The ‘guaranteed rent’ or ‘rent to rent’ model is becoming an increasingly popular path for private rental investors, according to the latest analysis by London lettings and estate agent, Benham and Reeves.
New analysis by Benham and Reeves looked at current rental market stock, with at least two bedrooms, which has been sitting on the market for some time in active room and general rental markets, highlighting where landlords may want to consider making the move to a guaranteed rental arrangement.
How rent-to-rent works
Rent to rent occurs when a company, local authority, or an individual rents a property from a landlord owner and guarantees to pay rent for an agreed term, regardless of whether the property is occupied or not. The landlord owner subsequently gives consent to the third party to then rent the property out to other tenants. In essence, the rent-to-renter sublets the property to an occupier tenant (or tenants), usually at a higher rent than is paid to the landlord owner.
The advantage to the landlord property owner is they receive rental income regardless of whether the tenant pays or if there is a void period. There are also no callouts or repairs to worry about and the property is returned in the same state as it was provided once the agreed term ends. For the third party taking on the property, the benefit is the potential to make a profit on the sum they rent the property for, versus the guaranteed rent they must provide to the landlord.
It’s become increasingly popular amongst landlords who want a hands-off approach to rental market investment, as well as a more steady and certain income from their portfolio.
The regions boasting the greatest rent-to-rent potential
The analysis of potential rent-to-rent opportunities in the current market, conducted by Benham and Reeves, shows that there are as many as 4,711 rental properties that have been on the market for some time without securing a tenant, all of which could potentially pivot to a guaranteed rent model.
Of these 4,711, 30.6% are located in the South East, suggesting that landlords within the region stand to benefit to the greatest extent by moving to the rent-to-rent model.
The South East is followed by the East Midlands at 16.1% and London at 12.5%, with the East of England also home to double-digit potential at 11.4% of the national total.
The area with the lowest level of potential opportunity is the North East, which makes up just 2.4% of all rent-to-rent investment opportunities in the current market, followed by the West Midlands (7.0%) and the North West (7.2%).
Director of Benham and Reeves, Marc von Grundherr, commented: “Rent to rent is arguably a model that has flown under the radar within the buy-to-let sector, but it is growing in popularity amongst landlords and this is largely due to the benefits it can offer.
"Whilst the level of guaranteed rental income may be lower than the sums they might secure via the traditional route, many landlords don’t see this as a ‘loss’ once they consider the time and cost of managing a property themselves, not to mention the rental income lost to void periods and problem tenants.
"Of course, it’s important to note that in a market that is in extremely high demand, such as London, the rent-to-rent model is largely obsolete. This is due to the fact that landlords are rarely subject to void periods and, in fact, tenants are often queuing up in anticipation of a home re-entering the market and willing to pay market rents, if not more, in order to secure them.”