Hi, it’s Dr Ro I hope you’re well.
I’m talking to you about investing in property with Dr Ro and I am in a renovation property so whilst I’m here, I’m doing a few short videos, addressing some questions that have come in.
On my piece of paper here is a list of questions that are actually coming in from people asking, and I’ve kind of gone for a pick of the month. This month and that is social housing.
So as I’m sitting here now and this area around me here is an area where there isn’t necessarily a massive demand for social housing, but within probably 15 to 20 minutes from here we are going into areas where there is social housing certainly 25 to 30 minutes here. There is definitely social housing.
What is social housing?
Social housing is essentially housing that is provided for people on a low income or potentially no income, and so they get government support, the department of social security. They could be families that have had challenges, financial challenges. It could be people that are single parents, all sorts of different backgrounds and inside of that group, there is a massive spread on the demographic.
Now, why is it important to you as a landlord?
Well, I’ve been doing social housing now since 2001. So that’s roughly 18,19 years and I found it to be a very successful model. A lot of people go, oh my gosh social housing do I really want to get into social housing? What about the tenants? What about the damage to the property?
These are actually good people who want a home for themselves and they don’t necessarily have the financial situation right now to be able to buy their own property. They may not be in a position to physically be able to afford to rent their own property. So the government are saying we will give you some support here, looking at your circumstances, maybe you’re a single mother or single dad and you’ve lost your job, or something happened to in your health perspective. We want to help you out.
Your objective is to provide good quality homes to people so that they could take those properties to live in them and everybody wins. They win because they actually physically get a home. You win because you get some rental income coming in and you get your passive income from it.
Now if you want to simplify this and you might want to write this down, there are three things to be aware of really. Or three strategies that you basically need to be aware of. The first one is where you deal directly with the tenant. And that’s where the social housing tenant has been approved for social housing and essentially what happens is they receive the rent directly from the council or the social housing department. That money comes to them. Now when I’ve done this in the past previously we could get paid through the letting agent. That changed some years ago. The challenge you’ve got for some people is what if they don’t pay me? What if they get into financial difficulties that particular month and they are not in a position to actually pay me, I’m not going to get my rent. Absolutely that is the challenge, so you’ve got to be aware of that, which is why the qualifications, the filtering, the checking of the tenants is so important. We will come to that in just a moment.
So if you think of it as an income pyramid the base of that pyramid would be you’re dealing directly with the tenant, and this is why it is important to be aware that there is even a lag for example on social housing. Once they move into the property it might be six weeks before they actually receive their rent to pay you. So you’ve got to allow that in your cash flow forecasting.
The second type of social housing tenancy agreement would be a fixed-term tenancy agreement where you get guaranteed rent for three, four, five, six, seven years, in some cases up to 10 years, but typically three to five years. That is paid through a letting agent that has got a link or association with the social local housing association. The rent comes to the letting agent who manages the tenant for you and just works with the locals social housing association, but you basically are not getting the full rent now. You’re getting full rent, minus a 10% management fee. And you might say, well, why do I need to do that because it’s a long-term let, but it might be that they’ve set that long-term let up for you. They found it and secured it and as a result of that, they’re going to get a kickback from that on a monthly basis in commission.
The benefit to you of course in this situation is that you get a guaranteed no voids rent for five years or three years. That means absolutely no voids and generally as a rule with these types of tenancies, generally but not always your maintenance costs are minimal because they’re mainly picked up through the housing association. As well something to be aware of if the tenants move over, you still get paid the rent.
Rights so that’s a fixed-term tenancy through a letting agent.
And finally, the last one is a fixed-term tenancy agreement directly to you. So you’re directly dealing with the local housing association. They’ve got a contract with you or through a supplier and that relationship is such that they will pay you every single month for three or five years, a guaranteed rent. This is completely hands-off, sit back and relax in the Caribbean type strategy, I’m joking but I’m not joking. Because what this means is your tenants whether they’re there or re not is effectively the British government. Meaning that every single month they pay you. If they have to switch a tenant out or if there is some problem with the property they deal with, it gets returned to you, minus any basic wear and tear. And that’s typical of a contract like this, a lot of people say is my property going to be wrecked after five years? Actually, the property is looked after, it’s maintained, it’s their responsibility. And part of that process it goes back to you. Typically, again, you’ll have to check the contracts you’re going to be putting in place, but typically you get that back after the five years. Assuming you want it back. In some cases, people say, well, the council might approach you and say, Dr Ro would you be interested in extending this contract out for another five years? And you say let me think about that. No voids, guaranteed rent of five years, you’re going to give it back to me in good condition all but the wear and tear. Yes, please. I’ll have another five years with you.
So that’s a decision you have to make as an investor.
I love it. It’s a great strategy, we’ve been applying it for many years now. Alongside that is government housing and that has a whole other plethora of different strategies, which I’m not going to talk about right now.
So if you’re thinking about doing this, remember, you’re effectively operating as a social housing provider. So you’re going to have to go speak to the council. Ideally, you need a little bit of experience in the field already and that’s something you can go speak about with the council to see if they’re going to take you on straight away, or whether they might want you to have had a bit more experience and education, bit more knowledge on how to operate.
Because with social housing there are there some benefits as well, which can include things like grant money if you know how to go in and qualify for grant money the opportunity is there for you to take some money as a grant. On the basis that you renovate the property and then you hand it back to them.
So, again, could be a very good strategy for you.
So hopefully that’s been useful. It’s certainly a strategy that we have been applying for some years and I’m certainly going to keep to continue to apply. Because there’s such a huge demand for it.
To try and put this in perspective there are over a million and a half people on a housing waiting list right now as I’m recording this video and in some areas the waiting lists, i.e. the time it takes for somebody to get into social housing property, i.e. possibly your property. Anything from 10, 15, even 20 years. That is a long time to be waiting.
So I think we as responsible landlords can come to the table and hopefully provide some great value to tenants that need a home. And we can help out the social housing list as well.
Dr Ro, signing out hopefully I’ll see you on one of my future tips on investing in property with Dr Ro.
See you then.
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