Rent 2 Rent v Traditional Letting Agents - Which is Better for HMO Landlords
Rent 2 Rent can work out better for HMO landlords than using a traditional letting agent.
This video explains why
Hello and welcome.
This blog and video are all about why rent to rent is illegal, immoral, and a scam!
It absolutely makes steam come out of my ears when I hear that!!!!
What set me off this time was when a post popped up on one of the Facebook HMO groups and it was a person asking for information about the impact on his buy to let mortgage if he gave his property on a rent to rent basis.
And some of the responses that came back really knocked me for six.
One person was quite insistent that rent to rent is illegal. Another person said, "Rent to rent is morally not right." Another person said, "Nothing will get them to think highly of rent to rent."
And I think it's not about these individual people who've said this, because so many people say this across property. And it's a misconception and it's just downright wrong.
There have been cases where unscrupulous people, criminals, fraudsters have used rent to rent illegally and immorally. However, those are illegal, unscrupulous people.
We've had instances where letting agents have run off with deposits and all sorts and people aren’t saying that letting agents are illegal and immoral.
What I'm here to say is that rent to rent is a fantastic service. It's a great service for HMO landlords when it's done properly. And there are so many of us out there providing an HMO service on the rent to rent guaranteed rent basis.
This blog and video are looking at…
What's in it for HMO landlords? How does it really work behind the scenes? Is it a good deal for HMO landlords?
Because a lot of people out there really think that it's not and I'm here to tell you that it is.
If you're an HMO landlord and the idea of guaranteed rent really appeals to you but you're worried about all these stories that rent to rent is illegal and that there are so many scammers out there, then this is the perfect blog and video for you.
We’ll be looking at the five questions that you need to ask before you give your property to anyone, whether it's a rent to rent company or whether it's a traditional HMO lettings agency.
The five must ask questions to ask before choosing an HMO lettings agency
It’s essential reading if you're a remote HMO landlord or you're wanting to leverage out the management of your HMO.
The areas I’m going to cover are:
· How rent to rent can work for you as an HMO landlord
· How it differs from traditional HMO lettings
· And why that's a good thing for you as an HMO landlord
HMOs are high maintenance operations - not everyone wants to manage theirs, and many traditional letting agents don't want to manage HMOs so we do need specialist HMO managers.
But first I want to take a moment to explain what's happening in Newport, and this is happening in many other parts of the country. There's oversupply of HMO rooms or certain types of HMO rooms and rents are coming down slightly.
I just wanted to walk you through the statistics for our area and then I'll go on and explain why we can provide a really viable alternative to a traditional letting agent that's better for landlords.
I've put together some slides which I took for a presentation (you can see them by watching the video).
There are 93 results for "rooms in Newport" at the time (July 2019). The first two listings are both under £400. Three out of the four on the first page are under £400 a month and the top one, which is a new property and completely newly refurbished with en-suites are between £405 to £450.
Moving on to the second page, most are in the £300's and ranging from £350 to £375. The top one is at £350 and is newly renovated with really lovely rooms. Even the self-contained studio is £370 a month which is amazing value.
Just to give you a little bit of context, of those 93 results that were out on that day, only 12 of them were £400 or above.
All the other rooms including some en-suite rooms, some newly refurbished rooms, some studio flats including all the bills were £400 a month or less.
So that just shows you what's happening in our marketplace - rents are going down not up at the moment.
We’re now going to look at the four main areas when comparing rent to rent and traditional letting agent offering.
Round one - Rent
On the rent to rent side we've got guaranteed rent.
On the HMO lettings agent side, we've got rent.
The letting agents are incentivized to charge a slightly lower rent to fill the rooms quickly, and in this sort of marketplace those rents tend to be around £350-£375 sort of mark.
The agents are getting 10% of that rent typically and that is not covering all their costs because HMOs are high maintenance operations, so they therefore need to charge additional tenant fees to the tenants who are coming in.
I've seen the tenant fees from between £100 and £300. Now £300 is an awful lot for these prices of rooms and this can also keep your rooms empty.
You really need to know what your agent is doing.
If you've got a four-bed HMO and each room is being marketed at £400, then it'll be £40 per month - which compares badly with other single lets.
Typically, a letting agent will be managing hundreds of other properties and so your property may then become secondary after the single lets which are going to pay them more a month and be less hassle.
We find that to be true in our area because many landlords are phoning us and saying,
"My property is rented out with such and such letting agent and we've had a room empty for months,"
or "We've actually had the whole property empty for months" because there is a tendency to want to rent out to a whole group rather than to rent the rooms individually, which means that the property is going to be empty for a long, long time.
Compare that option with the letting agent to the rent to rent option where the owner gets guaranteed rent every month irrespective of whether there are empty rooms or not…
It’s hugely attractive.
In the video you’ll see some tables which show you how our rents compare with letting agent rents.
The table shows three real-life properties that we are now managing and is showing what the landlords were achieving previously with the letting agent and what they're now achieving with us.
At the top of the table it shows the gross rent in - previously for the first five-bed it was achieving £1,100 a month.
Obviously, that's not all-year round, he had had problems with voids, the property was empty when he first came to us and the letting agent had been unable to find a new tenant.
Next is the management fees at 10% including VAT for managing an HMO.
This is showing you that even if you put that figure very conservatively at a £110, typically after the management fee, plus the tenancy find fees, inventory fees, additions to maintenance fees, and other fees that letting agents charge you're looking at realistically between 15% and 25% of gross rent that will go to your letting agent.
So have a think about that one, it's not just the management fees you need to account for, it's all the fees.
The voids are at 5% with the letting agents because they're not incentivized to fill the rooms in the same way that a rent to rent person is, so you will be looking at considerable voids.
I would say you're lucky if you get 5% voids, very lucky indeed and that would only be 18.25 days a year empty - which is low for most of the landlords we see with the letting agents, the voids are considerably higher than that.
Even with those really good figures the person is receiving £935 a month, and with HMO Heaven we are able to offer £1,000 a month and we're now managing that property.
Again, from the sheet you can see the same thing is true with the second five-bed and the third five-bed that we’re also managing.
So rather than HMO being immoral and bad for landlords and illegal and all the rest of it, it actually can be a really positive service to landlords who want to know definitively how much rent they'll be receiving each month.
And I haven't even mentioned the utility bills.
Rent to rent would normally pay all the utility bills whereas with the traditional letting agent the landlord is usually paying the bills. Sometimes he's also administering those payments, sometimes they're administered on his behalf by the agent for a fee.
But irrespective of that, if the tenants go crazy with the heating and leave it on 24/7 tropical as I call it, then all those extra costs will accrue for the landlord whereas with rent to rent all those costs accrue to us. So that's another saving for the landlord.
You can see how it can be really attractive to a savvy HMO landlord to get the rent guaranteed every month, and in our case that guarantee is for five years.
Round Two - Refurbishments
Refurbishments are very important to us. We love the fact that we make a difference to the way people live, and that we can create these beautiful, affordable homes that people love to live in, and the landlords that we partner with share in that vision with us.
I think it's important to us that the properties that we manage are up to a certain standard that I would be happy to live in, and I would be happy for my son to live in.
You probably want to know how it works and how we can afford to put in thousands of pounds to properties that we don't own and still make a profit.
Looking back at those last few examples on the sheet, the guaranteed rent was £1,000 - we would then assess the property and say to the landlord that for us to market that property and rent out that property consistently for the next five years these are the works that we would need to carry out.
For example, if those works come in to £5,000, we would say to the landlord, "You have the choice. You can either pay for those works and we'll pay you the high guaranteed rent that we've already agreed with you or we can pay for those works and we'll pay you a lower rent."
So, it's all totally transparent.
The lower rent that we will pay would be more than £5,000 reduction. So, for example a £100 reduction over the five-year period of 60 months is £6,000.
If the works were £6,000 the rent reduction will be more than £100. What that means is that if the landlord does not want to invest in the property right now, or he does not have that cash lump sum, he's still able to have his property improved on his behalf and accept a rent which is a little bit lower but it's guaranteed.
And in some cases, it still will exceed the rent that he's been getting either self-managing or having his property managed on his behalf through a letting agent.
Round Three - Management
The third way we deliver is in the level of management that we can offer. We are basically partnering with the property owners over a five-year period.
In some cases, we have invested considerable amount of money in the property which means we are invested.
A typical letting agent will have 200+ properties that they are managing. We have a much smaller number and we have a much higher degree of systematization and control than will be typical in a traditional letting agent.
To give you an example of one of the things that we do in all our properties is we assign all of the kitchen cupboards in a subtle way so that the labels are on the inside of the cupboards, and each person has a dedicated cupboard, fridge, and freezer space.
And that only happened after we found that various people were coming and going and leaving their foods in the fridge, freezer, and the cupboards and we didn't know who it belonged to.
All our properties now have dedicated cupboard, fridge, and freezer space so when a new person moves in, they know exactly where to put their things - and that really helps.
These are just the small little things that help the houses to really run well and help people to feel comfortable in their home and know exactly what's what.
And those are the typical things that you wouldn't get through a traditional, non-specialist letting agent.
We also handle all of the licensing visits, we know the licensing team - we can handle licensing applications, and we can help with the statutory regulatory side of things on behalf of the landlords, and that really gives them peace of mind.
Round Four - Maintenance
We pay for all the minor maintenance on our properties. So, when the phone rings to say a door handle has fallen off or the oven door handle has come off, the shower rail has slightly come away or the shower curtain needs replacing - we deal with all those calls.
We are the hub for all our tenant enquiries and we get everything sorted out as soon as possible by organising our contractors.
It really is an all-round service for the landlord. That's why it really pains me when people say that HMO is illegal, immoral, and it is not a great deal for landlords.
It's a fantastic deal for landlords and I really think people need to be educated about what rent to rent really is versus the sort of scandalized headlines about what rent to rent is.
I respectfully say to all the haters out there that rent to rent is not illegal, it's not immoral, and it's not a scam.
It's an amazing service for landlords, a much-needed service for landlords where HMO specialists can manage the property and still have a guaranteed rent.
For us it's a 24/7 business, for our landlords it's passive income.
What are your thoughts about rent to rent? I hope if you were a sceptic that this video has tried to show you how it can work.
Please let us know if you think "Yeah! Rent to rent is providing a much-needed service that can be an amazing deal for HMO landlords," or "No, it's illegal, it's dodgy, it's immoral, it's a scam."
Let's have a vote in the comments and see how thinking is changing. And remember to share this blog and video with anyone who you think really needs to hear this content.
That’s it from me and I'll see you soon for more thing’s HMO.
Bye for now.
Stephanie and Nicky
xx
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