Rent2Rent advice please

[James S]

Hi all! 

 

First off, l hope everyone had a great Christmas and NYE.

 

I wanted to get a bit more information about R2R, as far as I can see it's deemed a bit of a taboo subject. Through the various threads I've read about it, people seem to view it as a get rich quick scheme but I wanted to see if it's more than that in reality.

 

If you don't know what rent2rent is I found this article that sums the basics ups perfectly - 

 

Rent 2 Rent – find a large property that could be rented on a room by room basis and rent the property from the existing landlord on a whole house basis. The landlord gets the benefit of a guaranteed, single, long term tenancy to you at a reasonable rental value. You get the ability to rent out each room individually, usually converting the receptions rooms to gain additional bedrooms, and taking the difference in room by room rent, less expenses and the rent agreed with the property owner as your profit.
Detailed knowledge of the area is required to know what type of property would be suitable and profitable for you, and what maximum rent you can afford to pay for the property to still make your own margin.

 

After reading this I felt a little confused, why would the LL allow someone to do this and profit when they could just do it themselves? The only reason I can see someone doing this is if they're extremely time poor and just want an armchair investment with a steady guaranteed income. It seems like it could actually work for both parties but it would take a fair amount of effort for the tenant to fill the house with tenants!

Anyway, I just wanted to see if any of the hubbers had anymore information about this, or in fact divulge in rent2rent themselves. If so I would be grateful if you could try and answer my below questions -

Isn't this illegal as most lenders would need you to have an HMO license to let out individual rooms?

Who pays for the work that is essential for having an HMO? i.e fire doors etc..

How many rooms should a house have to make it suitable? I would imagine 3-6 rooms and then try and convert living space if possible for additional income?

How do the letting agents react to this and how should you approach them with this offer?

Apologies about the bombardment of questions, I would just be interested to see if this could be a legitimate way to build an income without putting down a hefty deposit or not.

Thank you for your time and I look forward to any replies.

All the best,

James

 

 

 

 

Edited January 4, 2017 by james s
typo :(

[Carl Matthews]

Hey James & Paul,

 

R2R is something I'm doing at the moment. The excerpt you share is a very simplistic view of the subject, where-as in reality the topic is much broader and diverse. But, to answer your questions:

 - R2R is not illegal, but do be ethical and explain your business approach to the LL, they need to accept what you're planning to do.

 - HMO licence ? Maybe. You will need to check with your local council as regards their criteria, but generally for the UK if the property houses 5 or more persons of 2 or more households, you will need a licence. In my experience most BTL mortgages cover HMO use.

 - HMO prep work. If you're cheeky enough to get the LL to cover the cost, good luck, otherwise it's your risk, so be sure it's the correct strategy !!

 - Room numbers. Some HMOs have as few as 3 rooms, usually more, there are no rules regarding the least or most rooms, but do ensure the numbers work !!

 - Letting agents. Are usually useless ! Finding opportunities via them is a major pain in the butt, mainly because they don't understand R2R and so rebuff the idea when presented with it. Using them to manage a HMO, ONLY! when they are specifically geared up for HMO management, do your due diligence, ask as many questions as you can think of.

 

Hope that helps.

[Jean Stephane]

Hey Carl,

Nice to see you here as well:-)

 

A quick sanity check:

I am looking at doing R2R in Wirral, where I have gathered the following figures from RightMove, Spareroom etc

 

CH45			CH44
No of tenants	4		No of tenants	4
Rent	400		Rent	300
Revenue	1600		Revenue	1200
Utilities etc	500.88		Utilities etc	500.88
Margin per tenant	100		Margin per tenant	100
Total margin	400		Total margin	400
Remaining for rent	699.13		Remaining for rent	299.12
Home	645/624		Home	538-550

 

 

1. Does the figure of 500 for utilities, council tax etc seem realistic to you?

2. Do you agree with the above, which basically means that doing R2R in CH45 would work (revenue - charges = 699.13, and median/average house rents are 645/624, so we have some wiggle room, with a margin of 100 per room/tenant) whereas it would not work in CH44?

 

I know using these large postcodes makes little sense, but I just wanna check my thinking is right...