Does rent to rent work in supported living? 7 things to consider
Rent-to-rent is a popular property strategy where you rent a property from a landlord guaranteeing them rent for a period of time, you then rent it out yourself to a tenant or group of tenants, usually with a view to making a profit on the uplift in rental value. It can be a great way for people to start out in property as the set-up costs are relatively low. I get asked if this strategy works for supported living a lot, so I thought it might be good to explain the potential issues around it in a bit more detail.
1) Finance Considerations
If there is finance on the property you need to ensure that you have consent to let to a supported living provider on a commercial lease and that the lender will be happy with the tenant type. Most mortgage lenders, even with buy to let mortgages, will not allow you to have tenants with support needs in the property. Most mortgage companies will want to see the lease to understand the arrangement in detail. Rent to rent is far easier if the property is owned unencumbered, these properties can be far simpler supported living leases.
2) Open Communications
You need to be open with the supported living provider letting your property and let them know what the arrangement is. Most supported living providers will do due diligence on you and the property and will ask this anyway. Equally it is important to tell the landlord of your plans and ensure that they understand and are happy with the commitment involved.
3) Lease length
The arrangement with the property owner needs to match the terms of the lease with the provider, you cannot sign up to a 5-year lease if your rent-to-rent term is only 3 years. This can require careful coordination.
Whoever is responsible for insuring the property needs to make sure that the insurance company is aware who is leasing the property and which tenant group is going to be living there. Insurance for supported living is often a bit more expensive and this needs to be considered when you are working out your numbers to see if the deal will work for you.
When calculating your potential profit in a rent-to-rent deal remember to ensure you have set aside a budget for any repairs you are responsible for. Often the way property investors get uplift in monthly income when using a rent-to-rent strategy is by changing the use to a HMO or SA and managing the property, with supported living the provider will generally manage the property so you may need to review your figures carefully to ensure it works for you.
If you have a provider interested in your property perhaps you could introduce them to the property owner and charge a sourcing fee for this service instead?
6) Lease terms
Ensure that the rent-to-rent arrangement allows you to lease the property to a supported living provider and that you are not limited to only letting to tenants on an AST. Also, you need to make sure any adaptations that may need doing to the property are allowed under your rent-to-rent agreement.
When taking on a rent-to-rent property you will need to ensure all the standard property compliance is in place too. Before leasing a property to a supported living provider, you will need to ensure the property is fully compliant with an up-to-date EPC, EICR and gas safety certificates, and it will need to meet HMO standards if it is an HMO.
As you can see using a rent-to-rent strategy in supported living is possible, but it is not straightforward. Many of these issues require some involvement from the property owner during the set up. Having a good relationship with the owner, who understands what you are trying to achieve and ideally has the same goals as you can make the whole process a lot simpler.