The Power Of Creative Cashflow
How after running out of money, I turned to a "Hybrid Approach" of Rent-to-Rent to generate more passive income.
Rent-to-Rent is my favourite form of Creative Cashflow and how I have been able to fast track my way to financial independence. It’s allowed me to retire my wife, look after family members & be selective over the jobs I take in the music world.
If I’m honest with you, I’m relatively new to the property industry but I’ve been able to learn very quickly. In the last 18 months I’ve managed to create a business that has turned over £400k in just 18 months. Delivering somewhere between £10,000 and £14,000 net profit every single month. If I can do achieve this, then you can too.
Rent-to-Rent has been a way for me to scale after I run out of money to invest. Rent-to-Rent mean you can avoid barriers such as big deposits, stamp duty and mortgages.
So what is Rent-to-Rent? This model is a commercial strategy that has been around for years. You rent the property from the landlord and then you rent the property out (It’s important to note here that Rent-to-Rent is legal, and with the landlords permission - I will explain more in todays episode). You guarantee the landlord a fixed amount each month and you find creative ways to rent out the property. The difference between your income and the payment to the landlord is your profit.
Now for the exciting part, how to creatively rent out the property to maximise your income. There are different forms of Rent-to-Rent and today I want to break down why I choose to operate with a hybrid approach.
In this episode you will learn
What is Rent-to-Rent?
What are the different forms of Rent-to-Rent?
A breakdown of the Rent-to-Rent deal structure
Why I believe in a hybrid approach
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Podcast Transcript↓
[00:00:56] I'm Simon and welcome to another episode of the podcast where we cover all things property, Creative Cashflow and how to be financially independent today. Not in 25 years. That's what it's all about, guys. And I just want to say, look, it doesn't matter how old you are. That's not what it's all about. What it's about is not waiting till tomorrow because tomorrow might never come.
[00:01:27] That's the point.
[00:01:29] It's not get financially independent at 30 or 40 or 20 or 18 or 50. It doesn't matter what age. If listening to this and taking on any of these little bits and bobs on can enable you to be financially independent and retire or have less stress or less pressure in your lives, one day earlier, then this was worthwhile. So, you know, I just want to make that really, really clear. This is for people that just want to improve their life a little bit sooner. And that's what it's all about. So today I'm going to talk about the power of Creative Cashflow. And Creative Cashflow for everybody that's been asking me, all it actually is, is just creative ways to be involved in property. Creative ways to to create more of that passive income that I've spoken about and I always speak about. And today we're going to be focusing on my favourite form of this, which is rent to rent. And the reason it's important. You know why? Why should I listen, Simon? Why? The reason it's important is because it can fast track you to that financial independence. And this has been the main catalyst for me being able to retire my missus. You know, look after other members of my family. For me to be able to pick and choose what jobs I take on what jobs I take in the music world.
[00:02:56] Which if you don't know. That was, you know, that's been my main thing for the years. I'm quite relatively new to property, if I'm honest. So that's why it's important. It's my, you know, I've managed to create a business which I think's done 400000 pounds worth of revenue now in like 18 months. We're hitting around ten to fourteen thousand pounds net profit every single month. And you guys can do it, too. So a great place to start is where we left off in the last episode. Episode three, my first investment property.
[00:03:31] And essentially what happened was naturally I ran out of money because that's what most people do. You have a pot, you invest that into a property, you save up, save up, save or invest it into a property, and then you run out of money and then you've got to save up, save up, save up again. And naturally, it takes years to do that. You know, it takes years, but I was searching for a creative way, and that's when I found Creative Cashflow. And then rent to rent. And basically the great thing about rent to rent is you don't need big deposits. You don't need an amazing credit score. Or you don't have to pay stamp duty. You don't need a mortgage. And the investment per deal is a fraction of what it is for a purchase.
[00:04:20] So first things first. What exactly is rent to rent? So the best way of looking at rent to rent is to sort of break it down and compare it to traditional forms of property investment. Now, traditionally, if you want to be involved in property from an investment point of view, you would buy a property. You would do some work on it, get it ready for the tenants and then you would rent it out. So it's almost buy to rent.
[00:04:53] So, you know, as per the title, all rent to rent is is you don't buy it. You rent it. And then you rent it. And it's actually a commercial strategy that's been going on for years. You know, the likes of Tesco and all your high Street people? A lot of them. What they'll do is they'll lease buildings. They'll lease the building for 10, 20, 25 years. They'll pay the landlord, the property owner, the rent.
[00:05:22] And then what will happen is they will basically operate their business in the property, whatever it is, whether it's a hairdresser's, a supermarket, you know, some businesses are famous for owning their own property, such as McDonald's. You know, the founder, that movie there where basically they talk about McDonald's actually was a property business. It was real estate that was their long play, and the burgers and the fries, that was just a short game. So essentially what you do is you rent out the space.
[00:05:58] You guarantee the landlord, the homeowner, the property owner, a certain amount each month. And then you then find creative ways to rent out that property for a higher amount.
[00:06:10] And the difference between those two figures and any other costs is yours to keep. Is profit. So there's different forms of rent to rent. Now, the way of actually sourcing the deal, the underlining strategy of getting the properties is the same.
[00:06:28] But then how you creatively monetise the property can be different. And I focus and specialize in two forms of that. The first is rent to HMO. So what that means is...HMO is just a houseshare, by the way. What that means is you might rent an entire building that was traditionally a family single let and it might have three bedrooms and a couple of reception rooms. And what you would do is you would guarantee the landlord rent for, say, five years and then you would rent it out by the room for different rooms. And because you're now collecting rent from four different people, you then might generate two, three, four times what you're paying the landlord. Now, the general premise of rent to HMO is that you will cover all the bills, the council tax, the Internet. You'll fully furnish a property to add that value because a lot of professionals, they know in students, they don't want to be bringing their own beds and all that. They just want to come in and not have to do anything. And you can charge a premium for that. So an example of that might be you guarantee the landlord eight hundred pounds a month.
[00:07:42] You know, in the Midlands, obviously, if you're down south, you're gonna be like, really, Simon, I can't get anything less than two thousand. So, yeah. Don't watch that.
[00:07:52] But if you're in the Midlands and by the way, I've got people I know that are up north, Newcastle, Durham, they're paying three hundred pounds a month. Wow. That's crazy. So, yeah, you might guarantee the landlord eight hundred pounds and say, you know what, let me rent your property and we rent your property. Let me... You know, I put the inverted commas 'lease', but it's actually it's actually managing the property. Legally speaking. And we'll get to that later. But for the purpose of keeping things simple, you rent the property. And what you'll do is you're split it up into four rooms. Are you might you might get 500 pounds per room. So you get two thousand pounds in total, four rooms. You minus the eight hundred pounds you might pay all the bills, the utilities, the Internet. You might do a monthly cleaner, which might be another 400 pounds. And then what you'll do is you'll make. Two thousand pounds minus the guaranteed rent to the landlord. Eight hundred pounds, minus the four hundred pound for the bill, so you'll make eight hundred pounds net profit per month. And I've done I think in total, I've done 25 of these deals now over the last couple of years. Some of which I've ended up sort of doing on a more short term basis, so I don't always hold that amount of properties, but I'm doing deals.
[00:09:16] I think we hit 26, 27 deals recently. Now, the second way of adding value once you've rented this property is serviced accommodation.
[00:09:28] And that's essentially holiday lets. Or short term lets where companies and people will rent your property out per night.
[00:09:38] So once again, you know, if it's a three-bed property, you might guarantee the landlord 800 pounds. And somebody might give you 80 pounds per night. So, you know, over 30 nights you generate 2400 pounds. You'd have costs. Cleaning costs, turnaround costs. And this, that and the other. But, as you can see, there's quite a significant difference from the guaranteed rent you're paying the landlord, eight hundred pounds, to the two thousand four hundred pounds you might be able to generate. So that's essentially the concept of rent to rent. And I believe in the hybrid approach. So I do both HMO and SA simultaneously. And the reason I do that, and if you follow me on social media, if you don't go and check it out, but you'll see some of the the service accommodation bookings I'm getting for eight, ten, twenty five thousand pounds, some long term bookings. So I like the big chunks of cash that the serviced accommodation income brings. And I also like the recurring passive monthly income that the HMO bring.
[00:10:52] So I know what you're thinking, you're thinking this sounds well too good to be true, why would anybody why would anybody just give you their property when they know you're able to earn this amount of money?
[00:11:03] And I thought the same, too. I remember when I...I remember coming home. You know, I went some courses and did some research and I remember coming home and telling some of my family members they were like, well, what were you talking about? Take someone's gonna give you their property. Isn't that subletting? Why would they do that?
[00:11:21] And what happens is, guys, subletting is not illegal in itself, it's only illegal if you are hiding it from the homeowner. So what happens is, generally speaking, when you sign a tenancy agreement, if you're renting...I rent, by the way but that's another episode. But if your renting the property you live in, you would have signed an AST, a tenancy agreement and one of the clauses would be no subletting. That's what makes it illegal. The fact that there's a clause in there. Now, on the other hand, what we do is we actually sign a management agreement or a company let agreement with the landlord or the agent. And we remove those clauses because they agree they are happy. They say, hey, if you can guarantee my rent, I'm happy for you to manage the property, for you to have your own tenants and do all your checks and have them on an AST. So it is, theoretically speaking, subletting, but it's not illegal subletting. And a lot of people don't fully understand that. And I think I will do an episode on, you know, on that, going in a little bit deeper. But I remember when I came home, they were like, what are you talking about, Simon? Nobody's gonna give you their property to do that. Isn't that illegal? Why would they do? What if this happens? What if you can't pay the rent no more? You're still guaranteeing them the rent. And I've got answers and solutions to all those questions. So, yeah, guys, that is it for me today. I hope that you found that useful. I hope that you. I know that some people are going to be like, wow, penny drop moment. But yeah, this is going on all the time. A lot of people are doing it. There are dangers.
[00:13:13] And I will just say, you know, I want to keep things 100 percent balanced and 100 percent real. It isn't easy. There are some downsides. You won't benefit from the capital appreciation unless you put a lease option to purchase. And you know, you don't own the property. But the thing is, guys, unless you own a property outright, you don't own it anyway. You don't pay the mortgage, the bank will take it off you. They'll take it off you quickly. So, you know, Rockefeller famously said, own nothing, control everything. And if you look at companies like AirBnB, Facebook, Amazon, Netflix, they don't...well, Netflix and Amazon have started to own more of their stock and their content. But Uber is another example. They don't own the cars.
[00:14:07] AirBnB doesn't own the property. They control the process, monetise it. And of course, our aim here is to build cashflow so we can become financially independent. And then, by the way, my strategy is then to reinvest that money into purchasing. So I've purchased several properties. Now we continue to build our portfolio. So, yeah, guys, hope that's interesting. Any questions? Hit me up on social media. Thank you very much for all the support,. And remember, don't wait 25 years. Get creative.
[00:14:50] Thanks for listening. For more information, check out Simon Smith online dot com. See you next time.