A revelation in property investment

Economic fallout from the coronavirus crisis is fuelling a change in property investment as an increasing number of landlords switch from buy-to-rent to rent-tobuy properties.

It may seem only a minor difference in terminology but it’s a rapidly emerging trend that has massive benefits for both tenants and landlords.

“Whenever, and wherever, we offer a rent-to-buy property we get inundated with applications from potential tenants,” said Gordie Dutfield, Glasgow born entrepreneur and Director of pioneering property company Diamond Estates, the UK’s foremost authority on rent-to-buy. Although the concept has been tried and tested over a number of years it has remained little known among a large section of the public and the property investment community.

“Everybody’s heard of buy-to-let, where investors acquire properties and then let them out to tenants in order to generate regular income and make a profit, but fewer people are aware of the growing rent-to-buy market,” said Gordie.

Property specialists have long recognised there’s quite a few downsides for both parties in the traditional landlord and tenant relationship.

Tenants can get trapped into just paying the rent and are unable to save the deposit needed to buy their own home. They can have their agreements terminated at any time and often can’t decorate, renovate or even have pets.

Landlords have the responsibility of continually maintaining their properties. They also have to live with the constant uncertainty that a tenant could suddenly stop paying the rent, or damage the property. There might also be times, between lets, when a property is empty resulting in a loss of income.

During the coronavirus crisis quite a few tenants stopped paying their rents and landlords were prevented from doing anything about it. While it was fair there should be protection to prevent tenants, who couldn’t pay through no fault of their own, from being made homeless most landlords, many of them with just one or two properties, had no help at all,” said Gordie.

“It is estimated that 80,000 landlords in the UK could go bankrupt as a result of the crisis. That isn’t going to help the tenants who will be made homeless as a result, or with the country’s long term housing problem.

“Rent-to-buy goes a long way to providing a solution to these issues. It allows more people the chance to own a property and gives investors a reasonable return without any of the usual stress.”

The initiative is simple. An investor buys a property or they can use their current buy to let as a rentto-buy and Diamond Estates helps find a suitable tenant from the many thousands of people looking for an opportunity to own their own home.

Homes are rented out for a period of usually five, seven or ten years with the tenant paying a fair rent, plus a small top up fee which goes towards the deposit on a mortgage. From day one the landlord agrees to sell the property to the tenant for a fixed price at the end of the rental agreement.

“We have a vast range of people looking to rent-to-buy each with their own reasons as to why this model suits them best,” said Gordie.

“We have couples, young families, people who have gone through a divorce or broken relationship and are looking to start again. There are those who are self employed or just find this a much easier way of saving to put down a large deposit on a home.”

Research by Halifax suggests that, across the UK, the average amount needed for a deposit towards buying a home rose by £10,8290 in 2020 to £57,278.

As the cost of the average home ranges between 3.1 and 11.9 times earnings, depending on location, it’s no surprise the number of first time buyers in the UK fell last year by an average of 13 per cent.

Lee and Ashlyn Jones are typical of the many rent-to-buy tenants who chose this option after having to move from rented properties several times due to landlords selling their home from underneath them.

As parents of three young children they decided it was time to put down more permanent roots and are now settled in a rent-to-buy end of terrace house.

It has made the process of buying a home easier and more affordable as they now pay their rent with a little bit extra each month, which goes into a secure untouchable client account. They admit that in the past it was always too easy to dip into their savings to pay day-to-day bills so they never seemed to be getting anywhere.

“Now that it all goes out in a single payment each month we don’t really notice it, and we have the added security that the landlord isn’t going to suddenly ask us to leave because he wants to sell the property. We are the buyers and this is our home now,” said Lee.

For property investors the benefits pf rent-to-buy are numerous. As buyers of the property the tenants are liable for its maintenance and upkeep so there are less responsibilities and costs for the landlord. It also means the property of never empty between lets. At the end of the rental term there is already a buyer in place and a guaranteed sale price to deliver a respectable return on the initial investment.

Karen Bock is one of the new breed of socially responsible property investors. She currently has four rent-to-buy properties, bought to provide financial security for her disabled son, and is looking for more.

“My son, Robert, is a permanent wheelchair user. I wanted something that would provide him with a long term passive income so he won’t ever have to rely on the care system to meet his needs. He is not able to visit properties and carry out the usual maintenance or repairs that landlords frequently have to do so this is an ideal solution,” said Karen.

Karen’s first investment was semi-detached house bought for around £82,000. It had about £10,000 spent on upgrading and was then rented out to a family for a period of five years. At the end of that time the tenants will buy the house at an already agreed price, calculated in line with average property price increases for that area over the last few years.

“I have no ongoing maintenance costs as it is essentially now the tenant’s property. They pay a fair rent plus a little bit on top towards the deposit for a mortgage,” said Karen.

“The strategy makes a lot of sense for everyone. It allows me to provide an income for my son while at the same time giving people a chance they might not otherwise have to buy their own home.”

In the last year Diamond Estates has helped investors and tenants with properties in Aberdeen, Ayrshire, Glasgow and across the UK. The company is now involved in a major expansion in Scotland and is looking to attract more landlords seeking less stress with their investments while, at the same time, catering for an increasing demand from tenants eager to get on the property ladder.

“Interest among potential tenantbuyers is huge and as more landlords turn to this model we expect to at least double the number of rent-to-buy properties in our portfolio,” said Gordie.

“We recently helped with a property in Glasgow which was let within days of going on the market. More than 50 people applied to take advantage of the rent-to-buy offer. In the end we found a nice tenant who now has her dream home years ahead of expectations and the landlord is happy to have seven years of regular, passive income and lower costs with a guaranteed reasonable return at the end of it. Everybody’s happy!”