RENT-TO-RENT: THE LATEST PROPERTY GET-RICH-QUICK SCHEME
How long before this practice comes to Nottingham - if it isn't already here?
Emma Lund and Patrick Collison report in The Guardian (Saturday, 29 June 2013) on what they have dubbed '... the rise of an ethically dubious practice.' In other words, 'Rent a house, then sub-let the rooms to as many people as possible'.
The full article and a link to on-line comments can be found at:
However, the text of the article is reproduced below. ...
Daniel Burton is just 25, a dropout from the London School of Economics, but he's raking in £35,000 a month in rent – without ever having to buy a property. He has let out 200 rooms in 40 properties across London, turning a fat profit by renting a three-bed house from a landlord, converting the lounge and dining room into bedrooms, cramming more tenants in and leaving them with just a kitchen to share. Welcome to the rapidly growing world of "rent-to-rent", also known as "rent the rented" and "multi-let".
Burton calls it "arbitrage" – finding properties where a landlord has not realised how much more they could squeeze in rent from the house. In an online webinar he tells other potential investors how to "jack up the rent" and maximise the amount of money that can be obtained from local authorities through the Local Housing Allowance.
But Burton is just one player in a mushrooming industry. A new breed of self-styled property experts are flogging books, seminars and courses on rent-to-rent, boasting that pretty much anyone can "turbo charge" the rent or "make £10,000 a month" without so much as even buying a property.
This comes amid growing concern about spiralling rents in Britain's major cities, overcrowding and a lack of tenancy rights. Average rent in London has increased by 18% over the past three years, with the latest increases running at about 8% a year at a time when real wage growth is close to zero.
But for the promoters of rent-to-rent the lure is the "infinity profit" and "passive income" – terms that are cheerfully bandied around websites encouraging others to participate.
£5,000 Amount Francis Dolley earns per month from property
Francis Dolley runs "Multi-Let Cashflow System" (MLCS) courses where delegates can learn to "turbo charge your cashflow". He boasts he earned £5,000 per month in this way, and now he is teaching others how to do it too. Places on his courses cost £497 each. With 30 spaces available for his latest workshop in Bristol, he could make £14,910 in a day, on top of the "rent roll" from his sublet properties.
Nigerian born Taiwo Orishayomi is another promoter of rent-to-rent and claims she earns £10,000 a month in "passive income". She has even written a book about it called Rent2Rent: Massive Cash During a Massive Crash.
Both say their systems are above board and perfectly legal. They say landlords know what is going on and agree to a guaranteed rent while the rent-to-renter looks after the property, does small maintenance jobs and finds and manages tenants.
In theory there are several ways to legally sublet a property, usually involving commercial or corporate tenancies, management agreements, leases or guaranteed rent schemes. These can be attractive to landlords who want a hands-off investment.
But whether multi-let subletting is legal isn't really the point – any tenant who has struggled to find a decent property at a decent rent will question the ethics of the new middlemen. The success of rent-to-rent appears to depend on cramming the most people you can into a property and charging them the maximum possible.
200 The number of rooms let out by Daniel Burton
On his webinar Burton suggests rent-to-renters look for a three-bedroom house with two reception rooms. "You can rent this as five rooms. The rent on a house with five rooms will be more than the rent on a three-bed house," he explains. Tenants and their needs hardly come in for a mention. The practicalities of living in a potentially overcrowded house with a bunch of strangers are rarely discussed either.
A key tactic used by rent-to-rent investors is to issue tenants with a licence rather than a conventional assured shorthold tenancy (AST). Under a licence agreement, which is more usual when a homeowner lets a room to a lodger, the landlord or agent can access the property whenever they want – something an AST doesn't allow.
Meanwhile, Dolley describes MLCS as a "profit strategy to be the middle-man between the landlord and the tenants", which sums up what tenants are to rent-to-renters: profit.
David Smith of Anthony Gold Solicitors warns that rent-to-rent is a legal "fiasco", and says that not only tenants but landlords can be seriously affected.
"If the landlord lets to a rent-to-renter they are creating a commercial tenancy which is subject to different laws than a residential tenancy," he explains. "At the end of the tenancy the sub-tenants have the right to demand a new tenancy under a law designed to protect commercial tenants such as shop owners. Landlords can lose control of their property this way."
Another issue is that renting out individual rooms could mean the property is classed by the council as a House in Multiple Occupation. HMOs need a licence and there are strict penalties for the landlord if they are caught renting out an HMO without one.
But it is not just tenants who are the victims of rent-to-rent; often it is landlords too. While many might know exactly what the deal is, others become victims of subletting scams that can see both their properties and reputation in ruins.
In an illegal rent-to-rent, middlemen pose as normal tenants and sign an AST. But instead of moving in themselves they let the rooms out individually. Sometimes they pass the agreed rent to the landlord, but in other set-ups the real landlord never gets to see his or her money. Meanwhile, the tenants are occupying properties they have no legal right to be in.
Eviction expert Paul Shamplina of Landlord Action says he is seeing more and more cases of landlords falling victim to this. "The telltale signs your property is being used for rent-to-rent can be the 'tenant' offering six months' rent up front, or complaints from the neighbours that loads of people are living there," Shamplina says. "I have dealt with landlords who are horrified when they discover who is living in the property – they have no idea."
Shamplina worked for some of the landlords tricked by asylum seeker Rose Chimuka. She was jailed for four years in March 2012 after ripping off landlords in a subletting scam that netted her £100,000.
Chimuka took leases on family homes across south London, illegally dividing them into bedsits and subletting them. Up to 15 people lived in each house. Chimuka didn't pass on the rent to the real landlords and each time she was found out she simply disappeared and started again elsewhere.
Rent-to-rent is a topic regularly discussed on landlord community website Property Tribes. Founder of the site, Vanessa Warwick, says sublet scams produce three sets of victims – the landlord, the sub-tenants, and the wider landlord community, which ends up getting the blame.
"To some people, subletting seems like easy money for little effort, but it is fraught with pitfalls that usually end up costing the landlord, not the subletter," she says, "I have seen a newbie fresh off a rent-to-rent course ask on a forum: 'I've let a property but haven't been able to sublet any of the rooms yet. Can anyone give me advice on how to avoid paying the landlord rent until I have let the rooms?'."
For "real" landlords the risks involved in rent-to-rent are massive: it could invalidate landlord insurance and be in breach of buy-to-let mortgage terms. The latter could result in a mortgage being called in by the lender.
But, inevitably, tenants are the biggest victims in rent-to-rent. Living in overcrowded properties with strangers, the dream of homeownership must seem more distant than ever.