Is RENT TO RENT the right strategy for me.

"Rent to rent is probably THE most misunderstood strategy in property but it is currently now widely being used by active investors to create high cashfowing businesses from a standing start."

If you are looking to create an income fast, replace the day job and establish a property business that sees you up and running with a limited start-up capital requirement, then rent to rent is a strategy you will almost certainly be utilising.

How does it work

Let’s assume for a moment that YOU are a letting specialist. You operate in an area where there are high demand for room rentals (people renting a room in a house) and that the numbers work well in your area.
 
In your target area there will almost certainly be “tired” landlords: those people who own rental properties but don’t really want to be managing them. Perhaps their properties are a little tired, maybe they chose the wrong tenants or they simply want a hassle-free life.
 
You offer them a GUARANTEED rental – let’s assume it’s a 4-bed house and you are going to offer them the market rent of £900 per calendar month.
 
With their permission you use the property to house groups of people, possibly 4 or even 5 sharers as you are able to turn a second reception room into a fifth bedroom.
You charge £425 pcm bills included so now your gross rent is £2,125 per month and the property is costing you £900 pcm.
 
Your profit is the difference between the two LESS any costs. One of the main jobs will be to minimise void periods.
 
If you are new to property, rent to rent can sound a little bewildering but corporate let specialists have been doing this for years and it’s only recently that we have seen residential investors develop this model.
 
Many have built up rent to rent portfolios of properties that generate £1,000 per month profit per property.
 
Rent to Rent is NOT a hands-free passive income model, but it does enable investors to build up sizeable property business that generates significant profits in a short space of time.

 PEOPLE IN PROPERTY 

Lee Stewart

For this month’s ‘people in property’ feature we had the pleasure of talking to Lee Stewart, a ‘rent to rent’ property extraordinaire operating in Peterborough.  His journey is truly inspirational and highlights how property can be life changing and how a successful property business can be started with little or no money.

Within this article we will look at how Lee found his way into the property industry, what strategies he favours, a case study from his portfolio, any hiccups he has experienced along the way and his future plans and projects.

YPN: Can you tell us about your life before property?

Lee: Yes, before property by trade I was a mechanic and engineer. I worked for a Subaru and a London Taxi garage, so I was a specialist on the London Black Cabs. I then moved to Perkins garage in Peterborough where they specialised in big caterpillar engines. I would describe my job there as pretty run of the mill and worked pretty unsociable hours. I did a 24/7 shift pattern and it was quite intense. It was pretty tough on the body, very tiring and hard work, but the more I worked, the more I got paid.

YPN: So your link into property is interesting. You hadn’t always thought that property was something you always wanted to do? You kind of fell into it through a love of football, we believe. Is that right?

Lee: Yes, it was through my friend Karl Spencer, who was sort of my brother-in-law at the time; he was married to my then girlfriend’s sister. He worked for Progressive Property. We were all sat around talking one Sunday afternoon and he said he was going to a property event at Wembley for work and then hopefully have a tour of the stadium, a walk around and probably get to see the FA Cup. He said I could go but would have to work at the event, but it would just be fairly easy stuff like taking people's details and such like. I was well up for it as I really wanted to see Wembley and the FA cup.

However, I am fairly open minded and did really embrace the event.  After four days there I realised that this ‘property stuff’ seemed pretty sweet and I needed to do what I could to get involved. I was totally inspired after listening to all the people talking and seeing what people had achieved. It was a life changing weekend.

YPN: Many people seem to have lots of pre-conceived ideas about property and the type of people that are involved in the industry.  People tend to think it’s just for the wealthy or people with lots of knowledge about the sector. Is this what you thought?

Lee: Yes, definitely. I thought it was a really risky business and you needed a lot of money to get involved. I think most people think this to be honest. But once I had attended the event and heard people speaking, I realised that there were lots of different strategies out there and lots of people who had entered into property with little or no money.  I thought, ‘if they can do it then so can I’.

YPN: You obviously weren’t afraid of hard work; we can tell that by the job you had. Did Karl give you an overview of what would be involved?

Lee: I think most people work really hard in this country. I think that is the way we are bought up. The message that I took from the weekend was whereas in most other fields you work hard and continue to work hard, with property if you work hard at the beginning then when all of the components fall into place, the idea is that then that you don’t need to work so hard, but instead just reap the rewards of the business you have set up. This concept really appealed to me.

YPN: What is your chosen strategy and how did you decide on this?

Lee: My chosen strategy is rent to rent. As I lived about 10 minutes from ‘Progressive’ I spent every weekend I could there, crewing for them. I was happy to do whatever.

I also did some of the courses, some more than once as I did them as a student but then listened to them when crewing as well. I also listened to lots of audios and read lots of books to get as much knowledge as I could.

I think people at work thought I was mad as I used to spend my whole lunch hour reading.

I knew I wanted to venture into property but needed time to absorb all the information and decide on which strategy would work for me. In the end it was rent to rent that I decided would work for me as I could really see how it could and would. It was also relatively low risk and non-cash intensive, which was also a bonus as I was on job seekers' allowance when starting out.
 
YPN: So learning in the class room is one thing but applying it is another. How did this work for you?

Lee: I really wanted to get the first deal under my belt. Not just for financial reasons but to prove to myself that I could do it and make it work.

I did a course and had all of the paperwork in place. The next step was going around to letting agents to try and get deals, but after a few months this proved not to be working.

A couple of times I got close to a deal but then it would fall through due to some piece of paper work or something not being in place properly, or the landlord not being happy. So then I started going around the letting agents and going straight to landlords. Although this was nerve-wracking, I was doing a bit of work for Jane Beard. I met her through ‘Progressive’ and she had about 7 or 8 HMO’s at the time and I was helping out with some of the check-ins and check-outs and managing her HMO’s. This gave me the confidence I think, to actually go directly and approach landlord.

YPN: It is quite difficult, isn’t it, if you haven’t got any experience to approach landlords who have potentially got lots. How did you find this process?   

Lee: You always think the worst but actually if you come across professionally then people are usually happy to talk to you especially if you are trying to help them. It helped me that the first landlord I dealt with was a really nice guy. Finding in me someone that would provide him with a regular rental income and who would look after his property was a weight off of his mind. There wasn’t a lot of margin between the rental income and his mortgage payments so having it left empty for months hit him really hard.

YPN: So was he running it as a single let property then?

Lee: Yes, he was. This particular property was marketed as a single let property with four bedrooms at £730, which I thought for the area in Peterborough it was located, was really cheap. I went along with the letting agent to see the room sizes and layout.

It was perfect for what I wanted. It had four bedrooms, two with en-suits, two reception rooms and a kitchen so I could quickly see that this would work really well as a HMO with five bedrooms and there would be a really good margin.

I just said to the letting agent that I was a family man looking to rent in the area and I did get a bit nervous as the guy that turned up and showed me around knew me from one of my previous jobs. He did start quizzing me on who I was married to and how many kids I had and of course I wasn’t married and didn’t have any kids but I don’t think he suspected anything. I managed to stick to the story and when they phoned me up the next day, I just said it wasn’t big enough for what I wanted.

I then went on to the land registry and got the owner's details. It gave me the name and strangely enough an email address, which it doesn’t normally do. This process costs around £3. Perhaps it was fate. I spent a number of days tweaking an email, thinking about what would be the right thing to say and eventually pressed ‘send’.

I spent the next few hours checking my inbox and about 8 or 9pm on Thursday evening my phone beeped and it was the landlord saying he was interested in meeting me and could we arrange a time to meet at the house?

I turned up at the house and explained that I was interested in running the property as a multi-let and that we would cover all the rent and all the maintenance charges for somewhere between two and five years. He seemed really keen as he was frustrated with the letting agency that it had been allowed to be empty. I also explained that I had planned to turn one of the downstairs rooms into a bedroom and he said that was fine but would need an extra £50

I said ‘I am sure this will be fine but I will need to run it past my manager’. There wasn’t of course a manager but I like to always put another decision maker in the mix because then it means that I don’t have to feel pressured.

The landlord was more than happy with the situation; he was getting more rent than ever, not losing ten percent to the letting agent, and had a guaranteed income. So I got the keys on my 29th birthday and spent the first part of my birthday putting flat pack furniture together ready for viewings.

YPN: What needed doing to the property?

Lee: The houses I tend to be interested in are quite up together and this one was only 15 years old in a nice estate, so there really wasn’t much at all. All the carpets and walls were fine. There were a couple of small ‘niggly’ bits but generally speaking it was a case of just getting the furniture in.

YPN: What is your tenant profile? Who do you rent to?

Lee: Peterborough doesn’t have a university so there isn’t really a student market. There is one being built that won’t be ready for another five years or so. There is an LHA market in the area but the properties I have tend to be in the more expensive places in town and at the higher end of the market, so they usually attract professionals: accountants, doctors, lawyers, etc. I have a 'no couple, no children and no pets’ policy also. I want to have the best tenants possible, particularly as they are not my properties. They need to look after the properties and the room and I need to feel that they will do so.

YPN: Can you talk through the figures on this property?

Lee: The owner's rent is £780. It was originally £730 but because of the extra room and the extra £50, I pay £780. I get a gross room rental of around £1,950 and spend around £400 on bills. Property friends advised me to allow between £350 and £450 for bills depending on how big the property is. That includes council tax, gas, electricity, water, broadband and a TV licence. It can vary each month but for my properties it averages out at around £400.

So this gives a net profit of around £750 pm. I have never had a room empty in that property which is great. I always try and be fair to the tenants and say that ideally I will need a month's notice but if I can get someone in sooner then, if they so wish, they can leave earlier.

YPN: How do you go about assessing the demand for HMO’s in the areas you invest?

Lee: I did run a couple of fake ad’s to assess demand and other little things like that to see if there was a demand. I also watched adverts to see how quickly things were moving. It was quickly clear to see that there was a demand in the area.

YPN: So, with this property, you initially found it through a letting agent and then approached the property owner who was struggling to rent it out. Was this a typical strategy for you? And were your other properties similar to this one? How do you find your deals now?

Lee: Now we just send out a letter to landlords. About once a month I look through Rightmove at all the rental properties that would work as a HMO for me, in the areas that I am interested in.

I open up the market by also looking at the properties for sale, and write to those owners as well to explain what we do. I find out the house number and street names, then get the names of the owners and sometimes additional addresses through the land registry.

My mum, bless her, handwrites all the envelopes. It’s a lot easier than the first model I used. It has been pretty successful as I have acquired three properties in the last three months from this strategy.

YPN: It’s often the case that it can take a little while to establish the strategy that works best for you and your business. Can you now talk us through the transition from  working full time to running your own property investment business?

Lee: When I got my first property, as I said, I put up a test advert to trial out the demand for the area and one of the places I did this was at work. My line manager got wind of this and didn’t want me running a business inside office hours so ultimately it got me the sack. When I got my first property I was actually on job seekers' allowance, and funded the whole thing on an Argos credit card, which wasn’t difficult.

I got the second and third one around six months later. I probably could have done it a lot sooner but I had just split up with my girlfriend and was going through a pretty tough time if I am honest.

In order to take my mind of off things I went back into full time employment for a while with Yodel. I managed to build myself up and get back on my feet, and decided I needed to crack on with the property investing and got another two. By this time the amount I was making through the rental incomes far outweighed the amount I was bringing in from Yodel. So I decided that I needed to knock working for Yodel on the head. The job had become more demanding than I had planned and it was becoming difficult to manage three HMO’s and work 12-hour days. It was a ‘no brainer’; the rent to rent was making more money for me so the Yodel job had to go.

YPN: So, how have you found the transition from being an employee with a very structured job to working as your own boss in the property industry? Which, it has to be said, can be a lonely business, can’t it?

Lee: Yes, it was a very lonely business. Especially as I had just split up from my girlfriend. At times I felt like it was me against the world, as I had to do everything. Thankfully I had my dog to keep me company. I now try and outsource everything I can, like the garden maintenance of the property and the building of the furniture so I am not doing everything myself.

After leaving my job I also decided to make it a key focus to find someone I can invest with who can keep me motivated, make it less lonely and make the business grow further.

I never really liked having a boss and working for other people but when you work for yourself it is very stressful and ultimately everything comes back to you so it’s good to have a partner to support you and bounce ideas off.    

YPN: We guess this is why things like ‘Progressive’ work so well, as they give like-minded people in like-minded situations the chance to meet up.

Lee: Yes, exactly!

YPN:  Are you still managing all of the properties yourself?

Lee: Yes, I do still do all the management of the properties but my mum does also work for me now. She was looking to change her job and so I spoke to her and said that there could be an opportunity to come and work with me if she was interested and she jumped at the chance. I needed someone to do the cleaning and wasn’t really sure how I felt about my mum doing that but she actually really enjoys it. She also helps me with some of the management type of stuff as well.

When we take on further properties then I will probably need to look at employing someone else as well. My business partner now deals with the investor side of things and I deal with the management of the properties.

YPN: Your business partner, we believe, is someone you mentioned earlier on in the interview?

Lee: Yes, it is Karl Spencer. He introduced me to ‘Progressive’ about two years ago and although we knew each other through our girlfriends and I had split up from mine, we still remained close and good friends.

Karl was looking to venture out and do some investing on his own and picked up one property. He could see that I was doing pretty well and we decided it made sense to pair up and do it together.

YPN: So you said that Karl deals with the investor side of things? Is that investments for re-furbs or to buy properties?

Lee: We are still in the early days of doing this and we are quite open about where this will go. For the second two properties I acquired, a friend lent me the money to furnish them and I gave him a very good return on his money to make it a great deal for him. So whether it be someone that lends us the money for a good return for things like furniture and furnishings, or someone looking to buy a HMO and for us to manage it, who knows? Karl is quite good at just ‘speaking’ to people generally and this is a skill he learnt at ‘Progressive’. He is also really good at speaking on stage at events about the business. That is what he does and is his side of the business.

YPN: So it sounds like the business is going really well and you have some great plans for expansion. What is next for you?  What are your plans for this year?

Lee: I think rent to rent is a brilliant strategy for starting in property and good for generating cash but what I am looking for is some more security. So we are looking to buy some HMO’s, which can then be managed by the HMO management business we have created. The ultimate worry when renting is that the landlord could take the properties back at anytime, I am not saying they will but there is always that worry that they could. Therefore the next step for us is definitely buying some properties. Paul Preston has done this and is very successful; this is why I have chosen him to mentor me. The longer I am in the business, the more I can agree with the famous quote: ‘your network is your net worth.’

YPN: Lee, you really have achieved great things in a relatively short space of time.

Lee: Well, I don’t consider I have.

YPN: We think that when you are mixing in circles with people that have achieved great, great things it is easy to lose sight of your own successes. Running your own property business, helping your family out and ultimately being the master of your own destiny; could you have envisaged these things two-and-a-half years ago?

Lee: No. I thought I could do something but there is always a worry in the back of your mind. Some of my friends weren’t particularly supportive and I would often leave nights out down the pub with them feeling quite deflated, despite the fact they know nothing about property. This is where Progressive was great and why I spent so much time there as it kept me really motivated.

It was difficult especially considering the circumstances that I lost my job and split up from my girlfriend but I have done it! I guess two-and-a- half years ago when I was working at Perkins I never imagined I would be in this position.

YPN: Can anyone do it? We often say they can and it doesn’t matter how much money you have, but not everyone does it.  What does it take?

Lee: In my opinion it's consistency, just keeping going and not giving up. Anyone who doesn’t succeed has just given up at some point. I don’t consider myself anything special. I meet some people and they seem really clever but although I would say I'm fairly switched on, but not clever. I just wanted to gain as much knowledge as I could and kept going.

YPN: So what is the biggest lesson? Is it changing your circle of influence? And not listening to your mates in the pub?

Lee: It’s sort of like a snowball effect. Once you get one property, you then get another and so on. It is just making that initial step.

YPN: How is the best way to contact you if people would like to find out anymore information?

Lee: Email is probably best and my address is Lee@RoomstoRentPeterborough.com or my mobile number is 07904 877177 / 07904 877177.

I am always more than happy to help people out.

Lee, as you can tell, is a generally lovely guy and likes to help out at the local dog rescue shelter after losing his dog ‘Sugar’ last year.

Here at YPN we like to do our bit and are happy to promote this worthy cause at Lee’s request and give this great charity a mention. If, like Lee, you are interested in helping out or would like to donate then just visit the website.  www.homes4dogs.co.uk

Lee Stewart's comments on YPN

"Reading YPN showed me this great strategy"
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