Hey folks, Dr I hope you well.
I just wanted to catch up on a couple of things. Over the last week a couple of questions have come in more than once from different people actually, who have been asking me questions about strategies and this hasn’t happened very much prior to Covid-19. I think there has been a lot of processing going on people’s heads and the questions have been around the subject of should we change our strategy now?
What are you going to do Dr Ro?
If you are somebody with the mindset that you may have been affected in some way, shape or form by what’s happing with Covid i.e. your tenants haven’t been able to pay or you are not sure whether you are going to fill the rooms as quickly as you hoped and you’re looking for something that provides income, but maybe with a greater sense of security. There are probably two strategies you can consider straightway.
First one is a rent guarantee system.
I get letters in today where people are out there and they find out I’m an owner of property and they write to me saying, we run a property investment company would you like to hand your property over to us and we will give you a guaranteed rent? Now be mindful if they’re doing that, then it means that they are going to probably offer you a guaranteed rent of this much on the basis that they can rent out for this much.
Let’s say the market rent was 600 a month. They might offer you 650, 700 a month. You get guaranteed rent plus a bit more maybe them, they may just offer you the market rent and take away the hassle on the basis that they will rent it out as HMO or to an organisation and get eight, nine, £100,000 or more on it, depending on how they operate it. That strategy can work and it gives you the option to hand the property over to somebody else. Be mindful and again take financial advice on this.
But if you happen to do that with another organisation you sign a contract and they become your tenant effectively and you get guaranteed rent, if they happen to put four, or five tenants in the property and it isn’t licensed for a HMO, you are going to be in trouble.
Secondly, the mortgage that you have on the property may actually be set up as a buy to let and it might be there’s a clause and it says it cannot be run as HMO, or if you do choose to multilevel HMO the property out then you need to notify the mortgage company. I’m telling officially what you should be doing, and that’s a conversation you will probably need to have with your mortgage broker if that occurs. However, if you can get all those pieces together and somebody offers you two, three, four, five years guaranteed rent great.
Think about that, think about how the mortgage will be paid. The other thing is to look at the government schemes like social housing, asylum seekers. There are also ex-veterans, special needs. There’s a whole bunch of these strategies. There is definitely a growing demand for this there has been for many years. I started my first one of these to put this in perspective, I did my very first asylum seeker property in 2002 that’s 18 years ago.
It’s was a very different market back then for a lot of the asylum seeker strategies back in those days in these cluster areas you could only do it on a buy to let basis, that market has changed dramatically and it’s opening up again. I can tell you now that over the next four to six months you will see a lot of demand in these areas. Charities reaching out saying if you’re a landlord we’ve got funding we need to place this many tenants in this area, this type of property.
There are opportunities there where they’ll take the property from you for three, five seven, even 10 years and particularly in the north-west and north-east of the country at the moment these opportunities are opening up and you’re looking at properties you can buy in the range of say low end maybe 70 K right up to 150 K mark. That is a sweet spot and these are strategies that can work really well.
You’ve got to be mindful of the type of lending you put on that some banks don’t like them. Some lenders are okay but then my caveat with X, Y, and Z you may pay slightly higher interest rate.
So again, it depends on the lender, who you’re dealing with, what your existing setup is, what your experience is as well. Talk to mortgage broker. Find out what the current situation is. For example, in one of my portfolios we transitioned many of our properties over to this strategy in the last two to three years, previously they were HMO’s. They were generating cash flow but when the opportunity came in the same area to transition over and hand these over for five to seven years it was a no-brainer.
I think with anyone coming through Covid who wants that sense of security this could be a good strategy. Hopefully, that’s useful and gets you thinking of ahead and maybe putting that plan in action.
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