If you’re an investor looking to get started in the rent to rent market, this guide is for you. We’ll discuss what it is, the different types of contracts, and the advantages and disadvantages of this investment strategy. There are many different methods; the rent to rent contracts are increasingly popular because they seem to be one of the easiest methods to help generate good real estate income. Which brings the question, what are rent to rent contracts and are they a good option? Let’s find out.
What is rent to rent?
Rent to rent is a type of property investment where you purchase a property and then lease it out to tenants. The agreement between you and the tenant will stipulate that they are responsible for all aspects of the property, including maintenance and repairs. In exchange for this, you will charge a higher than average rent.
Rent to rent is designed with the idea to help add value to the property, which is a great thing. It’s very popular in the case of commercial leases, but also residential ones as well. Basically, you pay the owner or a letting agent the guaranteed rent. Then you will need to rent the property to other tenants for a higher rent when compared to what you are paying the owner. You keep the profits between what you pay the property owner and what you earn from your tenants.
Types of rent to rent contracts
There are 4 main types of rent to rent contracts, but 2 of them are not ok. One of the best options is a management agreement, but in this case your income is not rent, it’s management fees and these are prone to VAT, so it will cut into your profits.
Then you have the commercial lease or the full repairing and insuring lease. This is a very popular option since you end up becoming the landlord, you collect rent and don’t worry about VAT. With that in mind, this still needs taxation, but it’s better when compared to the management agreement. The bad rent to rent contract options would be an assured shorthold tenancy or a license to occupy, since they don’t have the better options.
Advantage and disadvantages for new investors
- A rent to rent contract can be very appealing because it helps you generate cash flow.
- It doesn’t take a huge amount of time to bring in profits. Once you set it properly, it can generate recurring cash flow.
- Rent to rent does require money to get started, despite many different myths. It’s also not a passive income option, and you will deal with rejections
- There will be some hidden costs, It’s important to have proper management knowledge, which not everyone has.
This type of knowledge was shared by some real estate experts, all suggest that rent to rent contracts can be an option, but you need to be cautious. It will take some trial and error to set everything up, and you do want to ensure everything is adapted to your needs. It’s definitely not a simple premise, but in the end results can be second to none. So yes, rent to rent contracts can indeed be an option, but it’s not for everyone and it does involve some investments before you reap the benefits!
Here are Top 5 Places to Get Rent-to-Rent Properties: OpenRent, Facebook Marketplace, Rightmove and Walk-in to agents.
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