Renting out house as a commercial lease

Sausage11

Are you sure they're planning to let it out on a single let basis? I know a lot of investors are looking to secure long term rentals with the ability to turn them into HMOs. The economics can be very attractive.

E.g. Property costs 200K.
Rental is 400 / month. They offer 350.
Spend 25K on refurb, rent out as 4/5/6 bed HMO and bring in say 5 bedrooms x 60 / week x 52 weeks = 15.6K per year.
After costs they're probably left with around 9K, of which 4.2 goes to you as rent.
So for no cash to buy the house and a 25K refurb budget they get a gross profit of around 5K / year - a 20% return. If they can borrow some or all of that money (e.g. crowd fund) at 8-10% then they can make a return with little or none of their own money being invested.

To do this they would probably want to be able to restructure the internal walls. Putting this into a structure with a guaranteed option to buy allows them to arrange purchase financing at a later date if, and only if, it makes sense at that time to do so.

A fantastic deal for them. It could be an excellent deal for you too, depending what you're looking for.

paddyrg

TBH the details will be critical, and you need your own professional commercial property lawyer to advise you - this is WAY beyond what a forum can offer. You'll need to be very clear about rights and obligations, how your rent increases over time, who pays to fix the roof and drains, which insurances you will want to take to guarantee your income if the company goes bust, how tenancy handovers will work if they do, etc. Maybe you'll even take an upfront deposit on the property.

As for running it for yourself as a HMO, I know a couple of private landlords who ditched their HMO's as being too much stress, the opposite to what it sounds like you want.

Frankly I can see how this could work reasonably well all round - the company can aggregate multiple properties and so their management costs per property are much lower than if you're a home gamer.

martindow

paddyrg wrote: »

TBH the details will be critical, and you need your own professional commercial property lawyer to advise you - this is WAY beyond what a forum can offer. You'll need to be very clear about rights and obligations, how your rent increases over time, who pays to fix the roof and drains, which insurances you will want to take to guarantee your income if the company goes bust, how tenancy handovers will work if they do, etc. Maybe you'll even take an upfront deposit on the property.

Absolutely agree. With a commercial contract you will not have the protection from unfair contract terms that you would have in consumer law. An experienced lawyer is essential if you decide to go ahead with this.

teddysmum

paddyrg wrote: »

As for running it for yourself as a HMO, I know a couple of private landlords who ditched their HMO's as being too much stress, the opposite to what it sounds like you want.

The lady that one of my sons rented from had to let her two HMOs go, because of damage (vandalism and mainly single males not being house proud), theft and break ins, the latter two being because security was difficult when tenants had visitors.

Sausage11

I may have not explained clearly enough. I wasn't suggesting OP would run an HMO. I was suggesting the investor seeking to buy the property may want to turn it into an HMO.

eddddy

In theory, these could be good schemes.

However, anecdotal evidence suggests that many of the companies who operate them are dodgy.

(It's a bit like 'payday loans' and 'student pods' - the concept is fine, but they seem to attract dodgy companies looking to make fast bucks.)

To put this is perspective...

If you owned a freehold shop which you leased to a company, you might want

1. bankers references (to make sure the company is good to pay the rent)
2. personal guarantees from the directors (so that if the company goes bust, you can pursue the directors)
3. and you would write the lease on your terms, for the company to sign

But in this case, you own a freehold house which you would lease to a company - but probably without any of those safeguards.

glosoli

Is your property mortgaged? Sorry if this has been clarified already, however your mortgage lender is highly unlkely to agree to this due to difficulty gaining possession in the event of repossession.

gld73

It's actually not that unusual (search "rent 2 rent"). I was in the same situation, and have a house rented out now to a company who got the house licensed as an HMO and rent out individual rooms to young professionals as it's near some of the big employers in the that city. I live a long way from there now and managing it as a 'normal' rental would have been difficult.

I probably should have negotiated harder, but was happy with making a small profit and having little hassle, than maximising my profit. I didn't get anything put in to the contract about rent increases, but in exchange, the company will pay for all maintenance issues, and they have an option to buy the house lasting for the next 7 years. It has the benefit of being a long term agreement so I don't need to keep looking for new tenants every year.

It's not without risks of course - you have to rely on them being reputable and having a good business model, otherwise there is the possibility of you being left with a house full of tenants who are paying rent to someone who isn't then paying rent to you! I did as much research as I could, checking for any bankruptcies etc in the history of the 2 guys running the company, looking at what other properties they had .... things are currently okay, I'm getting the monthly rental, and I've no regrets so far ......

XR219

Excellent, thanks for that response, our situations are very similar! I live too far from the property (which is owned outright) to effectively manage it, but the idea of a company taking on the risk of maintenance etc for a reduced profit on my part is enticing. I too am concerned about the ease of checking the pedigree of the company and I've done the obvious things already, so good to hear of a positive experience.

Guest101

XR219 wrote: »

Excellent, thanks for that response, our situations are very similar! I live too far from the property (which is owned outright) to effectively manage it, but the idea of a company taking on the risk of maintenance etc for a reduced profit on my part is enticing. I too am concerned about the ease of checking the pedigree of the company and I've done the obvious things already, so good to hear of a positive experience.

Being a commercial lease you lose a lot of your rights to the property.