Social housing, (whole video available to watch at https://youtu.be/NHr33nAkEa8 )
There are two ways of doing social housing. I’m not talking about actually how we get the house or anything like that, but how you work with the tenant. So, you’ve got your typical everyday, if you’re in England, an AST, assured short-term tenancy, where you would rent to a tenant who is maybe receiving benefits of some kind. They might be receiving housing benefits or Universal Credit, something along those lines. In that situation, they’re on benefits, but you’re still working with them in the same way as you would with a normal rental. You’ve still got agents fees, you’re still responsible for repairs and maintenance. You’ve still got to deal with deposits, etc.
So, that’s really one of the ways, which probably isn’t best for you. It’s no different for you if you were to just do a buy-to-let. The other way is if you’re going to do a direct lease to a council or a housing association or a charity.
Now there are even brokers that are popping up all over the place that are trying to convince you to give them your property and then they will go and work with the council a housing association or a charity or a council or the association they’ve got a relationship with
You are going to be working with a contract.
So, you’re doing more of a commercial scenario. It’s not a person-to-person, it’s business-to-business. You’re setting up a commercial contract with that agency, and ideally you want to get a contract that’s an FRI lease, which is a fully repaired and insured lease, which basically means that the people that you’re renting or leasing the property to are going to insure it, they’re going to cover any maintenance and any problems and any repairs that might go on. That’s the ideal situation.
You’d also want, in that contract, some kind of way to have a rent review, and or a rent increase of some sort. So, every year you might review it or you might have written into the contract that there’s a natural uplift of 3% or 5% every year. Councils will review their rates every year, the housing benefit gets reviewed every year. it might be natural that you just align it with something like that. You also want to make sure in the contract that there’s something of a break clause in there, just in case you decide that it isn’t working for you. Obviously, they want to take it off you for a longer period of time. They want it five years, probably minimum.
They may start with a two-year with you just to see how things work and then they will then extend it, there’ll be an option in the contract to extend. But you want to have something in there. And really important, something that a lot of people miss out, is you want to know the tenant type. What type of people are they going to put in your property? And there is a huge range of people they could be putting in there. They could be putting in vulnerable people, maybe youngsters that have come from care, maybe people that have come out of prison, are being rehabilitated. They could be putting in people that have been on drugs. And you need to understand what type of people are going to be going into that property, because that has a direct effect on your mortgage, on your product as well.
For example, a lender may say, “We’ll lend you for that type of property in that scenario if you’re renting to a council, but we don’t want anybody that’s been convicted of arson, anybody that’s been convicted of setting fire to places.” Or they might say, “We don’t want anyone that’s been convicted of drugs, or we don’t want anybody that’s come out of prison.” The lenders may actually put a caveat on that for you, so you must make sure that that’s in the contract.
You’ve also got to decide whether it’s going to be furnished or unfurnished. Nine times out of ten, you have to provide the furniture. Some councils have a preferred supplier, some don’t, but everything’s got to meet the standards that’s required.
One of the biggest things I always do, and I always tell people that are doing this, is make sure you get a really good inventory done.
You must have either a video or a photographic inventory, not just a written inventory. You need someone to go around the house with a camera, take some really good clear pictures, or with a video, so that you have a real record of the property. Make sure they are a 3rd party independent inventory creator.
The reason I say that is because in five years’ time, what inevitably happens with a lot of these providers, like Serco and Mears, they have a contract with the government for 10 years. That contract is for 10 years to provide houses for thousands of people. At the end of that five or 10 years, they have to rebid for the contract. So, at that point, there are other organisations coming to them and saying, “Okay, we can do that contract, we can do it for less or we can do it in a better way.” Now the council may then say, “Okay, we’re going to give it to somebody else.”
Let’s say for example Serco had it, but they lose the contract and it goes to Mears. What inevitably happens is Serco will then have to hand you back the property and then Mears will take the property over from you on a new contract. When they hand the property back to you, that’s when the inventory really kicks in. That’s when you’ve got to say, “Here’s what it was like before and here’s what it is now, and I really need you guys to get it to that level,” because your contract says the property needs to be given back to you in the same condition or better than it was when you gave it to them, and you want them to do all the repairs along the way aswell.
Now, regardless of which type you do, whether you do social housing directly to a housing association or whether you do it through an agency, there are still some responsibilities that you have. You are legally responsible to make sure that your Gas Safety Certificate must be done every single year. Now, the council might say, “We’ll do that.” That’s fine, but it’s not acceptable for you as a landlord to just believe them. You have to diarize it every year and say, “Send me a copy of this certificate,” because you’re still ultimately responsible. So, you want them to do that and make sure that’s sent to you. If they’re not doing it or they’re saying, “Well, we don’t have anyone that can do it,” then you can always send someone in to do it and you can negotiate whether they pay for that or not. And of course, there’s electrical safety. Electrical safety now has to be done every five years. So, that’s something that you need to make sure is done as well. As a landlord, that’s your responsibility.
There are some of the benefits.
For social housing directly from an organization you will get lower rents.
If you’re going to a housing association with a property, let’s just say a typical three-bedroom property that you could rent out in the private sector / private market, you might get £600 a month for that in the private sector. You bring it to the housing association, you’ll get whatever their housing association rate is, which could be less. It could be £500 or £550 a month. You’re going to get less money.
The positive is you won’t have any agent’s fee, you won’t have any miscellaneous expenses if you build that into your contract to make sure that the council are paying all the bills and all the maintenance. So, it does still work out.
For example, quick figures, if you took that same house, private rental sector, you get £600 a month for it. let’s say the mortgage is £400 a month, you would then pay an agent maybe 10% of the rental income, and you might put a miscellaneous expenses account, 10% as well. On these figures in the private rental sector, £600 rent, £400 mortgage, £60 agent’s fee and £60 miscellaneous expenses, you make about £80 a month.
Take the same property, if it’s on a social housing lease, you might only get £550 a month for it. Your mortgage is still £400, but you’ll have no agent’s fees and you’ll have no miscellaneous expenses. So, in that same scenario, you might make £150 a month.
What I am saying here is, don’t worry too much if you feel you’re being offered a lower rent, because you’ve not got the agency fees and you’ve not got the maintenance fee. So, you’re actually going to make a bit more money in that scenario.
There are quite a few things you need to consider on your mortgage.
I touched on it earlier, if you’re going for a mortgage and you’re renting in the first scenario, you’re just going through an agent, they’re renting to somebody directly on a tenancy agreement and that person’s receiving Universal Credit or Housing Benefit and is paying that over to you, then there’s no problem. You just get a buy-to-let mortgage, a straightforward buy-to-let mortgage. If you’re giving the property to a council or a housing association or charity, then you must make sure the product allows for that, because there are certain lenders who just won’t do it, they’re just not interested. And you might get a product and then realise afterwards, “Actually, I can’t put that kind of tenant in there,” which is going to be expensive to change later on.
But the other thing is you must, really, really must do, is make sure the insurance knows what type of tenant you’ve got in there. Again, insurances are always looking for ways not to pay. If you’ve put in social housing tenants and you haven’t told them, then they’re going to probably try and get out of paying any problems or any damages that might happen. Please be aware that insurance is one of the most important things to be correct. So, when you talk to your insurance company, “I’m putting in vulnerable children,” or whatever, “is that okay?” And that’s all covered. One other little tip is I always have, on all of my properties, malicious damage cover. That’s in case anybody decides to smash up the walls or punch the doors or anything like that, which can happen.
Okay, so I mentioned there are quite a lot of brokers out there at the moment that are trying to get involved and do a lot of this for you. You might have bought a property somewhere in the UK and you’re ready to do something with this property and somebody’s come to you and said, “Look, I’ll take that property off you and I’ll rent it out on a long-term, on a lease, and I guarantee to give you the money, you won’t have any maintenance.” They say they are going to be doing everything for you in the middle. Now, the positive side of that is you don’t have to do anything. They’re doing everything for you. You will get paid an amount every month that they’ve agreed to pay you. They will get an amount as well. They’ll get something every month, and everything’s done for you.
The downside is it will be less rent. So, if you’re being getting £550 a month, for example, for a property, what they might suggest is take this property and turn it into a HMO. They could then generate maybe £1,000 a month, but they would only give you a percentage of that. So, you may only get offered £800 a month and they’re keeping £200 a month of it. They also will not give you any guarantees and you’ve not had any relationship with the association, which is not great.
Should that broker suddenly disappear and you’ve got this five-year contract in place, yes, you’ve got the name and who the contract’s with, but you may not be able to have a relationship with that company / association and say, “How do I change this? How do I talk to you? How do I deal with it?” you must remember, if you’re going through a broker, you need to make sure all those things are available to you right at the beginning, that you can talk to the company / association as well that you’re renting the property to, and there may be fixed terms in there that you’re stuck with.
That’s a quick, brief overview of social housing.
But there’s also something that I call hidden money in social housing. A lot of the councils nowadays have got either grants or loans that they’re allowed to offer to investors for various reasons. We did this course about a year or so ago and we got everybody to phone round all the councils and to see what grants and loans were available, and Newcastle at the time were offering a £10,000 grant, and a grant is not payable back. It’s free money. Here’s £10,000 for you, you don’t have to pay that back as long as you bring that house into use. It can then be rented and they can get council tax on it and also help people to move into it.
There are various councils that have these kinds of things available. It’s really important that you do some research.
Another thing which I’ve used a lot of are interest-free loans. I used one in Merthyr, which is a South Wales council They gave me up to £20,000 interest-free loan for three years. I didn’t have to pay any payments, any interest, any money to the council at all for three years. And they lent me up to that money to help me with the refurb cost. So, you could find a property, get the refurb paid for, and not have to pay anything for three years. Even if your plan was to refinance it, you don’t have to refinance it straight away. You could say, “Let’s wait a few years,” and they don’t worry when you pay them back as long as you pay them back in that three-year period.
Sometimes, if you’re clever enough, you can reuse that money. So, let’s say you’re going to use a property, you’re going to buy it, you’re going to refurb it in the first year, second year you’re going to do another one, but you’ve still got their money, using their money on the second one, and then do a third one. In three years, you could possibly do three properties with the same money. Some councils won’t let you do that. As soon as it’s refinanced, they’ll say, “We want you to pay it back.” It’s understanding which way you’re going to go. But the reasons they allow you to do that is they want to bring that stock back into usable housing. They don’t have the experience or the knowledge or the team to do this themselves, so they just offer these grants and these loans out to investors. And I’ve had, over the years, various different levels of loan or grant.
They’re really good. The only thing I find is, with councils, is they’re very paperwork-orientated. Everything has to be perfect. You can’t apply for the loan until you own the property, which is quite difficult. You don’t know if you’re going to get the loan. You have to make sure you’ve got the money to do it if you don’t get the loan, because you can’t apply for something until you own it. You have to prove you own it before you’re going to put the application in, and then you then put in your builders’ quotes and say, “Look, here are two or three quotes from builders, the work needs to be done.” They might send someone round to come and have a look at the property, a surveyor for example , just to say, “Yes, I agree with those quotes.”
I hope you found this insight into Social Housing investing in the UK useful
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