Ryan Luke says that he’s built a property empire from flats that, for the most part, he doesn’t even own.
Sitting by the pool in Dubai, or making calls in expensive-looking apartments, the 38-year-old shows off his luxury lifestyle to his 37,000 followers on TikTok. His videos all have captions that say stuff like “the four things that guarantee millionaire status” or “the EXACT steps I took to get my first Airbnb without owning”.
Watch a few of them and you’ll quickly work out the basics of his system. Essentially, he cuts deals to rent places from landlords, fits them out with IKEA furniture and converts them into Airbnbs. Doing this, he can jack up the rent and pocket the difference – and he reckons the profits can be huge.
“A very bang average property will probably do four grand a year, and a really good one can do north of ten,” Ryan tells VICE.
Introducing: rent-to-rent, also known as rental arbitrage, the parasitic investment strategy that is being touted across social media as a way for the growing number of people who can’t afford to buy their own home to invest in property.
Videos on arbitrage and rent-to-rent are racking up hundreds of thousands of views on TikTok, Instagram and YouTube, where rise-and-grind entrepreneurs are selling it as a money-spinning hack that can lead to “passive income” and “financial freedom”.
The idea is that people sign long-term contracts with landlords to rent their properties, guaranteeing the landlord an income for a certain amount of time. With the landlord’s consent, they then convert these places into short-term lets or houses for multiple occupation (HMO), which means they can rent them out for more than they are paying and scalp the difference.
Doing this is not strictly against Airbnb’s terms of service, though they do acknowledge hosts need permission from whoever is responsible for the building – but while rental arbitrage is being sold as a lucrative opportunity to cash in on property without owning anything, there are tonnes of risks, legal issues and ethical concerns that influencers selling it are less keen to talk about.
For one, you might wonder how responsible it is to encourage people to convert rental properties into short-term holiday lets right in the middle of a housing crisis.
Back in May, Zoopla reported that rents in the UK are rising at their fastest rate in 14 years and have gone up by 11 per cent over the last year, driven by a shortage of rental properties and soaring demand as people return to cities after the pandemic. Throw in the ever-worsening cost of living crisis and rent-to-rent starts looking pretty predatory.
“Young adults are desperate for homes we can afford,” says Dan Wilson Craw, deputy director of Generation Rent. “We’re in this situation in part because politicians have encouraged house prices to keep rising, which has made property ownership more lucrative than jobs that actually benefit society. Because of that it is grotesque, but somewhat inevitable, to see these entrepreneurs feeding off this desperation.”
Ryan, who says he boasts a portfolio of 300 properties, around half of which are rent-to-rent deals, is less concerned with the ethics behind rental arbitrage. He blames bad tenants and government regulation that protects renters for making rent-to-rent an appealing option for landlords.
“I look at it purely from a business perspective, obviously,” he tells VICE. “I've always been wanting to stand on my own two feet from a very young age. And you know, I'm a big believer that everyone, or most people, do have the opportunity in life to do better for themselves.”
TikTok tycoons dress up rent-to-rent in the hyper-aspirational buzzwords of other get-rich-quick schemes like Forex and crypto trading, making it look like an appealing and accessible way to make loads of money. People like Ryan use their videos to sell courses on rent-to-rent, where they say they will give up the secrets of their success – for a fee, obviously.
Samuel Leeds is another influencer selling the rent-to-rent dream. Back in 2020, Leeds was the subject of a BBC Inside Out investigation that featured multiple former customers who complained that they were mis-sold expensive property investment courses that had little more content than the free courses he offers. It highlighted the case of army veteran Danny Butcher, who committed suicide after taking out a loan to pay for training from Leeds.
Later in the same year, Leeds was featured on the Channel Four show Joe Lycett’s Got Your Back, where the comedian sent someone undercover to film one of Leeds’ free crash courses. There, they found aggressive selling techniques, such as time-limited discounts and sessions that lasted for hours on end.
Leeds is still flogging courses on how to get into rent-to-rent through his company, Property Investors. Among the courses on his site that cost as much as £11,995, he has two tailored specifically to rent-to-rent. The first is a £995 “Rent 2 Rent accelerator”, while the second is a course on how to start a serviced accommodation business – aka Airbnbs – for £1995.
In its 2021 annual report, the Property Redress Scheme [PRS], which helps mediate complaints between the property industry and consumers, identified just one area that had garnered a large increase in complaints over the last year – rent-to-rent arrangements. It put this down to the fact that many rent-to-rent businesses had struggled during lockdowns and the increase of rent arrears that resulted from the pandemic.
Sean Hooker, head of redress at the PRS, says that recently they have seen a number of complaints relating specifically to short term rent-to-rent deals. “This model appears to have gained traction as the traditional letting sector and especially HMOs have become more regulated,” he says. “We are also concerned about budding property investors [who] are lured by property investment strategy courses and training, which at the moment is completely ungoverned.”
James Mayall, a solicitor at Osbornes Law, says that legal problems in rent-to-rent mainly affect – tiny violins at the ready – the original landlords of the properties involved. There are various scams and illegal practices surrounding rent-to-rent that can lead to landlords losing money, or getting caught out by invalidating their insurance or mortgages agreements.
But Mayall also acknowledges that there are big risks for anyone trying to make money from rental arbitrage legitimately, because it relies on a steady stream of income in a market that may not always provide it.
“If there's another pandemic, or suddenly the rental market tanked, or Airbnb goes bust, then those people will be left with no income on the flats, but with a liability to all the landlords to continue paying rents,” he says. “If they have done it in their own name, or through a proper company, you can very quickly find yourself with huge monthly bills and no income.”
Rent-to-rent encourages people to treat life like a giant game of Monopoly – literally suggesting they take on viable homes and turn them into mini hotels. But like all forms of landlordism, rent-to-rent is a zero sum game. Whether you own the place you’re renting out or not, someone is always left holding the shitty end of the stick.
“We need much better regulation of the rental market and that includes regulation of the Airbnb sector, which is so lucrative it is taking homes away from people who need somewhere to live,” says Craw. “Ultimately the government needs to go further – providing enough homes so that everyone is well-housed. Only that will end the desperation and wipe out the excessive returns that this arbitrage currently offers.”
@haydenvernon
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