Nothing going on but the rent
Signing a rent-to-rent (R2R) contract on a property in multiple occupation might increase the owner’s cash-flow and possibly reduce stress, but it will devalue the property when they come to sell it.
A R2R contract on a property in multiple occupation, known as an HMO, shows it was underperforming before the contract was signed, or at least that is the perception, says Richard Nicholls, Director of The Property Advantage. The Property Advantage is a firm of investment brokers specialising in HMOs, apartment blocks, land development sites, portfolio sales and long-term lease assets based in Shrewsbury in Shropshire.
"I have visited and valued more than 250 HMOs in the last 12 to 18 months and many of these have been from landlords looking to sell their asset, for whatever reason. When they approach me to sell their HMO with a current R2R contract in place, in all cases, my valuation is lower,” says Richard.
Why do owners sign R2R contracts?
There are many and varied reasons, says Richard. Here are some:
• Bad tenants causing stress
• Someone is tired of running an HMO
• Guaranteed rental income with no headaches
“We get asked to sell HMOs with R2R contracts in place weekly - in all cases I either advise the landlord to come back to me when the lease is expired or, if they can’t and want to sell now, I give them a sales valuation that is considerably lower than it would be for the normal landlord-run, Assured Shorthold Tenancy (AST) equivalent,” adds Richard.
But not all R2R contracts spell problems, especially for a landlord definitely not selling within the duration of a R2R lease.
Richard explains: “If you’re definitely not going to sell and you’ve researched the R2R operator, they’re bona fide, experienced and liquid, then crack on a sign a lease - they’re not all bad.”
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