Is Rent-To-Rent Recession Proof?
I’ve been asked a lot lately - Do you think Rent-to-Rent is recession-proof? (Covid-19)
Discover how the virus has affected my property business, the impact it has had on the HMO and Serviced Accommodation models and how I am learning from the first wave to protect myself during these uncertain times...
A lot of people have been in touch to ask me how I have managed to grow my business through one of the most challenging times the economy has ever experienced. I want to break down an honest account of the journey I experienced through the first wave of COVID-19 and how I am looking to learn from that experience during this next phase of uncertainty.
I don’t want to lie to you; I was scared. I remember watching Boris at 5 pm each evening, and because everybody was in a state of panic and uncertainty a lot of my clients that were renting rooms or properties were getting in touch to tell me how the virus was having an impact.
I was thinking at the time I guarantee over £20,000 worth of rent per month, and if I can’t fill those rooms, I don’t know what I’m going to do.
BUT I didn’t let the pressure get to me, I have delivered and guaranteed the rent to landlords without exception and fast forward six months and I’ve taken on six units since lockdown!
We’re still scaling, still growing - I am living proof that Rent-to-Rent can work in these difficult times.
Interested to find out how I have achieved this? Listen to this weeks episode where I am going to go into a lot more detail.
In this episode, you will discover how
COVID-19 has effected demand
The virus has impacted the HMO and SA models
How I have pivoted to protect my business
How I am preparing for the second wave
Is Rent-to-Rent recession-proof
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Podcast Transcript↓
[00:00:56] Simon here and welcome to another episode of the podcast where we talk about all things property, Creative Cashflow and how to be financially independent today, not in 25 years. And on this episode, I want to talk about the C word. Yeah, I was hoping it was going to all be over, but it seemingly isn't. There's strong evidence of a second wave, and I think it's time to prepare.
[00:01:28] So, for the first time ever, I'm going to go on record and tell you about my experience of the first wave, because a lot of you have hit me up and said, like, how have you managed to actually grow your business through the one of the deepest recessions the world economy's ever gone through. How are you doing that?
[00:01:48] And I want to answer that and give an honest account that when covid first dropped, I was you know, I was I was scared. I'm not going to lie. I was scared.
[00:02:00] I remember all those five pm Boris announcements, and because everybody was just in this state of panic and uncertainty, a lot of my clients that were renting rooms or properties were getting in touch to say they might need to pull stuff. And I was thinking, look, you know, I guarantee over 20000 pounds worth of rent per month. And if I can't fill those rooms, I don't know what I'm going to do. You know, it was scary.
[00:02:30] But yeah, you know, I'm still here and I've taken on six units since lockdown, we're still scaling, we're still growing. I am living proof that rent-to-rent can work in these times and not only work, but flourish. So I want to dispel any rumors that you can't do rent-to-rent during covid and that you want to wait until it all settles down. Because the sad reality is you might have to wait a long time. And if you've not got your financial house in order, you need to take the opportunity and make something happen. I had mentees that started their rent-to-rent business mid-covid and are in a far better position now than they were before all of this.
[00:03:17] They've got some passive income and it goes back to the old slogan, don't wait 25 years, get creative today. Like today. So how can you do it safely? Is it a good idea? Would I recommend it? How I think it will be affected in terms of rent-to-rent HMO and SA. And a few tips that I learned the first time around. So first things first, I want to talk about demand. Demand for landlords, demand for HMO tenants, and then demand for serviced accommodation. Are people still booking short holiday and work lets? So, first things first. One thing I saw in the first wave was a huge surge of landlord demand, and I'm already seeing it over the last week. Landlords with empty properties become increasingly motivated when there's this level of disruption, because in the last lockdown, agencies just closed. Like nine out of ten employees in a branch would be furloughed and you'd call the office up and you won't be able to get hold of them. So the landlord's being left with their monthly expenses of the mortgage, the council tax, the insurances, and particularly if they're relying on that income...
[00:04:39] It just stops and their hope of renting out the property went from, you know, high to slim to none, because the agencies just shut down.
[00:04:49] So in terms of landlords, huge demand. Not only that, but this time around, you've also got the student landlords that have been unable to catch the student market. So not only have you got all the sort of private professional landlords, but you've also got loads of student landlords that have got empty properties. Now, I've had countless people hit me up this week. So in terms of demand for properties, huge opportunity. And I guess it kind of goes, well it kind of just reminds me of the Warren Buffett saying, be fearful when others are brave and brave when others are fearful.
[00:05:30] Meaning, you know, when when people are fearful and they feel, I'm not going to do something, I'm not going to do something, I'm not going to do something, that's normally the best time to get in. And I will just do a quick disclaimer here before I start getting carried away. One thing I don't want to do in this show is I don't want to make light of covid. It's a terrible, terrible thing that, you know, affecting so many people in horrific ways.
[00:05:59] And I also don't want to paint a picture that it's a great idea to get into rent-to-rent right now. You know, these are my opinions, my views. Please do your own due diligence, but I'm just talking about my experience, real life experience and the experience of other people. So, yeah, the last wave, we found huge demand for landlords, but you would have to get direct to vendor because the agencies were closed and rubbish, quite frankly. So can you view new properties? Well, in the last lock down, it became tough, but generally speaking, for a while there was if your work is necessary, you're able to travel and you could, you know, you must social distance and you could only be one or two other people. So for a while it was fine to meet a landlord, keep social distancing. You are going to work to try and do a deal. And that was fine. Alternatively, you could also just do a video viewing and still secure the property. So based on the last wave, great time to get control of properties. How about letting them? So you will know that if you follow me, I believe rent-to-rent is the way of controlling the property and then you want to monetize it. And the way I monetize them is either through HMOs houseshares, splitting them into different rooms, or serviced accommodation, aka short term lets. OK, so first off, let's start with HMO. So with HMO, I found an instant shock to the market where demand just stopped. It just fell off a cliff, to be honest with you. And at that time I was slightly concerned because I had empty rooms that I had no way of filling an even ongoing inquiries just stopped. They just fell off a cliff.
[00:07:54] But then something interesting happened.
[00:07:58] There started then being key workers, requiring accommodation to isolate away from loved ones, there was people living with elderly relatives that needed to move away from them because they were still working and they needed to isolate because their family members were vulnerable. There was a lot of broken relationships and people needed to move out of houses. So all of a sudden there ended up being a huge spike in demand, which I was surprised but hugely grateful for. So I started to see the demand increase, increase, increase. And to be honest with you, the demand as of six weeks ago, I didn't have one room empty. We was 100 percent occupancy, nearly touching 100 rooms. So amazing. And we also was taking on new properties. I took on 15 new rooms and then we had 30 students move in as well. So, yeah, HMO demand. Short term shock, but then people need a home, it's a core need, so there's always going to be people needing a place. And what's interesting is in economic decline, houseshares are very attractive, because you can have a capped monthly expenditure. Our rooms might be five-fifty. And that includes all your bills, internet, council tax, water. So, you know, you've got no further expenses.
[00:09:23] So when things get tight, HMOs, you know, they're great. Terms of serviced accommodation. This was interesting.
[00:09:33] Now, I saw providers that had 10, 15, 20 SAs, serviced accommodation, seriously struggling because all of their bookings were falling out of the diary and they went into a state of panic. And to be fair, I think in many cases, the government bailed them out through business rates, which is amazing. But generally speaking, the tourism market, it just fell flat on its on its face. Hotels closed, nobody travelling, flights cancelled. Forget about it. But then what I managed to do was I managed to sort of pivot and I filled all of my SAs with longer term contracts with key workers and companies that were still working. Rolls-Royce, for example, they were brought on board to manufacture ventilators for covid. So there was still a massive demand. Some of the construction workers, they were still cracking on, you know, they were struggling to get supplies sometimes, but they were still smashing on.
[00:10:35] So I pivoted away from short-term bookings into long-term bookings. By the way, to be honest with you, I prefer the long-term ones anyway. And that was great. But it was scary. It was scary to see bookings drop out and when AirBnB just basically blocked out their calendars. So it was impossible, illegal to book. That was also scary.
[00:11:00] But, once again, there was a couple of positive things that came out of this, the first thing was hotels were closed and people didn't want to use hotels anyway. You know, they wanted somewhere where they could self-isolate and be in one household. So that was great for serviced accommodation because we're providing entire properties. The second thing which was really interesting again, was people needing to families needing to self-isolate from other family members, but wanted a whole property. So we did some of that. And then the third thing was once lockdown lightened up, there was once again a massive surge in demand because businesses had not received the purchase orders to start jobs. And then all of a sudden, on one day when Boris made the announcement that the lockdown was easing up, we had loads and loads of people needing accommodation and then they all got really, really filled quickly. They didn't want to do hotels. They wanted to use us. We filled them up. We charge great rates and some of them have been with us for months. So that was great.
[00:12:10] So I think it's fair to say overall, the demand - you had to stabilize and it wasn't easy - but the demand actually went up in many different ways. But I want to leave you guys with the three biggest things I learned and the three biggest things that will sort of be key factors as to whether you should be doing rent-to-rent right now or, you know, whether you're going to be able to weather the storm because we don't know what what's around the corner, myself included.
[00:12:40] First things first is you've got to pick your properties really carefully, and I think one of the reasons I managed to weather the last wave was because I had very high standard of accommodation, but I diversified. I had HMO and SA. So when the SA got shot, I still had recurring income from a decent amount of HMOs. But then to the same degree when I was struggling to move new tenants in because, you know, social distancing and it wasn't safe to do so, I could pivot over to just renting out entire properties to SA clients. So you've got to pick your properties correctly. And I massively recommend diversifying, OK, massively. If you've got 10 HMO or 10 SA, you need to diversify. You can't be reliant on one. Second thing is, and this is a massive one, you need to make sure that if you do sign any deals, you've got the correct agreements and terms within them. You do not want to be guaranteeing five years rent mid-lockdown when you can't fil a property up because you're going to end up stuck. And don't get me wrong, there was mortgage holidays and people, you know, might be understanding, but you don't want to rely on that, so you need to make sure you've got the right clauses which could support you through this time.
[00:14:05] And finally, you've got to be willing to put in the work. There's you know, there's this sort of, there's this imagery that property investment's easy and it's passive and you could be sat on a beach sipping on pina coladas, you know, completely disconnected from the world.
[00:14:27] And you know what? Look, I'm sure at one point, once you manage to fully systemize and scale, you can have that. And don't get me wrong, I've been away for a few weeks at a time while it's having this business. And it's been great, but, when times get tough, you've got to pull up your bootstraps and you've got to get busy and outwork the competition. So I was hustling very hard through the first wave. I was up at four or five am. I was the first on the phone, 8:00, 9:00 am, speaking to people, winning clients, being very proactive on things like SpareRoom and OpenRent, reaching out to people and finding out people's problems and solving them. And then, naturally, you'll always be financially rewarded for that. So there are three main things I definitely think you need to do, whether if you're thinking about getting into rent-to-rent and you're up for those three things, then it could be a great time. If you're in it and you're worried, you'll be fine, but you're going to need to make sure you're very careful what properties you pick. You got the right terms and agreements and you're willing to put in the work and outwork the competition. That's really key.
[00:15:36] Yeah, don't panic, don't get desperate, don't drop your prices too low and then start attracting bad tenants. Hold the line. But, you know, sort of fasten your seatbelt and then crack on. So, yeah, that's it for me, guys. In summary, is rent-to-rent recession proof? I would say it's a lot more recession proof than most businesses because it's a core need: property, shelter. However, this is not any normal recession. We've got a pandemic on our hands as well. You know, some business has been absolutely flattened. It's terrible. You know, if you're in food, if you're in, you know, water, if you're in shelter, if you're in health care, these are core businesses. So even in a recession, there's still going to be demand, opportunity and the potential for growth and sort of increase in market share. You're just going to have to pivot, be flexible and be willing to put the work in.
[00:16:37] And I actually had somebody I'm really, really proud of. She started her rent-to-rent business with my help mid-covid and she got three deals within six weeks. She's now cash flowing over two and a half thousand pounds per month. Great proof that you can start in covid. And to be fair, it was a lot easier for her to get deals because there was less competition. It's like that scene in Forrest Gump where they can't catch any shrimp. And then one day there's a massive storm and it wipes out all the other shrimp boats and they've got the monopoly.
[00:17:13] And I'm already seeing evidence of agents leaving the market and landlords being left with empty properties, needing a service to help them through this downturn.
[00:17:24] And that could be a great opportunity. If you've got any questions you need any help or guidance, please reach out on social media. And remember, guys, I know that it feels tough and it always feels like the wrong time, but it's even more reason not to wait twenty-five years, get creative. Thanks. Thanks for listening and for more information, check out Simon Smith online dot com. See you next time.