Despite owning a ‘nice family home’ in Ventnor on the Isle of Wight, Charlie Clark pays £2,500 a month to live in a London rental flat.
‘Ideally, I would like to buy a place in London, but it just feels impossible,’ the 34-year-old CEO of SEO agency Minty Digital tells Metro.
Seeing no way to get on the ladder in the capital where he’s based for work, he used his savings to buy a £180,000 three-bedroom terraced house in his hometown, and has spent the last four years letting it out on a short-term basis through Airbnb.
Alongside the rental income, he’s also building equity, with the property (which hasn’t been renovated) recently being valued at £230,000.
‘I’ve always wanted to have some kind of security, and it was a good opportunity to give myself a bit of a safety net’ Charlie explains.
He’s one of an increasing number of rentvestors: homeowners who are tenants themselves, buying property as an investment rather than a place to live.
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‘Rentvestors are still a relatively small segment of the UK property market, but it’s certainly a growing one,’ Marc von Grundherr, director at Benham and Reeves, tells Metro. ‘The trend has been driven largely by the lack of affordability in many desirable areas, alongside a greater acceptance of renting as a long-term lifestyle choice among younger generations.’
While some of this group ‘flip’ the homes or keep hold of a portfolio until prices rise and they can sell on for a profit, others – like Charlie – go down the landlord route.
‘Eventually, it might be somewhere I want to live,’ he says. ‘But for now, it’s more like an asset. I can rent it out to help cover the mortgage while I’m renting in other places, then if I decide to further down the line, sell it and buy another place.’
According to John Minnis, founder of an eponymous estate agency in Northern Ireland, young investors are becoming more and more common, and there’s been a ‘distinct shift in the landlord demographic’ in recent years.
‘Due to high deposit requirements and mortgage rates, many young people now view property investment as a much more viable financial strategy than homeownership,’ he tells Property Reporter.
This is backed up by figures from Paragon Bank showing a 10% rise in new buy-to-let mortgages acquired by those in their 30s over the past decade, while accountancy group UHY Hacker Young also recently revealed that the UK’s 66,000 buy-to-let landlords aged under 30 generate a total of £852 million in rental income.
In Charlie’s experience though, once you factor in upkeep, management fees, taxes and everything else that comes it it, it’s not exactly lucrative.
‘People think owning a property and renting it out means you’re going to make loads of money, but it’s a misconception,’ he says. ‘Don’t get me wrong, it’s amazing, because it’s an asset that’s being paid off each month, but you’re not making much profit from it at all – it’s more like breaking even, if not sometimes even making a loss.’
Being a landlord is a job in itself too, and even though Charlie uses a management company to deal with bookings, he estimates spends two to three hours every week messaging back and forth with occupants who’ve lost their keys or don’t know how connect to the Wi-Fi.
On the flip side though, he isn’t tied down to any one place and can avoid the expenses of owning his primary residence. Plus, he always has a place to go if he needs to move out of his current flat.
‘I like the flexibility,’ says Charlie. ‘And the fact that if something goes wrong, it’s all covered, so there’s less stress.’
The pros and cons of rentvesting
According to estate agency boss Marc, there are some ‘obvious advantages’ to rentvesting, including that it ‘provides far more fluidity, allowing people to move more easily between areas or properties, which is particularly appealing for younger, mobile professionals.’
He adds: ‘For many, the rental income from their owned property will cover the mortgage and sometimes generate additional income, meaning the asset essentially pays for itself. They can therefore enjoy the lifestyle they want in one area, while still building equity in another property, which could eventually give them the means to purchase in their preferred location if affordability is an issue today.’
Like any form of investment however, it comes with drawbacks, from the lack of certainty if your own landlord sells to ‘balancing both rent and a mortgage can be financially demanding, especially with rising living costs.’
John Fraser-Tucker, head of mortgages at Mojo Mortgages also notes the difficulties of securing a buy-to-let mortgage as a first-time buyer, as lenders typically require a higher deposit and assess affordability on projected rental income rather than personal earnings.
‘This, coupled with the complexities of being a first-time landlord, narrows the field of available lenders and requires greater vetting,’ he tells Metro.
‘And beyond the initial hurdle of securing finance, prospective landlords must grapple with intricate tax implications, including Stamp Duty surcharges and revised mortgage interest relief rules, alongside the significant legal and maintenance responsibilities that come with property ownership.
‘While not impossible, a successful venture demands meticulous research, robust financial planning, and expert advice to truly understand and mitigate the heightened risks and responsibilities involved.’
A moral conundrum
Aside from the practical concerns, the concept of rentvesting could prove controversial to some.
The average UK house price now sits at £270,000 while rents recently topped £1,500 a month on average for the first time (not to mention, these figures are even higher in London and the South East). On the contrary, wages have stagnated, meaning people are spending more on housing than ever before.
Myriad factors play into this, and rentvestors aren’t to blame for our country’s housing crisis. But there are criticisms: for one, those who choose a location to buy based solely on returns – with no intention of living there or contributing to the local economy – don’t exactly help the societial division it’s caused.
It could also be argued that the circular element of it – landlords renting from other landlords – has the potential to inflate prices, in part because it means fewer homes for owner-occupiers.
‘Housing is an issue, so there’s the conundrum of whether my property could be available for someone to rent full-time or buy on the other side of things,’ says Charlie.
‘But why shouldn’t I be able to own a house as well, even if I don’t live in it? It’s not like I’m building up a big portfolio to milk money from it. And if I’m paying rent somewhere else, it kind of balances out.
‘Even with people that do have major property portfolios, if they’re renting things out at a fair price then I don’t really see an issue, as people are going to need houses to rent, because not everyone can afford to buy, right?
‘I see where the frustration comes from, but I think the problem’s a little bit bigger than the odd person renting out an Airbnb.’
He does disagree with rent-to-rent though – where people rent properties and then sublet them for a profit – saying: ‘That’s definitely pushing the prices up, and it’s not fair.’
Charlie certainly recognises his priveleged position, although he highlights the self-made aspect of it, commenting: ‘I’ve always worked very hard at the business; when I first started it, I was doing 12 to 15-hour days. And I was lucky, because I also know people that have worked 15 hours a day that started the same time as me, and it didn’t work.
‘But I’m not expecting any kind of inheritance or anything like that in my later years, so this is something I can do now to look after myself in the future.’
He adds: ‘All I’m trying to do is have some stability, I just want the mortgage to be able to be paid so I can build that equity in the background. That’s why I’m doing this rentvestor thing – it’s just like any other savings channel.’
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