Week Twenty-Eight: Coming out of Stealth mode
November 17, 2023
Hey. So I have a new project to show you, or at least the marketing page
It’s a pretty involved explaining what it is, but - what the heck - I’ll try.
The app is a marketplace for rent-to-rent property deals.
Rent-to-rent property sourcing explained
So there is a world of rent-to-rent property sourcing. Explaining what this is is reasonably involved (as I’ve discovered from trying to explain it to friends). First we need to understand the rent-to-rent market, then we need to understand the property sourcing market.
Rent-to-rent
Rent-to-rent investing is where one person rents a house out, in order to then rent it out to other people. Obviously this sounds mad, and imposible to make money from. Why is there a need for this additional rental middleman? Surely this just adds extra cost.
The reason it isn’t mad, is that this rental middleman, let’s call her Ivy, generally rents the house out in a way that requires active management (for example, listing it on AirBnB). This is active management that the property owner isn’t interested in doing.
For example, if Ivy lists the property on AirBnB. She might be paying £2000 a month to rent the house, but then list it on AirBnB for £200 a night. So long as she manages to get bookings for at least 10 nights per month, she’s in profit.
So that’s the rent-to-rent market, simple right? But what is property sourcing?
Property sourcing
Property sourcing is just people trying to find property investment opportunities, and then sellling these opportunities on for a finder’s fee.
Normally they do this by cold-calling property owners to see if they’d be willing to sell or rent out their property.
Putting it all together
So far we’ve heard about 3 kinds of people.
- Property Owners
- Sourcers (ie property finders)
- Investors (ie property managers)
Let’s run the story all the way through.
Owen has a house. He doesn’t live in it, who knows why. Maybe’s he’s moved to a cottage by the seaside. But he does want to generate income from it. He’s planning to rent it out to someone.
Then, one day, Owen gets a call from Sally.
Sally tells Owen that there is a way he can rent his house out above market rate, and for a long period, perhaps 3 to 5 years.
Owen likes the sound of this, so tells Sally he’s interested.
Sally then contacts all the investors that she knows, who manage rent-to-rent properties. One of these is Ivy.
Ivy already manages a bunch of rent-to-rent properties, and makes a good income of renting them out as holiday lets. Because she treats managing her properties as a full time job, she can make more money from a property than a passive landlord (like Owen) would (but she has to spend a lot of time marketing the properties, managing cleaning staff, liaising with the guests etc.).
She’s interested in finding more properties to manage, but she doesn’t have the time to go around hunting for prospective property owners. So she’s delighted when she gets a call from Sally to say that she’s found a suitable new property that she can add to her collection.
Sally puts Owen and Ivy in touch with each other. After a bit of conversation and a visit to the property, Ivy signs a contract to lease the property from Owen for a 3 year period. At that point, Ivy pays Sally a £3k finder’s fee, and everyone’s happy.
So why do we need some new website?
In the story I described above, Sally was able to sell the deal that she had found to an property investor that she knew already. However, it doesn’t always go so smoothly.
If Sally can’t sell the deal to someone she knows already, she has two choices:
- post the deal on a few facebook groups that exist for this purpose (eg, like this one)
- ask one of her other sourcer friends if they have any investors who might be interested in the deal (but they they’ll have to share the sourcing fee)
Both of these options are pretty sub-optimal.
They rely on either informal networks (like sharing the deal, and the fee, with another sourcer) or generic messaging groups that aren’t set up for the purpose. Imagine being a property investor trying to find opportunities in your home town, and having to endlessly scroll through irrelevant posts from all over the country to find something you might be interested in.
Ideally, sourcers (like Sally) and investors (like Ivy) would have a marketplace where they could buy and sell property investment deals.
And that’s what we’re hoping to build with r2u. The marketing site is live, and we have an email signup list for people who are interested in being our first customers. Take a look!
Hope you all have great weeks.