Are Rent-to-Rent No Money Down Deals Really Possible?
Do you know how to minimise your initial investment for Rent-to-Rent deals?
Discover how much I have invested in my Rent-to-Rent deals, including the lowest and highest investments, the average capital required and my top five tips to help you minimise your initial outlay…
In this episode, I'm going to talk you through some examples of my Rent-to-Rent deals. I'm going to break the episode down into two sections. Firstly I'm going to share some of my Rent-to-Rent deals including; low investment, high investment and also the most I have ever spent on a deal.
Secondly, I will go through with you five tips on how to minimise your initial investment, which I think will be really useful.
Listen to this weeks episode below or if you don't have time to listen right now, scroll down to see my top three tips from this weeks episode.
In this episode, you will discover
My lowest and highest Rent-to-Rent deals
How you can benefit from direct to vendor deals
How money is not always the key driver for the landlord
Why I try to negotiate rent-free periods
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Here are my top 3 tips from this weeks episode
Go direct to Vendor.
The reason why I like to go direct to vendor is that you can use your agreement, this allows you to be more flexible. It also allows for better communication with the landlord, making the process more efficient.
There are, of course, many benefits of using agencies. However, there are some significant drawbacks. Firstly, it's likely you are going to need to pay a deposit, potentially the first month's rent and a company fee.
Another interesting thing to bear in mind is that if the agent is fully managing the property, the landlord is likely paying circa 10% commission. If you can eliminate the agent, it's another excellent way to keep the cost down.
Look for furnished properties.
You can select fully furnished properties, and for obvious reasons, that's a great way to lower your investment.
I've secured five, six & seven-bed properties that are fully furnished, fully licensed and ready to go HMO's. I have added my value through guaranteeing the rent, managing all the headaches, hassles and making the landlords life easy.
It's important to remember there are different types of leverage, and a landlord is not always solely financially motivated.
Secure your clients first
Did you know you can fill your Rent-to-Rent properties first?
Let me break down an example for you; I recently had 15 Ryanair tenants that moved to the UK that needed accommodation. By securing the tenants beforehand, I had the confidence to go out and acquire four new properties on Rent-to-Rent agreements. That instantly generated an extra £5,500 worth of monthly rental income, which is a great way to lower your initial investment and minimise the risk going into a new Rent-to-Rent deal.
Listen to this week's podcast to hear more case studies and find out the next two best ways to lower your initial investment.
Join a community of likeminded people with ambitious property goals, where I post daily property insights and motivational content request to join my Creative Cashflow FB group here.
As always, if you have any questions, please don't hesitate to contact me directly. You can direct message me on Facebook or join and ask me your questions within the Creative Cashflow Community.
Podcast Transcript↓
[00:00:56] Simon here and welcome to another episode of the podcast where we talk all things property, Creative Cashflow and of course, how to be financially independent today, not in 25 years. And I want to kick off today's show by sending a massive, massive thank you to Yahoo! Finance for featuring me in their top 10 property coaches to follow this week. If you missed it, I'm going to post a link in the description of this episode. Go check it out and drop me a line.
[00:01:31] Let me know what you think, OK? As always, I'd love to hear from you if there's any questions you've got about any episode or if there's anything I can do to help you on your journey, please get in touch.
[00:01:44] So fastly moving on. Today's episode: are rent-to-rent no money down deals really possible. In other words, this whole term, no money down. Is that possible in rent to rent or is it a bit of a myth? You know, are you being sold a dream? Are you there thinking, hmm, well, do you know what, I've only got X amount. Can I really do it? Or maybe you're trying to do it with too little money and you're going to come unstuck or come undone along the way. So I want to try and help you. I'm going to talk about my lowest investment in terms of rent-torent deals, my highest investment, the most I've spent on a deal. I'm going to cover the average amount I spend on most deals. And then at the end of the episode, I'm going to give you five tips on how to minimize the initial investment. So if you do want to get into rent to rent on a budget, please stick around to make sure you get those five tips, because I think they could be really helpful.
[00:02:49] So, guys, I started my rent-to-rent journey with 3000 pounds, and if you know my story, I...Basically I sold my car, digged deep to invest in my first property and it was a mini sort of HMO - or we converted into a mini HMO in the end - and it basically started cashflowing 700 pounds a month.
[00:03:16] And I was like, this is great, this is good. I like this. I need more of this. But I only had a few K left and I decided to get into rent-to-rent, OK? And I never forget my first deal. I went into it. It was direct to vendor so the landlord didn't need a deposit. There was no fees. I managed to get the deal. The deal cost me three pounds because I did a Land Reg search. I managed to get in touch with the owner. He met me at the property. We had a walk around. We went over the concept. He said to me, What's your website? I said, I've not got one, but we're working on that. And for some reason, he decided to trust me, and if you've listened to my podcast, you'll know that I've developed a 12 steps to setting up your rent-to-rent business quickly. I don't know what episode it is, but look back through the archive. You'll see it. And it basically tells you all the mistakes I made and all the things I would do to make your life easier. But yeah, anyway, I got the first deal. He had no money to invest, but the property needed a full cosmetic refurb. It needed carpets, it needed painting and decorating, it needed fully furnishing, it needed a couple of health and safety bits and bobs as well that we needed to get up to sort of HMO standards.
[00:04:44] So what happened was I took the property on. I think in the end what I ended up doing was he took a reduced rent for six months for me to finance the works.
[00:04:56] It was a five year deal. So what happened was I think I must have spent 15 hundred pounds on painting and decorating, and then I spend another fifteen hundred pounds on carpets. And I ran out of money. I ran out of money halfway through the refurb. And I must have had to get my mate to lend me some money to finish the refurb. The first deal cost about six, seven thousand pounds once I was done with all the cosmetic stuff, the health and safety stuff and furnishing it. So that was the first deal. And what we ended up doing was we filled the property quickly. It started generating nine hundred pounds income per month, and then after about five, six months, I broke even and then we started reinvesting that cash flow. And I just done my 33rd deal. I've got my 34th deal ready for signing next week. And as I said, in past episodes, we've exceeded 10K a month now and we're on our way to 15K. So from - how much - so from three thousand pounds to, you know, doing 10 to 15K a month. I would say, yeah, well that's pretty..it's not no money down but it's pretty low.
[00:06:09] So yeah I would say it is possible but clearly I needed around six thousand pounds to make that first deal work. I managed to generate a rent free period so I had a bit of time, before I had to start paying the rent, because that's the thing, you've also when you're going into rent-to-rent, you do ideally want to be able to pay a couple months rent as well, just so you've got that cushion. So if you've not got six, seven, eight thousand pounds, you wouldn't have been able to have done that deal. So is it no money down? No, absolutely not. But to the same degree, in order for me to have purchased that property and done the works, I might have needed 100k or 80K, so it's definitely a lot less like 10 percent of what you would normally have had to spend. Now, what happened was, as I got more and more experienced and I started building relationships, people started giving me their properties that were pretty much ready to go. So I had properties that were already in amazing condition and I just had to furnish, so those may be only cost a couple of grand in terms of direct to vendor, which were amazing. And every now and then, I would get a belter where the property was already an existing HMO and it was already fully furnished, and all I would need to do was literally dress it, take the photos and let it out. So I've had a couple of those where, you know, they maybe cost me two hundred pounds, so once again possible, but it took me a while to build up to that.
[00:07:47] You know, you're not just going to your first day are going to be no money down unless, you know, you land on your feet. But I believe you create your own luck anyway. So that was kind of like, you know, average deal maybe 4K. Lowest deal, a few hundred pounds. Most expensive deal, probably around seven to eight K. That gives you an idea. But there's five tips I want to share with you that I've learned along the way to diminish, to decrease, to minimize the investment. There's patterns to look out for and to eliminate. So if you want to keep your investment as low as possible, here are five tips and tricks to do that.
[00:08:27] Tip number one, you want to be direct to the vendor. The reason for this is because when you're direct to vendor, you can use your agreement. You're going to be more flexible and it's direct with the vendor so it's easier to communicate directly and get things sorted. When you go with agents, as much as I love it, you're going to have to do...you're going to have to pay a deposit, which is going to be five weeks rent. So if your rent is, let's say, a thousand pounds per month, then you're going to be looking at twelve, thirteen hundred pounds for a deposit.
[00:09:05] They're going to potentially charge you a fee, a company fee, which could be as much as five, six, seven hundred pounds. If you're in London, it could be on the higher scale. If you're, you know, in smaller areas, it could be a few hundred pounds, but you're going to get an additional cost. And then they're also not going to give you a massive rent free period. So you're going to have to come up with the first month's rent as well, normally. So if you want to minimize the cost, tip number one is try to get direct to the vendor. Another interesting thing is when you go through an agent, if the agent fully manages the property and the rent is a thousand pound per month, the landlord will have to pay the agency like a commission that could be 10 percent. So in other words, if the rent's a thousand pounds after the landlords paid the agent their 10 percent commission, they're only getting nine hundred pounds net after all costs. So another good reason to keep the costs...not a good reason... Another good way to keep the cost down is to eliminate the agent. And then you can offer nine hundred or nine twenty rather than the full a thousand because the agent's taken the fee. OK, so direct to vendor key.
[00:10:21] Number two. Go for properties that require less work. So, you know, go for existing HMOs or go for properties that you just need to furnish to make SA ready, nothing that needs too much work because obviously the investment is going to increase. Now, look. In terms of adding value, when you first start, the people that are going to say yes are probably going to be the people that can't rent their properties to anyone else, they're going to need work. So get the right balance here. Don't be so desperate to get a deal that you go into one that needs too much work and it ends up costing you an arm and a leg and you never get the standard tou're going to need.
[00:11:04] Tip number three, you can actually select fully furnished properties. So that means you don't even have to furnish it. So if they're in great condition and you don't need to furnish it, then clearly the investment's going to be a lot lower. As I've said, I've had five, six, seven bed, all singing and dancing, fully furnished, fully licensed, ready to go HMOs, where I've not had to furnish them and I've added my value through guaranteeing the rent, managing all the headaches and hassles and making the landlord's life easy. So remember, there's different types of leverage and it's not all about money.
[00:11:42] So sometimes, you know, people say, why would a landlord let you make all the profit, you know, if they know you can make 2K a month, then why would they only accept a thousand? And the answer to that is people are motivated by more things than just money. OK, so don't get too transfixed on that.
[00:12:04] Tip number four, you can actually secure your clients first. Now, this is always a good way in business to reverse engineer it rather than, you know, thinking of the product, thinking of the product, making the product and then figuring out who to sell it to, you know. You can actually do it the other way round so you can find the tenant, find your customer, and then find the property or find the product that best fits them and the risk is decreased when you do this. So recently I had 15 Ryanair tenants that moved to the UK and needed accommodation. I secured the tenants before the properties and then I went and bagged four rent-to-rent deals to house them and instantly generated an extra I think it was five and a half thousand pounds worth of monthly rental income, which ended up, you know, being a decent amount of cash flow. After all costs.
[00:13:03] And tip number five, you want to try and get a large rent free period, because the longer you have to get a head start, the quicker you'll be able to recoup. And therefore, however you're funding the deal, you'll be able to get your money back. And then, of course, your return will be infinite.
[00:13:24] So in conclusion, are rent-to-rent no money down deals really possible. Yeah, they are. I've seen it. I've done them. But the vast majority will be low money. They won't be no money. And particularly when you're starting, I found that most of my no money down deals have come later on when I've had a bit more experience and leverage and the landlords have really wanted to work with me. But yeah, they are possible.
[00:13:57] But really and truly, you want to try and get yourself a little bit of start up capital just so that you've got the confidence so that you can go into more deals because you're going to really narrow down the pool of potential deals if you're going to just wait for one of those deals. So the five tips, quick summary on how to decrease the investment, OK? How to decrease the amount of money you need to get into some rent-to-rent deals. Number one get direct to vendor. I love working with agents, but the start up costs are going to be larger. If you're in London and your property's two thousand pounds a month and you're expected to pay five weeks rent, which is going to be touching two and a half, you're going to be expected to pay first month's rent, two thousand and then maybe five hundred pound company let. You're looking at five thousand pounds to start before you even touch the property. So you want to try and get direct to vendor. Point number two, go for properties that require less work, less work, less investment means you can turn them around more quickly. Tip three, fully furnished property. There's a load of these, particularly in the bigger cities. Get the fully furnished properties or the existing HMO's, jazz them up a little bit, add value, get wicked photography and you add the value through other ways. Tip number four, secure your guests, secure your tenants, secure your clients before you take on the property. Then you know there's a demand. And finally, tip number five, try and negotiate a large rent free period. And that means you've got longer to generate income and recoup more quickly.
[00:15:36] So hope that's really helpful, guys, thank you very much for tuning in. Of course, any questions, anything that I don't cover, any ideas for future episodes, please get in touch. Drop me a line on social media. And of course, guys, please, please, please, please remember, don't wait twenty five years. Get creative.
[00:16:10] Thanks for listening. For more information, check out Simon Smith online dot com. See you next time.