Rent to rent, without the pitch

The mechanism, in one paragraph

An operator agrees to pay a property owner a fixed monthly amount for the right to let that property out on short stays. The operator furnishes it, lists it, runs it, and keeps whatever it earns above that fixed amount. If it earns less, the operator still pays. That is the entire model.

The owner has swapped upside for certainty. The operator has bought upside and taken on the void risk. Everything else — the marketing, the courses, the language about it being hands-off — is decoration on those two sentences.

Who carries what

The clean way to judge any rent-to-rent proposal is to work out where each risk actually sits, because a proposal that is vague about this is usually vague on purpose.

• Void risk sits with the operator. A quiet January still costs the operator the full monthly payment. This is the risk being bought, and it is real.
• Furnishing and setup cost sits with the operator. Typically the largest cash outlay at the start, and it is sunk if the agreement ends early.
• The building sits with the owner. Structure, roof, boiler replacement, buildings insurance. An operator is not responsible for a property's capital condition.
• Compliance sits with both, and the split must be written down. Fire safety, gas and electrical certification, licensing where it applies. If the agreement is silent, the argument happens after the incident.
• Counterparty risk sits with the owner. The fixed payment is only as good as the operator. If the operator stops trading, the payments stop. This is the part that gets glossed over most often.

The consent problem, which kills most deals

Most rent-to-rent deals that fall over do not fall over on the numbers. They fall over on permission.

A leasehold flat usually has a clause restricting subletting, short-term occupation, or business use — sometimes all three. A mortgage on a buy-to-let usually prohibits subletting without the lender's written consent. A residential mortgage almost always prohibits letting outright. An Article 4 direction in the local area may remove the permitted development right the whole plan assumes. In London, the 90-night limit applies regardless of what the lease says.

None of these are obscure. All of them are routinely ignored by people presenting deals, because checking them takes a week and kills perhaps half of what is offered. Check them first, not last.

How the numbers are supposed to work

The arithmetic is not complicated, and that is precisely why it is worth doing before anyone shows you a spreadsheet.

Take a realistic average nightly rate for the property — realistic meaning the twelve-month average including the quiet months, not the August figure. Multiply by 365, then by an occupancy rate you can defend. From that gross, subtract platform commission, cleaning and laundry on every changeover, linen, consumables, utilities, council tax or business rates, broadband, pricing software, and management if you are not doing it yourself. What is left has to cover the fixed monthly payment to the owner, and then produce a return.

The two figures people get wrong are occupancy and changeover cost. Occupancy is usually assumed a good ten points high. Changeover cost is usually counted once a week when short stays mean it is closer to twice. Both errors push in the same direction.

Why we do not take rent-to-rent stock on trust

We operate rent-to-rent properties as well as managing for owners, so this is not a theoretical position. A deal has to survive three checks before we will take it on: the consents are confirmed in writing rather than assumed, the low month covers the fixed payment rather than the average month, and the property is one we would be willing to put our own name against on a listing.

Deals fail the second test far more often than the first. A property that clears comfortably on a twelve-month average and does not clear in February is not a working deal — it is a working deal for eight months and a loss for four.

If you are the owner being approached

The offer usually arrives as a fixed monthly figure with a promise of no voids and no management. Before comparing it to your current rent, ask four things: who the contracting entity is and how long it has traded, what happens to the agreement if that entity fails, whether your lease and lender permit what is being proposed, and who is named on the insurance.

Then compare the offer against managed short-letting rather than against your current tenancy, because those are the two options that actually compete. A fixed payment is worth less than it looks if it is materially below what the property would earn managed, and worth a great deal if you need certainty more than upside. Both are legitimate answers — but they are different answers, and the offer should be judged as one.