Insufficient funds and not qualifying for a mortgage can hinder you from getting on the property ladder. Some landlords also find it challenging to manage their rentals while concentrating on other crucial investments. Rent to rent is a solution with clear advantages for both parties, but there are claims that it might not be a good idea. We’re here to make things clear.
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What is rent to rent?
In a nutshell, this is when a landlord lets a property to a tenant so that they can sublet it. Of course, as a tenant, you might need to ask for a higher amount than you’re paying the landlord in order to make a profit.
If you are the landlord, you are guaranteed an income without having to put in much effort. Your tenant bears most of the responsibilities.
Is rent to rent a good idea?
Well, this is debatable. Taking a closer look at the pros and cons can offer you some insight into whether it might work for you.
What are the pros of rent to rent?
Since the scheme is viewed as a win-win agreement, there are benefits for both tenants the landlords.
A subletting agreement could be attractive to landlords who might want a hands-off approach with guaranteed income. That is to say, a landlord can avoid dealing with managing agents, finding tenants and maintenance concerns around letting property. The landlord makes money without putting in much effort.
Tenants mainly benefit from the fact that they don’t need to have the cash to own a property or take on a mortgage to generate income. You won’t even have to pay stamp duty.
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What are the cons of rent to rent?
Unfortunately, the bulk of the cons fall on the landlords. Instead of tenants facing the consequences of what they do when letting the property, all liability falls on the landlord.
It’s not uncommon to come across tenants disappearing, leaving the landlord to deal with the subtenants. As a landlord, you may also find some tenants using properties as HMOs (Houses in multiple occupation) without a licence. This is illegal and could result in hefty fines.
Though the whole point for landlords is to have a hands-off approach, it might be wise to have some level of involvement. At least monitor what your tenant is doing with your property.
Is rent to rent legal in the UK?
Yes. However, some behaviours that tenants engage in might be considered illegal. The two most common are:
- Using properties as HMOs without a licence
- Not carrying out the right to rent checks on subtenants, especially in England
You may also come across the phrase illegal subletting. This happens when a landlord lets out a property to a tenant, but the tenant, behind the landlord’s back, sublets the property.
Is rent to rent profitable?
Yes, it is. However, as the tenant, you might need to convince the landlord to accept less than the market rate. This will help you sublet the property at the market rate and not have a hard time finding subtenants.
In some cases, the landlord may ask for the market rate, meaning you have to ask for higher rent. Finding subtenants might be challenging, but not impossible. However, it would be unfair to them since they have to pay higher than what other tenants pay. This is why people claim that subletting is immoral.
Take home
From the above, it is clear that subletting provides an opportunity to make money. However, there might be a need for tenants and landlords to be aware of the regulations and legislation surrounding letting property. This may help avert illegal and immoral encounters that mostly affect landlords.
