With the latest news on the housing crisis and the average rent shooting up astronomically, it’s no surprise that the rent-to-rent model is being heavily criticised. It’s also referred to as rental arbitrage. Unfortunately, this criticism is being announced from digital trumpets among people who either have limited knowledge of the short term rental industry, or have simply heard one side of the story. (The side that is exacerbated and dramatised, to make it more click-baity).
There are wrongful practices in every industry. And it’s true that some self-made “entrepreneurs” have positioned rent to rent as a get-rich-quick-scheme, often at the expense of property landlords and unsuspecting tenants. However, these people are the minority.
Just as one manipulative business coach shouldn’t tarnish the entire coaching industry, one unethical property business owner should not represent an entire business model that a number of people are using to ethically improve their lives – as well as the lives of the people around them.
Today, we’ll discuss the ethics of the rent to rent business model; and how as a property landlord, you can ensure that you’re partnering with a professional, reliable, and fair property management company.
Read more as well about the future of rent-to-rent model in the property industry and how we “ethically” support the landlords with this model.
What is “Guaranteed Rent” and the Rent-to-Rent Business Model?
In simple terms, when a property management company like Luke Stays offers a Guaranteed Rent solution (or uses phrases like “rent-to-rent”) this refers to the practice of a landlord renting their property to a property management company, with the knowledge that the management company will rent that property out to other guests or tenants.
The landlord will have formally agreed to this in writing and accept having a “hands-off” approach on their property, while trusting the property management company to take care of everything. In return, the landlord will receive guaranteed rent for a fixed number of years, and a promise that their accommodation unit and the entire guest or tenant stay will be perfectly maintained and fully taken care of.
Is this Business Model Legal?
A massively misunderstood part of the rental arbitrage business model or “subletting” is around legality. Most people who are not from the industry immediately assume that subletting is against the law, and that it involves some kind of trickery from the property management company’s side. But the truth is, rental arbitrage or subletting in the property industry is perfectly legal and viable, so long as it’s done correctly.
A professional property management company will be transparent about its practices (as well as all its benefits) and not sublet a property without the landlord’s written permission. At Luke Capital Group, we create legally-binding contracts and documents to seal this agreement and call it a Guaranteed Rent Scheme. Remember, subletting becomes illegal when it’s done behind the property landlord’s back and breaks the living premises and laws of that particular accommodation unit (ie, squeezing too many tenants into one property).
Read more about dealing with landlords for rental arbitrage in our blog, and you’ll have better insights about this scheme and how it should ethically work. The most important thing property landlords need to remember is that rental arbitrage is only unlawful when it’s being carried out by amateur business owners or property management companies that simply can’t be trusted.
What About The Principles?
It’s quite easy to disprove the theory that it’s illegal (when done correctly), however the ethics of this business model remains a grey area for many. Sadly, a number of people have exploited this opportunity, as a way of charging ludicrous rent and mistreating guests and tenants. However, we must recognise that, in this case, a handful of people are to blame – not an entire industry.
To share blanket statements like “rent to rent is immoral and illegal” (as we have seen in a number of mainstream media articles) is akin to saying “all apples are poisonous” just because somebody found a rotten one in their kitchen pantry.
Only because it has enabled many entrepreneurs to build a certain lifestyle and a bigger bank balance, doesn’t mean that it’s “shady” in any way. Making large sums of money doesn’t immediately make you a crook. There’s also this huge misconception that rental arbitrage is “easy” – and entrepreneurs are raking in tens of thousands without having to do any work. (Therefore making it unethical).
It’s shocking to see the plethora of articles – from renowned media companies such as the BBC – slating it because it allows people who might have never attended university to carve a future for themselves and their family. Surely, we have reached an age where we don’t judge the success of those who haven’t been through formal education?
Is The World Still Judgemental?
However, it seems that a large portion of the population is cynical of proactive entrepreneurs who make the most of their resources and legally build upon their wealth. Let’s not forget, a number of these property business owners (many of whom we see in the Luke Stays franchise business) are building a legacy for their loved ones, after years of being stuck in a job that brought them no fulfilment nor happiness.
Many of these business owners have experienced adversities in their lives and are now empowering themselves and each other to make a positive change. It’s difficult to see what’s unethical about people climbing out of issues like anxiety, depression, modern-day poverty, and crippling self-doubt?
A number of the franchise business owners at Luke Stays have gone on to send their children to private school, send their teenagers to University or travel the world, or provide better healthcare for their elderly relatives. This is the result of a business model that is both legal and agreed upon by the landlords they choose to partner with.
A Saving Grace for Landlords
When it comes to issues related to the property industry, landlords themselves seem to be forgotten. While there are a number of laws and regulations that protect guests and tenants (as there should be), there’s a lot of work that needs to be done for landlords – many of whom aren’t the rich, stress-free millionaires that the media makes them out to be.
The latest report from the Citizens Advice Bureau states that nearly half a million private renters remain behind on rent in the UK alone. This is a cause of enormous stress for landlords, who still have mortgages, bills, and maintenance costs to pay. Bad guests and tenants can turn a landlord’s life into a living nightmare – often getting them into debt and even depression.
Rent Guarantee solutions as offered by Luke Capital Group are therefore a saving grace for many landlords. They don’t deserve to be fleeced of all their money after trusting people to live in their accommodation units – and the team at LCG are incredibly proud of the increasing number of landlords we continue to help. In a professional arrangement (as you would find at Luke Capital Group), the landlord’s properties are immaculately maintained too; as the management company will assume full responsibility for professional cleaning and minor repairs.
So, is Anyone Being Negatively Impact by the Rent to Rent Business Model?
In the professional world, where property landlords partner with ethical, trusted, and accredited companies like Luke Capital Group – everybody benefits from the Guaranteed Rent Solution. Not only is a landlord guaranteed rent (and peace of mind), the property is taken care of, and the guests and tenants receive nothing but the best in hospitality.
Just recently, our team received a testimonial from a guest at one of our properties who thanked the team for literally saving her life. She had just escaped an abusive partner with her young child, and turned to a property host at Luke Stays for immediate help. She and her child were taken care of, straight away.
Adding to this, guests and tenants continue to share their gratitude for Luke Stays’ reasonable rent and booking rates, around-the-clock support, guaranteed trust and protection for guests, and help with moving to new cities and countries for the purpose of work (while they’re waiting on their permanent residence).
There is a massive need for short-term accommodation. And now, because of the aftermath of the pandemic, this need is greater than ever – so to blame the entire housing crisis on a perfectly viable sector of a well-meaning industry is ludicrous. Is it a case of ignorance, lack of industry know-how, or pure spite?
We’ll leave it to you to decide.
In the meantime, if you’d like more information about how Luke Stays and all its associated brands are the most trusted in the industry and continue to help landlords, guests, and tenants, then have a browse through our websites and keep an eye on our upcoming blogs.