Before digging in the rent to rent, a little bit of context.
A so-called "biggest landlord property event" was taking place in London this week-end.
I went there to see the trends. Well I finished my visit in one hour.
They only managed to fill up empty both spaces with a dozen of property developers from Nigeria (yes, to invest in booming Nigeria!).
That tells you everything you need to know about the Buy to Let (as it used to be known in the 20th century...) property market in the U.K.
Pretty much as low and flat as the Bank of England interest rates graph... You could think it's dead...
Indeed, there was a long list of landlord bashing politically motivated campaigns in the last 4 years. Removing tax relief on interest, raising stamp duty by 3% for land owner, making small bedrooms outlawed, landlords required to check legal status of tenants (i.e. act as border control!), and more... The accidental and non-professional landlord seems to have taken a hit and is becoming an endangered species. Therefore, in such a distressed market, new paradigms are popping up, such as this "Rent to Rent", or "Rent to SA". Before you think "Rent to SA" is about making a property business in South Africa, I need to explain a bit more details...
In both cases, the landlord-to-be will try to rent a property from a "real" landlord" (one can hope that there is not a recursive loop of too many non-owners renting from each other...). To give an example, as we have properties to rent in our local area, and because this is in the public domain (for those who know where to search at the local council), we now receive at least one request per month from a "landlord" who will "pay us a market-rate rent" and then sublet the property. In this distressed market, it is not surprising that some non-professional landlords (like us), faced with the choice of either having to manage their property themselves, or giving it to a local estate agent (who in turn will assign their 19 year-old new recruit to manage it...), may succumb to the seemingly easier option of renting to another "so-called-professional" landlord.
Then, the rent-to-rent-landlord will make sure that in the lease agreement with the real landlord, the property can be sublet, re-purposed and repartitioned at will. It means that if you had a 3-bed, they may make it a 5-bed and sublet it to 5 co-sharers. This has at least four incidental consequences:
- the real owner has the benefit of a regular income but risks getting back the property in a very different state, and it could lead to deception down the line.
- the rent-to-rent-landlord is quite likely not going to respect all the laws (in terms of compliance, registration, taxes, etc...). Even if they wanted, the law has not caught up with these new business models and is partially not fit for purpose.
- as a result, the rent-to-rent-landlord will likely be more aggressive on market prices and will offer rooms that a normal landlord-owner would not put on the market (when respecting the law). At least this is what we see in our local area.
- it does not seem to me that this is going to create a better or more stable mid/long term environment for tenants and owners.
As for "Rent to SA", it means renting to a landlord and then subletting as a serviced accommodation. Understand rent long term to the property owner to then sublet very short term, either daily or weekly to tenants, either professionals or for holiday. That's typically tapping into the AirBnB model. Here also, you have new businesses popping up from nowhere asking to take on your property to "Rent-to-SA". At the London Property Show, one such business offered me to do this for 11% fee (+VAT).
Rent to Rent, or Rent to SA, I think it's all a bit the same. Someone thinks the real landlord-owner is leaving money on the table by not fully maximising the potential of the property, and he or she proposes to pocket the difference in exchange of temporarily managing the problems associated with the traditional rental activity.
Without knowing what it was, I tried to do a Rent to SA a year ago. I had a full agreement in principle, and contracts were going to be signed. But in the end, I did not do it mostly for tax reasons which where totally impossible to resolve. I needed to declare taxes on the profit but I was not able to register locally the property in my name to do so (because I was not the owner)... Another loophole... I thought I had enough challenges on my plate, and left this one aside. But for those not too preoccupied by the law, for sure it is financially rewarding. Until some taxman or local council knocks at the door...
To your journey!