Social Housing as an Investment Strategy

Please see an interview with Ben Hughes and George Nartey from Social Housing Expert: both are landlords who have built their portfolios using in tenants receipt Local Housing Allowance (LHA, formerly known as ‘housing benefit’). Whilst social housing letting continues to receive criticism; largely due to changes in legislation with regards to the LHA; Ben and George explain their own thoughts on the matter as well as how to minimise risks; portfolio management; lenders views and using lease options with social housing tenants amongst other topics.

1) Why do you think social housing has an important role to play in post credit-crunch Britain? The credit crunch has created challenges for all buyers in the UK housing market, not just investors. Unable to raise funds to buy, many are seeking rental solutions and sometimes even social housing so much so that the demand in key areas has now hit 1.8million households (Source: Communities & Local Government) and the private rented sector is an essential part of the solution. This opens up huge opportunities for investors. Our experience demonstrates that a well-informed and effectively-executed social housing strategy can give post credit-crunch investors a significant advantage.

2) Why did you personally choose to go down this route? We assessed the various investment options available and decided that a social housing strategy offered the most compelling benefits. Rents are very attractive, some Local Authorities and Housing Associations will lease your properties for 3 to 5 years and guarantee your rent and they will even manage your property for you as part of the deal. As our primary focus is ‘income’, social housing is an obvious choice. This sector is recession proof – if you know what you are doing.

3) As you mention above, many investors would know that Local Housing Allowance (LHA) rental payments have a tendency to be more attractive than market rents – what other benefits does social housing offer as an investment strategy present? Whilst the Local Housing Allowance (LHA) is not always guaranteed to offer higher than open market rents, with careful research you can find areas where it is significantly greater. In addition to this, voids are very few as tenancies tend to last much longer than professional or corporate lets (Source: Rugg’s Review). Additionally longer tenancies mean costs incurred in refurbishing and upgrading furniture to re-let and in re-letting fees are significantly reduced. Combination of the above means significantly improved profitability for landlords who run an effective operation.

4) There are many investors who would be reading this who would have a level of skeptisism with regards to housing social tenants (examples include damage to properties, defaulting tenants etc) – what steps can be take to minimise risks? The myths abound! Our experience is that social housing tenants are no worse than professional tenants. Most are very appreciative of the opportunity to live in a well-maintained home and will work well with you if given a chance. Informed investors seeking tenants – professional or social, should take the correct steps to get a good tenant (credit checking, vetting, regular checks etc.). Over the years we have perfected a system that minimises the risk and maximises profitability. For example, we have tenancies that have continued un-broken for over 6 years and rents are paid regularly and on time. The tenants are house proud and look after the homes very well. In short, effective management is the key in all cases. We run courses where relevant techniques are taught.

5) Would the social housing strategy only work in certain parts of the country? What about in London and the South East, where house prices can be significantly higher? A social housing strategy – like renting to any other groups can work well anywhere in the country and there is no substitute for careful research against clear criteria. Our experience of London and the South-East is that if the deal stacks up and you buy the right property at the right price, it will work well.

6) What about new build properties – we are currently seeing many appearing on the market at very solid discounts, do these represent a good opportunity for LHA tenants? We do not see why not – if the sums stack up. Our own strategy is built around older properties because of the added opportunities these properties give us.

7) Do lenders act differently to landlords who house social / LHA tenants? Unfortunately no – not all lenders accept social housing tenants. If you are going to use this strategy then you have to let your broker know so that they source your finance from lenders who do accept social housing tenants. There are a number of them around and this should grow as the secured lending market improves in time.

8)Do you think its important to have a mix of social and non-social housing tenants in one’s portfolio? Absolutely! Diversification makes excellent business sense. In our case, whilst we predominantly go for social housing opportunities, all our property would sit perfectly well in a portfolio aimed at professional tenants. Our exit strategies always include possible renting to professionals or sale to owner-occupiers.

9) An increasing amount of investors are using sandwich lease options to gain profits from a property – can a tenant buyer claim LHA and still have a right to future ownership of a property? Are there any other ways lease options can be incorporated into a social housing portfolio building strategy? Provided the tenant buyer qualifies for LHA, we do not see why not. The precise circumstances of the tenant buyer and the deal are what matter, so we believe a social housing strategy can be linked into a Lease Options scenario – but each circumstance would have to be analysed specifically.

10) How can readers find out more about what you do and can you outline some information about the courses you offer? Our company (Social Housing Expert Limited) runs courses for Investors. We believe well informed investors will make the most money. Our Social Housing Fundamentals course covers the following areas:-