Rent-to-buy: Little-known market could offer property investors steady returns

RENT-TO-BUY offers the potential for steady returns for property investors, as well as helping more people onto the property ladder.

Landlords across the UK are being encouraged to join a growing number of property entrepreneurs partaking in rent-to-buy. The goal of rent-to-buy is to give landlords a monthly passive income and return on investment while simultaneously helping more people onto the housing ladder.

The traditional landlord and tenant relationship can sometimes have downsides for both parties.

In some cases, tenants may get trapped on the endless hamster wheel of paying rent whilst being unable to save the deposit needed to buy their own home.

It may also be that their agreements can be terminated at any time, and they may not be able to decorate, renovate or even have pets without special permission.

Landlords have the responsibility of continually maintaining their properties and also have the potential risk of a tenant suddenly being unable to pay the rent or damaging the property.

There can also be times between lets, when a property is empty resulting in a loss of income.

Rent-to-buy presents a possible solution to these issues.

The concept of rent-to-buy is not well known among large portions of the public and the property investment community but presents a potential option, benefitting both tenants and landlords.

An investor buys a property or uses one they currently own and rents it out for a period of five, seven, or 10 years.

The tenant pays a fair rent, plus a small top-up fee which goes towards the deposit on a mortgage.

From day one the landlord agrees to sell the property to the tenant for a fixed price at the end of the rental agreement.

Gordie Dutfield, Director of Diamond Estates Property Ltd explained that the rent-to-buy market is still mostly untapped.

He said: “Everybody’s heard of buy-to-let, where investors acquire properties and then let them out to tenants in order to generate regular income and make a profit

“But fewer people are aware of the growing rent-to-buy market”

Dutfield also says there is a growing appetite for this kind of arrangement.

“There is a vast range of people looking to rent-to-buy,” he said.

“Couples, young families, people who have gone through a divorce or broken relationship and are looking to start again.

“There are those who are self-employed and don’t yet meet mortgage lenders’ criteria or, maybe, they just find this a much easier way to save towards a deposit on a home,” Dutfield added.

It can take many years in order for people to save up the money required to afford a deposit for a home.

The rent-to-buy strategy allows tenants to treat the property as their forever home from day one because they know they will eventually own it

For landlords, there is less stress because there are no ongoing maintenance costs. As it is essentially the tenant’s property, they are responsible for the upkeep

It also means the property is never empty between lets, and at the end of the rental term, there is a guaranteed sale price, hopefully delivering a respectable return on investment.

Dutfield says that while landlords have struggled during the COVID-19 pandemic, rent-to-buy provides another valid option for property entrepreneurs and prospective homeowners.

“It is estimated almost half of the private landlords in the UK lost money as a result of the coronavirus crisis forcing many tenants into rent arrears,” he said.

“Many more investors are selling up and leaving the sector for other reasons. That isn’t going to help the country’s long-term housing problem or tenants who will be made homeless as a result.

“Rent-to-buy can help. It allows more people the chance to own a property and gives investors a reasonable return.”

CREDIT: Original article published on the Express.

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