Social Housing: Investment Strategy
If you are looking at an alternative property investment strategy which can provide you with less risk and a more sustainable long term income, Then social housing could be just that. Now we are seeing more than ever the importance of having am alternative income source within your property portfolio rather than solely relying on one strategy.
There may be many misconceptions with social housing amongst investors who have no experience. Common things we hear are "Will the property be wrecked?", "What if they stop paying the rent", "Who is going to be housed?"
More often than not we have found that properties which have been successfully let via social housing leases are looked after Better, than the tenants in some private accommodations. That being said "Social housing" is a broad sector and covers many different options, The particular niche we work on sourcing properties for our clients is "Government-backed long term leases" which are contracted to reputable companies with long term track records.
One of the main benefits we have seen with the social housing leases is the reduction in liable costs to the Landlords. We have successfully agreed as much as 10 year leases with NO utility bills, Council tax or maintenance costs to the Landlord throughout the term. This can quickly eradicate any concerns which you as an investor may have with tenants overusing the utilities resulting in high bills. A dedicated team of property managers often come with the leases we secure meaning there are no management costs associated either.
Case Study - 4 Bed Social HMO
Purchase Price: £60,000
Income: £55 per room per week
Monthly Net Profit: £953
Annual Net Profit: £11,440
New Market Value: £110,0000
NET YIELD: 12.5%
This is a social HMO we completed towards the end of 2019 in St-Helens, Merseyside, North West UK. This property was located in a desirable street with good local amenities, transport and a strong homeownership demand. This gives us evidence that the misconception around social housing being located in the less desirable areas is nonsense. The property was arranged as a traditional 2 Bedroom Terrace into a 4 Bedroom HMO with 1 shared bathroom & communal space.
As we were converting this into a Social HMO there were 2x sets of guidelines we needed to adhere to, Something which can often be overlooked when considering a social housing conversion.
First, we had to make sure all the spaces and amenities were satisfactory to the council's standards. Secondly, we needed to fit out the property according to the housing association standards. If you are working on a project which is to be handed over to a housing association it is important to establish early on whether they have their own guidelines to avoid unesaccery costs on handover.
This particular housing association were prepared to pay £55per room per week which at first may seem hugely less competitive than private however when you factor in the usual costs associated with a private HMO "As mentioned above" It is a strong contender if no slightly superior offer.
Not to mention we had successfully agreed on a 10-year lease which would receive rent payments regardless of the properties occupancy levels. During these times of economic uncertainty such as what we are seeing now with the coronavirus pandemic, This can be a lifesaver and a strong foundation for any property portfolio,
Private vs Social
As time goes on naturally the property market evolves and we are seeing that currently with the HMO market. Although smaller less jazzed up rooms do often rent privately, It is becoming increasingly more competitive amongst other landlords, Larger luxurious rooms with En-suites now seem to be the norm across most of Manchesters HMO's.
Now, this was not necessary for this particular social housing project. The lease was already agreed before the property was purchased so we knew exactly what rents were going to be paid and that the income would be there regardless of any other "Competiton" on the market. The lease was also structured, based on the number of rooms provided and not the space, amenities or colour of feature walls provided. In term, this means refurbishment costs are usually more affordable making total capital required a lot less than that of a private HMO project.
Find out more
If you would like to discover more about this investment strategy or have any questions feel free to Contact Us anytime.
Alternatively, check our latest Investment opportunities similar to the above case study.