Under the weight of legislation, regulations and rent arrears some people get fed up of being landlords and those people now have a title “tired landlords” and are seen as the ideal target for Rent to Rent.
This is the name given to the target group of landlords who would like to continue to benefit from their rental income and increase in property values but no longer feel able to deal with all the issues related to renting out a house.
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Property “guru” teach their pupils to find these ‘tired landlords’ and offer them a deal that they cannot refuse. The deal is known as Rent to Rent.
The ‘tired landlord’ is offered a guaranteed rent for a period of between three and five years if they hand over their properties to the renter who will then sub-let the property to tenants at an increased rent and make a profit from the difference.
What’s the difference between a Guaranteed Rent Scheme and Rent Guarantee Insurance?
Is Rent to Rent too good to be true?
Some of the contracts include full repairs and replacement and guarantee to hand the property back at the end of the term in the same condition that is was in at the beginning. Sounds too good to be true doesn’t it? This is because it usually is and when it goes wrong the owner/landlord is often left with damaged property, huge loss of rent and often sitting tenants. There are some ethical companies and even local authorities who use the Rent to Rent model very well but there are many who do not.
Drawbacks of Rent to Rent schemes
I want to explore the potential drawbacks to enable you to make a fully informed decision should you decide to go down this route.
There has been quite a lot of press coverage on the subject of Rent to Rent and the latest story hit the headlines last Friday under the title “Mystery of missing £400,000 housing benefit payments”.
Published by Channel 4 News this story tells of London Housing Solutions, a company operating in London, which is now in administration and owes “at least 100 landlords rent”. BBC was unable to get a statement from the owner of this company and no one is owning up to having benefited from the £400K that has not been handed over in rent.
In my opinion, it is a pity that the title of this story focuses on the fact that the rent was paid in Housing Benefit, because that misses an important issue. The issue being that all these, 100 landlords, had handed 700 properties to London Housing Solutions on the basis of guaranteed rent and had now lost thousands and are left with tenants on benefits still in place but with no AST’s because they had not put them there.
One of the cases report in the Chanel 4 article –
“We trusted this company to take responsibility for this property for three years and to pay us guaranteed rent,” Mr Robinson said.
“We’ve held out our side of the bargain and they’ve left us in the lurch.”
“Meanwhile, Mr Robinson’s property remains tenanted by a family of 14, whose contract is with London Housing Solutions. The living area of the property is in darkness, after an electricity failure, and the boiler no longer produces hot water”.
And what help can landlords expect from the local authorities who are paying the rent for these tenants? The report goes on to say –
“Lewisham Council, which is understood to be the biggest single client of “LHS” paying around £300,000 a month in housing benefit to the two companies, said: “If property owners are owed money by their agents, then they need to pursue recovery with them.”
The problem is this company is not the landlords “agent”. What exactly are they?
Tenants? They may well have used a Tenancy Agreement with the right to sub-let, many companies do, but this has no legal status since the company are not occupying the property and therefore are not legally tenants.
Agents? If no Agency Agreement has been signed and the company did not consult the landlord/owner on who could live in the properties they were not acting as agents either and, even if there were, they are now in administration. So much for the “guaranteed rent”
All of the landlords who signed up with this company were buying into the “no work but guaranteed rent” dream. They are now left high and dry while they decide how to move forward. Do they evict the tenants? If so how ? What grounds would they have? The benefits were paid and therefore there are no rent arrears. The landlords don’t know the term of the tenancies because they have no copies of the Tenancy Agreements that the tenants have signed. They may well have fixed terms of several years – who knows? Certainly not the landlord victims.
The landlord/owners are, however, legally obliged to keep the properties in good order and that includes Mr Robinson, who must now reinstate the electricity and get the boiler up and working despite the fact that he has not received the rent.
Rent to Rent – a Big Mess!
I have been asked to help several landlords who have found themselves in a similar situation over the last year or so. I ask them all the same question “Did you check that the company had assets and insurance to support the guarantee of rent”. The answer is usually “No they guaranteed the rent and I thought that was enough”.
As I said earlier, many people are paying to attend seminars where the Rent to Rent strategy is being taught. Many of these people haven’t the money to buy their own properties to rent and this is a No Money Down (NMD) strategy to help them. It is risk free for those people because if it all goes wrong they walk away and, since they have no assets, the “Tired Landlords” who they have targeted have little or no chance of seeing their money or having their properties restored to good condition – never mind that they are left with sitting tenants and legal obligations to maintain the property.
Am I the only person who is thinking “Why would a landlord work for years to build a portfolio and just hand it over to the first person who charms him with “guarantees” that are not backed by assets”?
More to the point
“Why not simply engage a good Letting and Managing Agent if you are tired?”
If you are a Tired Landlord and are tempted to sign up with a Rent to Renter –
Due your due diligence before entering into a Rent to Rent deal
Don’t forget to check with your mortgage lender that you are allowed to sign a contract which assigns the right to choose the tenants to a third party and that your insurance policy covers you for a property that you will not be controlling yourself – often with “difficult” tenant groups being placed there.
After 42 years I have not yet become tired of dealing with my tenants and in reality I have very few problems and very little stress. I put this down to –
1. Maintaining my properties in good order through some well trusted contractors
2. Using LettingAProperty.com to advertise on respected web sites and to carry out referencing and credit checks
3. Doing my own viewings so that I get a “feeling” about my prospective tenants and I can explain my ethos and expectations as a landlord
4. Knowing that I have the option to use the LAP guaranteed rent on time service at a very small fee
5. Always being fair in my expectations, to avoid arguing over deposits at the end of tenancies.
The day may yet come when I want to “walk away” and if it does I will be looking for a good Property Management company, which is a member of a respected organisation, has Client Money Protection Insurance and is a member of the Property Ombudsman scheme. This will cover me if things do go wrong.
Would I every consider handing over my life’s work to a company or person who had no assets or insurance to cover me if things went wrong?
If I do I expect my children to use their Power of Attorney to stop me because they will have the evidence that they need to show that I have lost my marbles.
