The Rent to Rent (commonly abbreviated to R2R and sometimes referred to as “rent arbitrage”) strategy involves leasing a property from a landlord and then allowing tenants to occupy it at a higher rent.

Find a Property: Identify a property that can be rented out for more than the lease cost.

Negotiate Terms: Agree on a long-term lease with the landlord, securing the right to sublet. This can be anywhere from normally 2 years and up. This is because for a good R2R deal, you typically want a Return on Investment (RoI) of 100% or more (i.e. you get all your money back out in year 1).

Make Improvements: Make any necessary improvements to the property to increase its rental value. Cost-efficiency is key here – is the “juice worth the squeeze”?

Insert Tenants: Rent out the property or individual rooms to tenants at a higher rate than the lease cost.

Benefits:

• Low Initial Capital: Requires far less upfront investment compared to buying property.
• Fast Cash Flow: Generates positive cash flow from the difference between the lease and fee the tenants pay.
• Scalability: Allows rapid portfolio expansion without needing to own properties.

Pros:

• Quick Entry: In a monetary sense, it can be a fast way to enter the property market without significant capital.
• Flexibility: Less financial commitment compared to property ownership. Depending on break-clauses (agreed with the owner) you could walk-away relatively easily if you wanted to. However, you should always aim for an ethical win-win for all parties.
• Profit Potential: Can generate significant profits if managed correctly, especially in high-demand rental areas.

Cons:

• Risk of Voids: Potential for rental voids if tenants are not found quickly, impacting your cash flow. You’d still have to pay the owner every month.
• Management Intensive: Requires active management and maintenance of the property. However you could potentially outsource this – but this will impact your monthly cashflow.
• Legal and Contractual Risks: Must ensure compliance with lease agreement laws to avoid legal issues. This is probably one of the biggest cons – especially for people new to property – who may fall foul of this fairly easily.

Married2Property are a family-run property company that aims to create social good through property.

These articles are written by Darren de Wal based on his many years of experience as an active Property Investor since his first investment property in 2012 and 16 years getting to a senior leadership position as an Officer in the Royal Air Force. They are for the benefit of those with a general interest in Property, as well as those wishing to start out investing themselves.