Does Rent 2 Rent Work When the Owner has a Mortgage
Mortgages work slightly different for HMO’s and service accommodation – so let’s take a look at each

Hello and welcome to another Short and Sweet video and blog where I’ll be answering a question about mortgaged properties.

Misha has asked…

"Hi Stephanie. I was wondering if you could shed some light on doing the rent to rent strategy with landlords who have a mortgage. As I've heard, it's best to avoid landlords who have a mortgage. What's your opinion on this? What obstacles could you face doing rent to rent with a landlord who's got a mortgage?"

That’s a great question Misha. In regard to mortgages, its slightly different for HMO’s and service accommodation – so let’s take a look at each.

Rent to Rent HMO

The problem with the landlord's mortgage is that the banks and other institutions that lend money on property like to specify how the property will be used.

And so, if somebody has a normal buy to let mortgage, sometimes that lender will specify that it may not be used, for example, as an HMO or as a service accommodation.

If you're dealing with existing HMOs, the owners will usually already be on the right lending project for an HMO.

The other option is that you're dealing with somebody who's got a buy to let mortgage or a residential mortgage and in order to rent their property out as an HMO through you, they need to seek their lenders approval.

Often, they might not get approval and if they did, it can be costly moving mortgage lenders.

So, your simple strategy is to work with the owners of existing HMOs and that also means you can write directly to the owners of the HMOs.

If you want to see our landlord letters, you can download them here.

These letters have bought in over 2 million pounds worth of contracts for us and are working amazingly well for our rent to rent stars as well.

If you work with a landlord who isn’t an existing HMO and it's a standard single let, you would need to tell the owner of the property before signing the contract that they would need to be on the right lending to enable them to rent the property as an HMO.

It's their responsibility to make sure that they are on the right finance for whatever they do with the property.

Service Accommodation

Service accommodation is typically on a normal residential or buy to let mortgage. Often these mortgages do not apply for the running of service accommodation, so again, you would need to explain what you're doing to the owner and that they'll potentially need a different type of lending in place if their property is mortgaged – and that's their responsibility to do that.

It might be their responsibility, but won’t I be at risk?

Well yes, you will. But the way I look at it is, when you go into business, there are risks to all parts of it.

Even staying in your 9-5 job isn’t risk free - many people who work that way are unable to build up the wealth that they want to create or the freedom and they're still at risk of being made redundant or losing their job.

When you’re in control and can create your own wealth, it does bring great rewards.

There are risks of doing it, but I think these are minimal risks. Get it right in the first place when you are signing up the property, in my opinion go with an existing HMO.

But if you're using a non-existing HMO, just ensure the landlord is on the right type of financing.

If you're working with service accommodation, it's better to work with properties that are not mortgaged.

About 40% of properties in the UK are not mortgaged, and the other 60% are on a mortgage – so again, you would want to ensure that the property owners have the right type of mortgage for the type of letting that you are going to agree with them.

If you're just getting started in rent to rent and you want to find out more, we've got our free training – see link below. It's an absolutely great way to start.

And within the free training, there's an option to book a call with me if you want to discuss anything or if you've got any questions.

That’s it from and I look forward to seeing you soon.

Stephanie & Nicky

xx

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