Or how you can “Buy To Let” without the “buying” part.
THE RENT TO LET PAGE.
Rent to Let is like Buy to Let except instead of buying the property in a traditional way ie with a mortgage and a deposit, and finding a tenant to pay your expenses, you RENT or LEASE the property and then LET it to a tenant.
This is a very common arrangement in the commercial property arena.
For example a company or individual may take a lease on a large warehouse with space for their business to grow into and be given the right to sub-let parts of the building.
That company or individual can then go and find others who may need a shorter more temporary arrangement.
This is good for the first company because they can reduce their costs by getting some rental income and its good for the second group who just need something for a short while and do not want to commit to a long lease.
This leasing arrangement is commonly used elsewhere especially in high ticket items like commercial aeroplanes or tankers or yachts etc. EasyJet for example do not buy their planes they lease them because then they can get on with running their airline whilst the leasing company worry about whether the planes start every morning. Actually of course its Boeing that worry about whether Easyjet aeroplanes start in the morning except they don’t worry because Boeing are very, very good at building aeroplanes that always start in the morning.
And the Leasing company is no doubt very good at finding money to buy stuff with which other people want to rent.
And Easyjet are very good at finding people who want to go to travel to places by air.
And people flock to the likes of Easyjet because their fares are cheaper.
I think that is called a win, win, win, win situation.
Now you may wonder how any of these companies make any money because there are so many people involved in the process but the fact is that they all do because they each are very good at what they do.
Rent to Let is the same deal. People buy investment residential property to get a return on their capital ie rental income to and / or to look forward to the inevitable capital appreciation over time, but most of them do not really want to spend their time looking after tenants.
They particularly don’t if they only have one property, or several properties spread all over the country, or they have something else to do with their lives like a time consuming job, or maybe they just don’t want the hassle and would prefer the certainty of a fixed amount every month dropping into their bank account on the same day every month without the stress and hassle of looking after tenants.
In a Rent to Let arrangement the owner and the person or company who wants to rent it would normally complete an industry standard Company Letting Agreement. This agreement is not an assured shorthold tenancy which is required if an individual or family wish to lease and live in the property but it does give “the company” security of tenure (subject to the terms of the lease) for a period of time and it provides the owner with a regular monthly income guaranteed for the length of the lease.
The Company Letting Agreement allows the Company (or individual ) to take possession of but not to occupy the property. Having taken possession the Company is then allowed to offer an assured shorthold tenancy to a third party who will pay rent to the Company. However, the Company (or individual) remains liable to pay their rent to the owner WHETHER THE END TENANT PAYS OR NOT.
The Company Letting Agreement also requires the Company to keep the property in its original state and undertake any internal repairs or damage. Since the Company Letting Agreement is usually provided to a Company or High Net Worth individual then the owner knows that he or she will have no rent arrears and no damage or repairs to be done at the end.
The owner also knows that there will be no two am ‘phone calls or emergencies to deal with or take care of because that is the responsibility of the Company. The owner knows that all they have to do is hand over the keys on day one, take the rent every month and come back next year and collect the keys again with no horrible surprises. The owner also knows that in the meantime he or she is quietly amassing further capital growth.
Now clearly since the owner has no costs to pay and since the Company is taking on the risk, the owner should agree to less rent. However, this is less rent not a loss of rent because the owner has agreed to a fixed nett rent as opposed to a higher gross rent from which a number of fees, commissions and unexpected bills need to be paid. In fact, in our experience, more often than not the owner finishes up with more money in his bank!!
Incidentally this is also a method that a number of our experienced landlord clients use because they know that they can concentrate on finding more properties and not have to worry about looking after them.
Another win,win,win,win situation!
If you have any questions about Rent to Let please drop us an email or call.
Dixie Walker, Principal
Essex CB10 2QQ