then your credit may be linked well, will be linked to the companies. So that could flag up. But with rent to rent, Direct to vendor, you don't need amazing credit. So online mortgages and banks and all that stuff, you won't come under any issues or you shouldn't come on any issue.
[00:05:30] So if you've got poor credit mentoring, Cooper view, number four, if you can't afford large deposits and stamp duty, rent to rent is definitely for you. I've recently done a purchase and we have to put 25% deposit down. You looking at 50 K. Then you look at it, another four or five K in stamp duty and have a couple K in legal fees.
[00:05:56] And then 30 K on the refurb. We're talking about maybe 80,000 pounds investment in a purchase. Whereas my rent to rent deals cost me five K or. In many cases less. So if you haven't got a large amount of money, rent to rent could be for you, but I should take this opportunity to say rent to rent is not a no money down strategy.
[00:06:23] You will need money for the deals. You will need money for your setup. Although it doesn't cost much 500 to a thousand pounds setup for rent to rent and you will of course, need money for education. Because you don't want to play around with rent to rent. You need to know your stuff. Number five, if you need to move fast, I don't know about you, but purchases are so long.
[00:06:52] They take so long and then every now and then you'll be 11 weeks in as I was just a few weeks ago and the vendor will pull out because the winds changed and they decided, no, actually I don't want to sell the property anymore. Or, Oh, actually this has happened. So now we're going to move into it or my relatives going to move into the property.
[00:07:16] So purchasing is a slow game. It takes a while to find the right deals. It takes a while to secure the deals. It will take a while to do the refurb. It would take a lot longer for you to execute the refinance, particularly if you've got a mortgage with early repayment charges. So the purchase is a long game.
[00:07:41] And then even when you have done all that, the likelihood is in today's age, you're going to have to leave some money in the deal. Not always, but you're probably going to leave some money in the deal, which means. You're going to need to stay in the deal for another year or two to receive the rental income until you're out of the deal.
[00:08:00] Once again, most of my renter and deals I'm out within a few months. And if I see a property today, I could potentially literally have the keys tomorrow. I've had landlords that have viewed the property with them. We've agreed on a price and a term. And just give me the keys. Before we've even signed.
[00:08:19] They're like here, take it. I don't want if to do a bit Simon have it. I never ever forget. When I first got into rent a room and I was meeting landlords. I was on Gumtree. I was on Oprah when I ignored the agents. At first, it was probably about landlord number eight or nine. And I did a language search. I think I might have sent him a letter.
[00:08:46] Or I may have joked to line on social media. I can't remember, but long story short, we got in contact and he met me at the property, show me around and he was a broken man. He was a broken man. He couldn't wait to get rid of this property to the point where he just threw me the keys. And I thought I took gold.
[00:09:12] I remember I ran home that day. I think I must've ran home, picked up, Lucy took her back to the property, showed her around. I said, look, this stuff actually works. This stuff works. And then about 10 days later, his wife got wind of it, changed his mind. And then I had to give him the keys back that hurt that really, really hurt.
[00:09:35] I never forget that night. I nearly quit. Thank, thank goodness. I didn't. Um, but yeah, if you need to move fast, rent to rent could definitely, definitely be the one for you. If you want to replace your income or add to it, definitely replace your income. Rent to rent is one of the quickest ways and the best ways of doing that.
[00:09:57] Let's say you earn two and a half thousand pounds a month, and let's say your average rent to rent deal brings in, let's just say 500 pounds. That could be. We won't say five deals because you've got tax and other bits, but it could be six deals say to completely replace your income, or you could get a stinker one or two stinkers, and then you'll be out already.
[00:10:21] But the fact of the matter is it would take you 10 buy-to-lets to achieve anything near that. And it would probably take you a good few years. A good few years, even if you had other people's money and you could leverage it, it was, it would take you a while, because as I've said, the purchase process is generally not always, but generally slow.
[00:10:45] So if you want to replace your income quickly, went to rent is great. And if you want to just add to it, rent to rent is also great because you're going to be able to generate more cashflow with less invested and in a quicker period of time. Number seven. If you have a reasonable amount of time, I say reasonable, because if you just want to view a property, put an offer in and sit on your hands, then renter, it might not be for you.
[00:11:14] It will take some time, but it's not going to take a whole heap of time, particularly at the beginning. I would say a few hours a week at the beginning should get you started. And once you've got a deal, it would take up all your life for a couple of weeks, but then it will slow down. It's mainly the refurb and the setup.
[00:11:35] That's the hard part. And then once you've got it tenanted, you can relax a little bit, start focusing on putting the systems in place, whether it's hate Chemawa essay, and then you can take your foot off the pedal and relax. But you will need to be willing to dedicate some time. Now, when I started in rent to rent, I was still working down in London four days a week, and I literally would wake up at 5:00 AM.
[00:12:01] Look on right move, send out a few emails and bits and bobs. Um, I'd then work from, I know, nine till one, and then look on my lunch hour for a few bits and then I'd work. From one till quite late, being in a creative industry, long hours, and then I'd have a look and then I would arrange viewings for the day or two I'd be in Darby.
[00:12:24] And you know, that was enough time to get me started. And then when I got a deal, I would just cancel my appointments or, or have some time off work for a week or to finish the refurb, rent it out, and then I could go back to work and the income was pretty passive. But you need some time. If you're not got any time, you're busy, you're working 60 hour weeks rent.
[00:12:50] It's probably not for you. Or you're going to need to find somebody that can do the heavy lifting. So you might have the money. Somebody else might have the time you could JV. Number eight, do you have the desire to start a property journey? Actually, uh, I've read that incorrectly. What I meant to say was, number eight, do you have the desire to start a property business?
[00:13:20] There's this constant debate is rent to rent, property, investment, or a property business. I would argue it's both. It's a hybrid, but it definitely is a business. So you do have to approach it like a business and you do have to be willing to commit, to maybe setting up a limited company, having a website, having a brand, having, um, you know, professional emails, having a virtual office, having a proper telephone number, a Google business.
[00:13:54] Like all these things are associated with having a business. You're going to need to do all those things. You're going to need marketing. You're going to need to hire the right personnel eventually, or have the right team, but you are definitely running a property business. And last but not least, are you willing to manage your own properties to manage tenants, to deal with the odd leak, to deal with the old tenant issue?
[00:14:25] Some people like. Yeah, I love rent to rent, but I don't want anything to do with the tenants.
[00:14:33] I'd say two things to that. The first thing is if you don't want to, I was going to say, Hey, that's a bit strong. If you don't want to, um, be involved with tenants, then you're going to either have to outsource and systemize really, really quickly. So you still can do it, but you're going to have to outsource and systemize.
[00:14:52] Or you're going to struggle if I'm honest, because rent to rent is essentially property management. You end up babysit in the property. You look after it and you can outsource the management to an agent, but it will dramatically decrease your returns. So let's say for example, the cashflow was 750 pounds and you had to give 75 pounds, 10% plus VAT to an agent.
[00:15:24] It would take it down. But to be fair, if it was 750 quid, you're still clear in 600 and you don't have to do much. So you know, it can work, but if you only get four or five in Japan, a deal and you know, you're having to give more away. Particularly on the essay side, you're not going to leave much skin on the bone.
[00:15:46] And the reason I say essay is essay is typically more for management. You want to be paying 15 to 20% for a good surface to accommodation manager. Whereas HMO, you can probably get in between seven, 8% and 15% plus VAT. So there you have it. My nine signs to look out for. To establish whether rent to rent is, or in fact is not for you.
[00:16:15] And one thing I would say is rent to rent is not easy. So have a really, really close and honest look at those nine signs and be honest with yourself, you know, if you've got one or two or a few of them and they really, really hit home, then it could be for you. And then my advice would be to then listen back through the archive of podcasts.
[00:16:44] Last week's podcast was how to get into rent, to rent. And if you establish from this episode, yeah. You know what actually yeah. Is for me then delve into the podcasts. I've now got a YouTube channel, just go on YouTube, search Simon Smith online. I'll also link it in the description, absorb all the content and get started right now.
[00:17:07] Hope that's useful. You know what to do if you want to get in touch, hit me up on Instagram at Simon Smith online. And remember, don't wait 25 years. Get creative.
[00:17:30] Thanks for listening. For more information, check out Simon Smith, online.com. See you next time.