06 Jul Is Rent to Rent for HMO the strategy for you?
HMOs (Houses of Multiple Occupation) are always popular with property investors.
But if you don’t have the upfront capital to invest, there is another way of taking advantage of HMOs.
What is a Rent to Rent HMO?
A Rent to Rent HMO is when you rent a HMO property from the existing landlord.
The landlord retains ownership of the property, but you rent it from them. In turn, you then rent out the property to tenants. Obviously, you need to make this pay, so you must generate more income from your tenants to cover what you’re paying the landlord and make a profit.
Why do existing landlords choose to rent out their HMOs this way?
You may ask why an existing landlord would rent his HMO to you and not directly to multiple tenants. There are many reasons for this.
Some letting agents manage HMOs but not as many as there are traditional letting agencies. Therefore, often the owner finds he has to become landlord, manager, maintenance man, etc.
Many owners are too busy to undertake this work. They want a regular income without the hassle. That’s when it becomes a good idea to find someone willing to rent the property as a whole from them.
For the investor, it’s a great opportunity to experience owning a HMO without actually having to find the cash to purchase and renovate a large property.
Where to find Rent to Rent HMOs
There are a variety of reasons that lead to Rent to Rent HMOs. The circumstances of the landlord may have changed. They could have moved and are no longer living local to the property.
A property may be in need of some refurbishment to brighten it up a bit. As a result, tenants have become harder to find. But the landlord may not have the time to organise decorating work and/or source new tenants.
Instead, you can offer to rent the property and give it a makeover as part of the deal. You then take over the role of landlord and rent out the house to new tenants.
Or a student house may have become empty, and the landlord doesn’t have the time to find a batch of new students before the academic term starts. If the landlord can rent to a single person, the hassle is removed, and that person takes over the role of student landlord.
The scenarios may vary, but the basic premise is that the existing landlord needs to cover their mortgage and make a profit. And the Rent to Rent investor needs to be able to charge enough across the HMO to cover their costs and make a profit.
What work is involved?
As the person that takes on the HMO property, your role is to rent out each room in the house. You want to make sure the property is desirable, and there’s high rental demand in that area.
This business model requires a full house. Any empty rooms and your profits drop.
Before you embark on this strategy, check out the area and the condition of the property.
Your main focus is tenant profile. Is there a steady stream of tenants in that area, either from young professionals, students, or families? Check out the social-economic climate and find your tenant base.
If work to the house is required, make this part of your negotiations with the landlord. Remember, you’ll be adding value to their property.
Would you like to learn more about Rent to Rent?
We are now offering a 6 month online Rent to Rent Mentorship.
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