Ten Rent-To-Rent Deals Or One Purchase?

Ten rent to rents or one purchase. Which one would you choose?

Discover the best investment strategy for you by debating five key considerations...

I have chosen to compare 10 Rent-to-Rent deals with one purchase because they require approximately the same investment amount. Today I am going to be debating five key considerations to decide which is the best option.

Number 1 - Speed

You can’t compete with Rent-to-Rent from a speed perspective. It’s not a get rich quick scheme, and it’s not easy, but you can build a portfolio rapidly. There have been occasions where I have managed to see a property on Monday and have negotiated and signed off by Friday the same week. 

Purchase can take a long time; however, purchases have their place, and Rent-to-Rent is a great tool to build funds to re-invest into assets for today and tomorrow. 

Number 2 - Capital Required

The capital you will need for Rent-to-Rent is small compared to what’s required for purchases. My recommendation would be to have initial funds of over £10k to make a strong start. This will allow you to get set up, educated and secure your first deal. For purchases, you will need £50k plus. 

Number Three - Capital Appreciation

When you purchase a property, you benefit from capital appreciation of the asset. There are two main ways to earn money through property. The first method is cash flow, a monthly income from renting out the property. The second way is the appreciation of the asset, the property going up in value over time. In Rent-to-Rent, you can only benefit from the first method, rental income. 

Number Four - Contingency Planning

Investors do not always fully understand the risks of owning a property. If you ever need to release the funds, you can’t just give the property back. You will need to go through lengthy sales processes with plenty of obstacles to battle through. With Rent-to-Rent, on the other hand, you can protect yourself with your agreements, so if you do need to exit, you have contingencies in place. 

Listen to this weeks episode to discover the fifth consideration and the conclusion of the best investment strategy for you. 

Available on iTunes, Google, Spotify and others or click “play” on the player below!

Podcast Transcript↓

[00:01:00] Simon here and welcome to another episode of the podcast, where we specialize in 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 debating 10 rent to rent versus one purchase. Yup. That's right. Which one's best.

[00:01:29] They roughly take the same amount of money. At times I've got a particular example which actually was going to cost me the same amount to do one purchase, as opposed to the 10 rent to rents and to down, I'm going to be debating five, five key. Considerations in this argument and debate. And what I want you to do is I want you to tell me what you would choose.

[00:01:56] Tell me on Instagram, hit me up. There's a post I'm going to post it, um, today, which is Monday. Um, for this episode, I want you to go find the post. What date will it be? It will be the 12th. I want you to find the post on my Instagram on the 12th of April. And let me know, comment on that. Would you go for the 10 rent to rents or one purchase before we get into it?

[00:02:20] If you're brand new to the show, please do subscribe. We do this every single Monday and as well as the podcast you've got, well, we got 40. This is a 42nd episode of. Content just like this. So as well as these 42 episodes on all things rent to rent and creative cashflow, I've now got the YouTube channel.

[00:02:43] So jump over to YouTube search Simon Smith online and make sure you're subscribed over there for loads of new content and videos. And. It's some bobs that I'm doing, you know, in terms of rent to rent, property, essay and all those good things. So there's loads of free, amazing content for you to enjoy. So today's podcast, let's get into it.

[00:03:10] 10 rent to rent or one purchase. Now the first thing to consider here is speed. How fast you want to do this? Because you can't really compete with rent to rent in terms of speed. And it's not get rich quick and it's not easy, but in terms of the speed that you can do this, there's been occasions where I have managed to get, you know, I've managed to see a property on a Monday I've managed to.

[00:03:42] Go and, um, negotiate it and sign off. And by Friday I've got the keys and I'm ready to start cash flow in this property. Get a refurb, done, get tenants in. So there's been times within a week, I've managed to do this. In fact, at one point I did for rent to rent deals in 10 days. I think it was. And the week after they will all cashflow in and that brought an extra seven and a half thousand pounds worth of gross.

[00:04:11] Rent in which ended up being over two to three grand extra cashflow to my bottom line every single month. So you can do this quickly on the other hand purchases take a long time. And I suppose I should probably say at this point, Slight disclaimer, my overall long strategy is to use rent, to rent, to generate cashflow, and then reinvest that cashflow into assets cashflow today and tomorrow.

[00:04:47] Okay. So I should just put that out there, um, because I don't want to come across as being. Pro rent to rent us, not what it is. I'm just, pro-life, I'm pro cashflow. I'm pro financial independence. I'm pro live your best life. So, but with that being said, purchases just take a long, long, long, long, long, long, long, long, long time.

[00:05:10] I'm talking months. I purchased my fifth property. Recently we completed on one last week, completed on another one. About five or six weeks ago. And both of them took over four, maybe even five months from when I first saw the property to when I actually got the keys. Um, both of them are going to take another three, four, five months before I actually start generating cashflow.

[00:05:38] So one rent to rent. You might be able to cashflow it within a few weeks of first, seeing it easily. Another one. Um, another one, the purchase, they could take you up to a year easily. And even if you're go in sort of a bit faster, it's going to take six months. So in terms of speed, rent to rent is just a beast because I tell you now I have done our Fink had done about eight rent to rent deals in the time it took me to get one purchase.

[00:06:12] So if you're trying to get cashflow today, quickly, renter install one. Number two, the money required. The capital you'll need. Now look, rent to rent is low money. It's not no money. And I recommend that you ideally need over 10 K to make a real, real good, strong star in rent to rent. I don't have to be your money.

[00:06:35] Don't Rob it from the bank. Don't Rob it from anybody else. But what I'm saying is you will need 10 K. You will need to source 10,000 pounds. Ideally. For you to make this renter and thing work, I'm talking about, get set up, get educated, get your first deal, pay the fees and make sure that you've got enough money in the bank for, uh, you know, a few weeks of setup, a few weeks void, just in case you don't manage to negotiate a adequate level of rent-free period.

[00:07:05] So money required, you know, you might need 10 K to set up your entrant business and maybe get your first deal. A lot of purchases, we'll take 50, 60, 70, 80, 90,000 pounds. The purchase that we've just done last week, it's, you know, 50 grand. 55 grand. I don't know if you saw my, um, day in the life of, but I got told the day of completion.

[00:07:31] Oh, actually we forgot to charge you the stamp duty suit, like an over 4,350 pounds for me to complete. So 55,000 pound for the purchase probably spend another 30, 35 on the refurb. So you're looking at 90 grant. Wow. Now that's a lot. Yeah. For 90 grand, you could probably, and this is me being conservative.

[00:07:56] You could probably do nine rent to rents. No problem. No problem may be more. My average rent to rent deal cost 5,000 pounds. So in terms of the money required, purchases are going to, they're going to require a lot more money for not a great deal. Amount of more cashflow, but the key difference, and this leads me on to point number three is when you purchase the property, you will benefit from the capital appreciation of the asset.

[00:08:28] So, you know, essentially there's two main ways of earning money through property. The first one is the cashflow, the monthly income. The second one is. The appreciation of the asset, the asset going up in value over time and in rent to rent, you don't get the second. You only get the cashflow, right? When you purchased the property, you also benefit from the capital appreciation.

[00:08:55] So if the asset goes up in value, not only do you get say 500 pounds a month. But in 10, 20 years, it might be worth 50, a hundred, 200 grand more, and that would be yours. And that's probably assuming that you're on an interest only mortgage. If you're chipping away at the debt as well, cashflow monthly might be less, but you would be paying down the mortgage, paying down the debt so that your end result would be even higher.

[00:09:23] But, you know, I love leverage and I love getting the cash flow in and making that work for me. So in terms of the capital appreciation, you don't benefit from that with rent to rent, unless you get it on a lease option, but that's a whole different can of worms point number four, exit,

[00:09:48] you know, like I feel like some people love owning, but they don't really fully overstand the risks. That are at play with owning, because if you ever do need to relinquish those funds, you can't just give the property back. You're going to have to go through lengthy sales processes. You're going to have to put the property on the market.

[00:10:13] Then lengthy legals, wait for the searchers, do the legals to back and forth. You've got hope. Your survey's good. You got a hope that that buyer is good for it and follows through. Doesn't change their mind and it could take you months, a month, some months for you to exit and get your money out. Whereas rent to rent, all of my agreements have protection in them, so that I'm covered if I do need to exit.

[00:10:40] So a lot of people overlook this and think all rent too. It's a bit risky because you're guaranteeing all this rent, but if you're using the correct agreements, It's not risky because you do have an exit and you can exercise that exit a lot faster than you would be able to do on a purchase. And please don't get me wrong there.

[00:11:04] Disclaimer, I've been doing rent Trump for over two years, done over 40 deals and I've only ever had to terminate. Two agreements early, and that was due to unforeseen circumstances and the depths of COVID so never, ever, ever guarantee someone's rent, unless you're extremely confident that you're going to be able to do it.

[00:11:27] And you've extremely confident that you're educated. You've got the knowledge and the market research to follow through with that. Okay. Absolutely essential. Just need to make that clear. Point number five, we took things are really, really good. One to sitter is leverage for me, rent to rent is ultimate leverage because you'll use in other people's property or you're leveraging other people's properties to increase your cashflow.

[00:12:00] And then you use that cashflow to reinvest in more rent rents, or ultimately purchases as well. And the only reason I say ultimately is not because it's all about owning because trust me, it's not, but it's because that's going to provide the cash flow today. And of course, tomorrow and most rent to rent contracts are in place for three to five years.

[00:12:26] So you could go from having 10, 20, 30 rent to rents to potentially half of that. Within five years, because let's say, if you want to sell, if you decide that they don't want to, you know, they don't, they don't like that style of renting no more that they want to hate them, mow it themselves, or they want to essay it themselves or whatever it is, change of circumstances.

[00:12:48] So what you want to do is you want to pick off these properties and I'm actually purchasing a lot of my rent to rents. Um, I'm, I'm cherry picking the ones that work. So I've got the cashflow tomorrow as well. So as you can see, it's a really interesting debate speed. How much capital is required, the capital appreciation versus the cashflow, the exit and leverage or things that are really important to consider before even considering to answer the question.

[00:13:23] But my personal opinion is I would choose the 10 rent to rent all day. And one of the main reasons for that is once I've got that cashflow, I'm good because I don't have to necessarily work or do another job. I can help people in my life. I can also reinvest that money to scaling up. Okay. And to building.

[00:13:56] A pool of assets. So I had a goal 35, five by 35. I'm 35 in a couple of weeks, and we've just finished our fifth purchase, six and seventh one potentially in the mix. Definitely six I'm hoping for seventh. And one of my big games now is to get my. Owned property portfolio income to the same level as my rent to rent.

[00:14:20] But yeah, 10 venture rents all day because all of a sudden you're earning five grand a month instead of just the 500, you might be on the one property. Okay. Just ballpark figures. You know, you could say, if they're all bigger, hate chemo's, you could say your rent to rent or earning your 10 grand and you purchases earning you a grand whatever.

[00:14:40] It's about 10 X. So your rent to rents will be earned in 10 times the amount of your purchase or there, and thereabouts. And then with that money, you could buy free for five purchases. Rather than putting all your money into one purchase and then that's it. You're done. You're finished. Say you got 70 grand.

[00:15:03] You put it all into one property unless you manage to Bri and get the numbers. Perfect. That could be the end of it. Then you got to save up a pot, wait, and even if you do get the figures, right, your money is going to be tied up for a year. By the time you've purchased a property, referred the property.

[00:15:25] Filled the property refinanced the property, the money's landed back in your bank. It's going to take a year. Trust me, unless you start bridging or unless you've got enough to buy it cash. So for me, I just feel like rent to rents much more scalable, and it allows you to scale more quickly, much more quickly.

[00:15:47] But then I still have these conversations with myself and I had a situation. You might have seen it on my Instagram. If you're not following on Instagram, make sure you do that. At Simon Smith online, where I had two neighboring properties, one I could do on a rent to rent basis 5k. So what it was going to cost me one I could purchase.

[00:16:07] It's going to cost 50 K 60 K including reefer 10 times more. And the cashflow was essentially the same one I control for five years. One I own in vert commas, I own, but if I don't pay the mortgage, it will get repossessed bank owns it. Rarely bank owned 75, 80% got the first charge, but that's such a hard decision because I love the idea of owning it.

[00:16:36] But is that just ego? Why do I need to own it? Don't I just want to do. Um, don't. I just want to have what owning brings. I just want the end result. I don't care about owning it. What, it's a piece of paper, a deed, that's it. So that's the battle that I'm constantly fighting now, but I've realized I don't just want the cash flow today.

[00:17:00] I want it tomorrow. And I've also realized that. Rent to rent can act as an elevator to elevate you up. And then what you want to do. If you imagine you on this elevator, every floor, you just want to get out and buy an Avalon. Get out by an one, get out, buy an oven by the time you're on. Say the 20th floor, you might have acquired five properties and all of a sudden you'll hit in four or five K a month from the owned income, 10 15, 20 from the rent to rent.

[00:17:31] It starts compounding. You can start buying two, three properties a year off that. And then, um, as I like to say, then you've gone clear you've gone, but you've used leverage in order to do that. So I hope you've enjoyed it. Loads of information there to process. Let me know your opinion on Instagram DME, or find that post on the 12th and drop it in the comments.

[00:17:56] And I'll see you next week. Thanks.

[00:18:10] Thanks for listening. For more information, check out Simon Smith, online.com. See you next time.