Rent-To-Rent Agreements Explained
Do you find the legal side of Rent-to-Rent overwhelming?
Discover in this episode why legal agreements are so important, the different types of agreements you will need to use, along with other considerations to protect you and your business...
In this episode, I will discuss Rent-to-Rent agreements, what you need to know, where you need to get them from, and which type of agreement you need to use, whether through Direct to Vendor or through an Agent, because they are both different. I also want the highlight some red flags that you need to look out for.
*Disclaimer - make sure that you do your own due diligence and speak to a legal professional. This information is purely to share my experiences with Rent-to-Rent agreements and what I feel will be most useful to you. This should not be substituted with professional legal advice.
So, first thing first, agreements are used to define each parties responsibilities. Making each person’s responsibilities clear so people know where they stand and what terms have been agreed in detail. It’s worth pointing out that during my time in property, I have only had to refer to the agreement once, and that was for a minor dispute.
I want to stress, make sure you are doing business with the right people, the right landlords, agents that you have synergy with. The agreements are there to protect you, but hopefully, if you have chosen well, that should never really happen. It’s essential to agree on terms that are beneficial to both parties, win/win deals. We work with retirees, landlords who live thousands of miles away, and I know that we provide them with amazing value.
The second thing I want to discuss in this episode is which agreements to use and when. You may not know this, but the agreement you will use will depend on whether the deal is negotiated directly with the landlord or through a letting agent. The reason for this is that most agents will want to use their agreements. They will want to use theirs because they will have company policies and processes that they have to follow. You must understand their agreements and know what’s what because each agencies agreement will be slightly different.
There is something that you must make sure you never, ever do, and I cover this in detail in this weeks episode…
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Podcast Transcript↓
[00:01:12] Simon here. Welcome to another episode of the podcast where we talk all things property. Creative cashflow. And of course, how to be financially independent to day, not in 25 years. And on this episode, I'm going to be discussing rent to rent agreements. What you need to know. Where you need to get them from how you need to be moving, whether it be through direct to vendor or agents, because they're both different.
[00:01:44] And you know, some of the red flags to watch out for, and as always, if you're brand new, we do this every single Monday. So hit that subscribe button to make sure that you get all this amazing content I've done nearly 52. We're nearly a year in. Um, in terms of episodes or give him value on rent to rent and creative property strategies.
[00:02:10] So if this is the first episode, you're listening to make sure you go back through the catalog and check it out. Um, a great place to start is with the first episode, which was how property changed my life. And wow, it sure has changed my life. Just three years ago. I had no involvement in property whatsoever.
[00:02:29] And it felt like I needed a change. It felt like something needed to give. And I explored stocks and shares. I explored setting up other businesses and then I found property. And there was this amazing light bulb moment where I realized, hang on a minute, if I can set up enough property, enough recurring, passive income, that I could then have more freedom, more time with the people I love doing the things I love and also giving back.
[00:03:02] So, you know, I actually. Um, you know, I've took on a lot of friends and family that now work with me and it worked for me. They work with me, um, making this all possible and it's the best feeling. Just looking after your people and saying, you know what, no, you don't need to go and do that no more. Come hang out, work with us and let's build something special.
[00:03:25] So yeah, property is awesome. And rent to rent is a great way to start. Not with no money, but with low money. Okay. And, you know, From the ground up from a few thousand pounds, we've scaled it up to a seven figure rent to rent business, and now built a seven figure property portfolio doing that. And now I not only continue to scale that by also give back and help other people.
[00:03:52] And I'm helping tons of people get deals all over the country, which is a blessing. And I'm also helping people invest their money to make them money work for them because. If COVID has taught us anything it's that you can't afford to rely on a job that won't be, or may not be there tomorrow. The amount of people I've seen, the losing jobs right now is on believable.
[00:04:21] And if you feel like you might be one of them people, and you've got a little bit of money, why not diversify and get some recurring income right now, so that you're prepared. Um, but that's, um, that's for another episode. So today's episode is rent two rent agreements explained. And as always, I don't really write notes.
[00:04:45] I'm just going to speak from the dome and let you know what I've learned and what I think would be most useful to you. So, first things, first agreements are. Used they're defined to make everybody's responsibility clear so that people know where they stand and that there is something to bind the terms that have been agreed.
[00:05:16] However, having haven't been said this in my whole three years of property, I've only had to pull out one agreement and that was just for a minor thing. So the first point I want to stress here. Is make sure that you're doing business with the right people. That means the right landlords, the right agents that you think you have a synergy with.
[00:05:38] And that they've got a good energy and good intentions, the agreement should it come out when things go wrong? And if you pick and choose your deals and your landlords and ladies correctly, hopefully that will never really happen. So, you know, sometimes I think people feel like they can just, you know, lean on agreements too much and that can save them going into bad deals with bad people.
[00:06:03] And I, that's not my understanding. I only work with people that I like that I connect with and that I think that there is a true synergy. So a lot of my landlords and ladies. They're tired. Um, you know, some of them are retired. Some of them are thousands of miles away, and I know that I'm giving them value.
[00:06:22] It's a fair trade off. We're both really happy. We communicate freely. And the agreement is just a piece of paper to pin that to it is not the be-all and end-all so that's the first thing. The second thing is a lot of, you may not know this, but the agreements you're going to use will be different dependent on whether it is a direct to vendor deal.
[00:06:46] We have a landlord themselves, or whether it is through a letting agent. And the reason for this is most Latin agents will want to use their agreements. Okay. They won't want to use yours. They'll want to use theirs because they'll have company policies and processes they have to follow. And therefore you do need to be able to understand these agreements and know what's what, because everyone will be slightly different.
[00:07:15] So what you want to make sure you never, ever do is never, ever sign an AST with a letting agent or landlord. On a rent to rent agreement and an AST is just a standard tenancy agreement that you would normally sign with a normal tenant that was going to be living in the property. Well, in rent to rent, as you know, we don't live in the property, it's going to be our clients.
[00:07:38] And therefore the AST is the incorrect agreement to sign. And not only that, it is also illegal because you are going to end up committing a legal subletting. If you use that agreement. So, whatever you do, don't use that now in terms of letting agents, a lot of them, when they give you this agreement, it will be what we call a company, let agreement and a company, let agreement is just an agreement that are letting agent would typically give a company that was going to let the property or provide accommodation for their employees.
[00:08:17] Okay. Company, lab company goes in and says, yeah, we want to rent this property out. We've got a project and we're going to house this consultant and their family for a year. We'll pay for it. They'll move in. Um, and on the agreement, it will say it's, you know, Smith, um, properties limited. And it will basically imply that it's my employees, my staff.
[00:08:43] That's going to be in there. And sometimes it will even be the particular consultant's name on the agreement as well. Now that is not in line with our business model because it's not going to be our staff. It's going to be our clients, people that want to stay in our accommodation, whether it be on a single let basis, which typically doesn't work.
[00:09:04] Um, but whatever, uh, never say never, uh, HMO basis or a service accommodation basis now. With that being said, there are quite a lot of things that need changing in an agreement accompany, let agreement with Latin agent. And that is where a lot of you go wrong because you're going to need to make sure that you make the necessary amendments so that it's not your staff.
[00:09:31] And also you're going to need to make sure that there's the right termination clauses break clauses, rent clauses. Um, management clauses and clauses in terms of the maintenance sort of responsibilities. Um, you know, for a lot of COVID, I actually had my own COVID clause in these agreements because there will be times when we will need to give these properties back.
[00:09:54] Maybe they're not working, right. Maybe we've had a change of circumstance. Maybe the landlord decides they, you know, that they want to get higher rent. There will be times when we may need to. Terminate these agreements. So it's important that you've got those right things in place. In terms of the direct to vendor agreement, there is a couple of different options.
[00:10:17] You've got commercial leases, you've got management agreements, guaranteed rent agreements. Um, and to be honest with you, it depends on your situation. And I should probably. Just reaffirm at this point that none of this can be considered legal advice. This is just my experience, my opinions based on doing X amount of deals over the last few years, countless amount of deals now.
[00:10:43] So please make sure you speak to a solicitor that can advise you vaguely, but in terms of the agreements you move, you not move you do with your landlords. I typically. Recommend a guaranteed rent agreement. And the reason for this is because it's quite similar to the type of agreement that a landlord would be used to signing with a letting engagement with a difference.
[00:11:09] It's like a management agreement on steroids. And therefore it's not to intimidate in a D it's simple it's to the point. And it, you know, it gets things done. And I've been developing mine over, you know, a few years to get it just right. I've actually had a couple landlords that have been solicited as themselves and they've, you know, they've scrutinized mine and comeback with some bits that we might have missed.
[00:11:35] Um, and yet we've developed over time and it works perfectly. I hardly ever have any comeback. Now it's very fair on both parties. Um, once again, has the right break clauses termination clauses makes sure. That who is responsible for what, in terms of maintenance and management are clearly laid out.
[00:11:55] Because the last thing you want to do is have a situation whereby you're in the middle of agreement. And somebody says, hang on a minute. I thought you was going to sort out all the maintenance and the boiler needs replacing, what are you going to do? You don't want that. So, yeah, to summarize deals through letting agents you're going to want a company let and typically.
[00:12:14] This is what I've experienced. Certain agents obviously are going to be a little bit more tough in terms of negotiating than others. And you have to remember letting agents work for the landlords. They are representing the landlord. So you may have to make a couple more compromises in terms of the agreements you sign, but never sign an AST.
[00:12:37] I see too many people spending 5,000 pounds in a property and given the landlord a six month break clause because the agent applied pressure. And if they were to exercise that you would not have time to recoup your money, nevermind. Make any profit. So be really, really careful. Remember a bad deal is worse than no deal or so never, ever forced these things.
[00:13:01] Any questions, you know what to do, hit me up on Instagram at Simon Smith on line. If you want more help, if you're interested in joining the start mastermind, um, hit me up. I remember whatever you do. Don't wait 25 years. Get crave.
[00:13:28] Thanks for listening. For more information, check out Simon Smith, online.com. See you next time.