Rent-to-rent is the latest big property get-rich-quick scheme, with letting agents accused of taking ‘bungs’.
There are claims that people are raking in fortunes by dint of renting properties, sub-dividing them, and then letting them out to sub-tenants.
Generally, it seems, and unlikely as this sounds, this is without the landlord, agent or neighbours ever spotting a thing. But in other cases, it is claimed, agents are being offered back-handers for giving information about landlords to rent-to-rent operators.
The Guardian found one 25-year-old who is allegedly making £35,000 a month this way after renting 200 properties and then letting them out.
As with all these schemes, there is a certain trend: you can go on a course to learn how to do it (at a mere £497 a place). You can buy a book about it, by Nigerian-born Taiwo Orishayomi. You can go to virtually any property investment event and find it being heavily promoted there.
Like other get-rich-quick schemes, watch out for the give-away vocabulary: passive income, multi-let cashflow, armchair investing, turbo-charged cashflow, and, of course, ‘ethical’.
Seemingly, rent-to-rent is borderline legal in some cases – where landlords are happy to go along with it, partly because they simply hadn’t realised that their three-bedroom, two reception property could be turned into five bedsits and are happy to have someone managing their property in return for an agreed rent.
Presumably, these landlords have never come across the initials ‘HMO’.
In other cases, rent-to-rent is being done illegally. The middleman apparently poses as a normal tenant, never moves in, and lets out all the rooms, taking the rent. We actually know of only one documented case where this has actually happened, but no doubt it’s a possibility.
Rent-to-rent is, of course, dodgy, partly because it risks over-crowding tenants in unlicensed HMOs, and partly because the landlord risks being in breach of their mortgage and insurance terms.
We’re not sure how widespread rent-to-rent is, but undoubtedly, in the one case we know about, letting agents as well as landlords were conned.
We’re also unsure about the claim (see the second link) that letting agents are accepting ‘bungs’ from rent-to-rent middlemen.
According to the website Mypropertymentor: “Letting agents are being targeted to give info on landlords – for a cash bung.”
We would appreciate your views on this story – is rent-to-rent a problem, in your experience, and is it something you have come across?
http://www.lettingagenttoday.co.uk/news_features/Woman-who-conned-letting-agents-is-sent-to-jail
http://mypropertymentor.co.uk/2013/07/rent-to-rent-the-latest-passive-income-property-scam/?goback=.gde_2362784_member_254484921
http://www.guardian.co.uk/money/2013/jun/29/rent-to-rent-property?goback=.gde_2362784_member_254214041
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Comments
Rent2Rent companies are using the wrong letting contracts
Whilst I have never been a fan of the Rent2Rent scheme I have to accept that a lot of investors are using Rent2Rent as part of their strategy. As it is the mission of Property118 to share best practice, helping these investors to get their paperwork right fits within our mission, regardless of any the other misgivings I might have personally have about the scheme.
More details here >>> http://www.property118.com/rent2rent-letting-contracts/41231/
This is something we have been discussing on Property Tribes for a long time which is why the Guardian asked me to comment in the article.
Sub-letting may be a breach of the T & C's of the landlord's mortgage and also invalidate their insurance.
My concern (being a landlord myself) is that sub-tenants (and the wider general public) are not aware that the head tenant is NOT the landlord, and, when it goes wrong, they blame landlords for their plight and it fuels anti-landlord sentiment, of which there is already enough around at the moment.
Additionally, tenants rights are often compromised and many of them are new to the U.K. and do not understand that they should have an AST (not a licence) and that their deposits should be protected etc. This allows abuse to take place and I have heard a story of a naive tenant being charged £240 to "have the utilities connected".
If done properly, ethically, and transparently, Rent 2 Rent or sub-letting can work. I am concerned though that it is being touted as the new Get Rich Quick in Property scheme, and this is attracting people with £££ in their eyes, rather than tenant's well-being in their eyes!
Some of these people teaching Rent to Rent, when challenged on forums, do not appear to know answers to basic questions. The focus is all about how much money you can make, not the legal responsibilities of letting a property.
From my research, Daniel Burton and Unidaplace are the worst culprits, yet he is regularly invited to speak at property networking events about his wealth creation strategy. From what I can see, it comes at a massive cost to his unfortunate tenants.
My advice for anyone seeking to undertake Rent to Rent training is to ask to speak to the tenants sub-letting from the "expert" and see how happy THE CUSTOMER (sub-tenant) is with the service they have received being a sub-let tenant, and not dealing direct with the landlord.
In answer to your question about known cases, I was speaking to Paul Shamplina only recently, and Landlord Action are hearing more and more of these situations.
Only last week, they had a lady phone up who had discovered her property had had a partition wall put up in the lounge to divide it into 2, and there were 8 people sub-letting from the head tenant, who was not actually living in the 3 bed property.
Clearly, she did not have any legal agreement with the 8 sub-tenants and called Landlord Action to help her get possession of her property back.
Signs to watch out for are a single person looking to rent a large property and neighbours complaining of lots of comings and goings.
Regular property inspections will protect against sub-letting abuse.
This is a big problem in Westminster, specifically the Marble Arch area. There are a number of companies trying to take leases to sub-let out on holiday lets. They send in various people to try and con their way into taking AST agreements. Landlords are greedy and take the rent, not understanding what happens when they want them out. (these people do not leave without bailiffs, trash the flat and don't pay the rent once notice is served). I could of let another 20 flats this quarter to let2let companies, however Westminster bans any lettings under 90 days and the larger blocks don't want short letting so insist you end the tenancy. Trouble is while we refuse the business the herberts next door and across the road will happily do anything for commission. Don't you just love the high morals of Estate Agents
National-Lettings policy is only to accept advertisements from property owners. We ask the question at the point of listing and double check with HM Land Registry if in doubt. Where a property is a new purchase and ownership may not have been registered with HM Land Registry we may seek confirmation from the solicitor organising Conveyancing.
You may also wish to take up this matter with Zoopla Property Group and Rightmove as our understanding of their membership criteria is that agents must not act on behalf of another agent. It is our strongly held opinion that a Rent2Rent landlord acts as an agent for the property owner and for this reason we refuse to accept instructions from Rent2rent landlords.
National Lettings is a member of Zoopla Property Group and Rightmove and an online letting agency which only accepts instructions directly from landlords. Let only packages for landlords, including Rightmove Advertising and Tenant Referencing in England and Wales, are priced at just £45 including VAT.
Its not just HMO initials that matter here though they matter greatly, it's CTL too - consent to Let.
Any Landlord where this is happening at their property with or without their knowledge will almost certainly be in breach of any such consent, assuming that they had it in the first place.
Almost all of the RTR agreements will be illegal and unenforceable as the RTR 'Landlord' cannot confirm the consents position and indeed does not have it to sub-let anyway.