One of the buzz words at the moment is ‘R2R’. It’s a set-up, whereby you take a tenancy or a license over someone’s property and you then sublet the property out as an HMO, Serviced Apartment and reap the profit rent.
Basically… you become the Property Manager…
Which is problematic as most of those people doing this come without adequate training or care to look after a property properly…
The second problem is that more often than the not the property owner isn’t actually allowed to take on these schemes, due to clauses in their mortgage agreements or leases…
So not only are you potentially putting the LL in a precarious position, you are also hanging yourself off a cliff because when the LL realizes this error they can pretty quickly terminate your contract.
Finally, the downside is that at the end of your contract you are handing the property back to the Landlord to make the profit rent, bask in any capital growth that’s happened during your tenure and utilise all of the maintenance you’ve completed (yup, that’s your cost too).
At this stage R2R fans will be telling me that it’s just short term gain and the money is used to actually invest in property… so fair enough, if you are going in with your eyes wide open and are a competent property manager, then be my guest, go for it.
Yet there seems to be one more crazy aspect of this whole scheme… when sourcers get involved!
Their charges can be:
- Circa £10k for ‘packaging’ the deal
- 20% for managing the property
…usually meaning that by the time the contract is over they’ve earned more than you have (considering you will be paying for maintenance, letting fees and any other costs associated with looking after the property).
… essentially you are loaning the sourcer the money to do the deal, and they pay you a ‘return on investment’…
Scary eh?!
Realistically the money you pay the sourcer, could be spent on buying your own property… (Do the math, but it’s probably cheaper servicing a loan than paying a sourcer!).
Yes, it may seem like a very good way to ‘get rich quick’, but please be aware of the pitfalls. Do things properly, nurture your money… you will get to where you need to be without cutting corners.
Have you been caught out by R2R, comment below! If you want to get even deeper into this subject + get my simple Property Investment Strategy, subscribe to my Insiders Circle at the top of this page.
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