Rent2Rent - Does Calling Landlords on SpareRoom Work
Cold Calling Landlords…
Can it help you get more rent to rent deals?
Hello, it's Stephanie from HMO Heaven, and we're back with an Ask the Angels Q&A session on…
How to get rent to rent deals from landlords
As you know, rent to rent is a great strategy and it can really change your life. We went full time with it two and a half years ago and it's been massive for us with lots of huge benefits along the way like the cash flow that we've achieved in such a short period.
But it can be difficult getting started, and at the very beginning, there can be lots of challenges.
So, it's just a case of knowing what to do and when to bring it all together to make the magic happen to get your first deal, and after that, it's really much simpler.
Question
"I'm a rent-to-renter in Birmingham who has done lots of training and currently I'm looking for deals. However, I would appreciate if you could help me. I can see single let landlords using our service because we can offer them more rent due to turning into an HMO”.
“However, when it's already an HMO, I struggle to see why the landlords would use us as we can't give them what they're getting now because we need to make a profit (minimum £100 per room per month). Every offer I gave to landlords on SpareRoom about using my service, every single time they say the offer is too low, so they won't use us. Have you got any advice please because I'm very stuck?"
Answer
It's a common problem and the first issue in this scenario is that you're going in cold. Cold sales are always more difficult than warm sales.
For example, let's say you're an HMO landlord, you've got your property on SpareRoom and you're charging £400 a room for your five-bedroom property – so you're expecting £2,000.
That expectation is set in your mind.
So when you popup and the person doesn't know you and you don't know who they are – if you were the landlord, you’d be thinking “oh this guy's a joker, he's coming in with, say for example, £1,500”.
That's why it's not working, it's not what you're doing, it's because it’s a cold sale with an offer that's too low.
When you think about somebody running an HMO, you think they're getting top rent for it and achieving more than what you could offer as a rent-to-renter, and that's not true.
I'm going to give you two examples that have happened to us recently. These are examples from landlords who have called us up and given us details of what they're actually receiving and why it would be easy for a rent-to-rent to offer more.
Example 1
The first landlord has a seven-bedroom property. The mythical gross rent, this is the rent if every room was rented out at the rate the landlord is looking for, which is £350 a room (a bit lower than we would hope for), then they would be getting £2,450 a month.
So, this is what landlords have got in their mind. Currently they've only got three and a half rooms let out because there's four let out, but one person's paying a low rent. Which means the actual gross rent that they're receiving is £1,160.
They've also got management fees to pay and you have to explain to the landlords that it's not 10% plus VAT, it's actually around a minimum of 15% (gross rent) that most landlords would be paying - you've got 10%, the VAT, the tenancy find fee, and any additions onto the maintenance and so on.
The bottom line is that the costs of running that HMO is £676, and because it's not fully let it's only bringing £1,160, with the estimated net rent of £484, and that's before the person pays their mortgage – so you can see this person is actually losing money.
This is on an HMO seven-bed property, five years after the refurb, and this is a problem that once you first refurbish this property, have it let out with a letting agent, it was doing fine. Now five years old, this is a problem. Four people in, only three and a half paying.
So, you could easily offer more than full rent for that property and it's just dealing with the landlord experience so that you know how to make your offer work.
Example 2
The next example is on a really nice property, and it's 10 years after the refurb and has been well maintained. It had four people in it, so the mythical gross rent would be £1,825. The rent he's currently receiving is £1,450.
Then after all the management costs (mentioned in example 1), his total cost is £744 to run the HMO. Then his estimated net rent is £706.
So again, we are easily able to offer more than that and make good money because our rents will be higher.
I wanted to explain that is how we can offer more, because most HMOs are not running at their optimum level - therefore it means that you're able to offer more.
Don't assume that because they're already an HMO, that they're getting the rent listed.
Even knowing their costs, when they're getting £200 gross, and you offered £1,500 on SpareRoom, they're still thinking “hang on a minute, why is it £500 short?”
You're comparing the gross rent, they're comparing the gross rent with the net rent, and that's what you've got to show them and remind them that the gross rent, (you wouldn't use these words to them), is a mythical creature, because that's actually never seen.
You’ve got to warm up your cold leads on SpareRoom or you've got to get warm leads.
How do you warm up the cold leads on SpareRoom?
How can you make it so that you are able to go in with your offer and it's not totally dismissed?
It's all about the three Bs.
Believe in you, believe in the value of the service that your offering, and its value to the person who you're talking to.
Be the best version of yourself with no BS, because then people can totally relate to that and know that you're going to do what you say you're going to do.
Be persistent, because when you're speaking to people a lot of them are going to say no.
So be persistent at finding the one that is the right fit with you, the one that's going to get you off the starting blocks and be your first step to financial freedom. You've got to keep going until you find the one that works.
The landlords want to let their properties quickly, they want to let them ideally to a long term tenant and they want to let them to somebody who's going to look after the property and pay the rent on time - this is what you've got to offer when you're on SpareRoom.
Now I personally find it's better to do this on the phone. If there is a phone number on their SpareRoom ad, I would give them a call, rather than send an email, which can sometimes make things a bit more stilted.
The first thing to say is that you’ve seen their property on SpareRoom. That you’re looking for five-bedroom properties (for example), that you pay a guaranteed rent, even if the rooms are not full.
You pay all the utility bills and all the maintenance and so you ensure their property is professionally managed and maintained.
The landlord is going to cut to the chase and the most important thing that they want to know is, “how much rent are you going pay me?”.
How do you answer that question?
The rent that we're going to pay you is going to match the net rent that you're currently paying after all the bills, and we're going to pay all the bills for you - so for the landlord, it's total certainty.
They know what rent they're going to get every month, and they're not going to have any additional costs that they weren't expecting.
So, your rent is not to be compared to other people’s rent, you're going to give them the best net rent and it's going to be certain.
The next thing I say on the call is that it's just a matter of agreeing a rent that you're happy with, and if I come to look at the property, I'll be able to tell you what guaranteed rent we can offer you.
Now nearly nobody's going to turn that down.
Depending on how the conversation is going, because remember this is a cold lead, this is a person you've called, it's not a person calling you. I would then ask, “can I ask you a few questions about the property?”.
And then I would go into all my property questions, because it’s going to give us a lot of information knowing what the costs of the property are, what the history is, who's managing the property, if the property's full, if there's any problem tenants.
We've got a list of questions that we go through when we've got any landlords that are on the phone with us and they're usually really happy to tell you about it.
To summarize, to deal with a cold lead you've to help the landlord to see that the gross rent is different to the net rent, you're not preaching or teaching, what you're doing is you’re just saying I can match the net of what you're currently paying after all the bills.
And then you're offering to come around and have a look and let them know what that net rent's going to be, and you've also set out to them what your service is - which is full management and total piece of mind for the length of the contract.
Compare a cold lead to a warm lead
Compare that to a warm lead where the landlord calls you. You send them a letter in the post in which you demonstrate your value and what you can offer and when they call you, it's much easier, because nobody calls you because they're delighted with a service that they're already receiving and because they've got no problems at all.
Everyone's calling you for a reason and all you then must do is find out what the reason is, and then you're able to solve the problem.
So, it's just a much, much easier and better conversation.
How do you make this happen?
You need to send a perfectly crafted, magnetic marketing letter to landlords. When you're speaking directly to your perfect customer, and you know from all your other conversations with landlords and from our own experience as landlords, we know exactly what problems they're facing in our local area.
Find out more on how to create these amazing marketing letters here.
Good luck and all the best,
Stephanie & Nicky
xx
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