Social Housing

New to Social Housing?

Learn the basics of Social Housing as a buy-to-let investment strategy through our introductory video.
Below, we have provided more detailed information about Social Housing as a strategy for Buy-To-Let properties.

A Definition

What is Social Housing?

Social housing is a collective term used to describe housing that is provided by the government, local authorities or housing associations to people or families in need of housing. Social housing aims to ensure that everyone has access to safe, secure and affordable housing, especially those on low incomes or facing other housing difficulties.

Social housing properties are typically rented out to tenants either at concessionary or below-market rental rates. These properties are subject to regulations and eligibility criteria set by the relevant housing authorities. Social housing is essential in addressing housing inequality and providing stable housing options for vulnerable individuals.

Property Types

Social housing can take various forms, and the type of support it provides to its residents often determines the properties used. Single-family houses, apartments, and HMOs are all used by housing associations as social housing, this approach means that properties can be either freehold or leasehold.

Let's tale a look at some of the advantages and disadvantages of social housing.

Social Housing is a great option for those who are interested in the Buy-To-Let market. Housing associations act as tenants for the property owners and offer long-term leases that can last several years. One of the major benefits of social housing is that the rent paid by the housing associations is usually above the local market rate. Additionally, the housing associations typically cover all the expenses that come with owning a property, such as management fees, and repairs and maintenance.

Since the leases are signed for multiple years, you will still receive payment during any vacant periods when the Housing Association is not renting out the property. This makes social housing an attractive option for Buy-To-Let owners who are looking for a stable and reliable source of income without having to worry about the day-to-day responsibilities of managing a property.

Although there are numerous benefits of owning a property leased to social housing tenants, there are also some downsides to this strategy. One of the primary challenges is the high entry barrier for potential property owners due to the large amount of cash required to either buy an existing leased property or convert a property for this purpose. In addition, limited lending options make it difficult to refinance and invest less money in the property.

Social housing properties are only available in areas where there is demand from housing associations or local authorities, which may not be local to the owner. Finally, because vulnerable tenants occupy social housing, housing associations have strict criteria for properties they will rent, which may make it more expensive to install the necessary features if the property was not previously used for social housing.

How much do I need for Social Housing?

Cash Requirement

As we've discussed, Social Housing can be one of the more cash-intensive strategies for Buy-To-Let property but the range will vary depending on the type of property used and whether you intend to buy one with an existing lease or intend to convert the property yourself.

On the lower end of the market, apartments are available in specific social housing blocks that can be purchased at lower prices. These properties can either be purchased as existing social housing or can be bought off-plan while still under construction. To purchase one of these apartments, you would likely need a starting budget of approximately £130,000 in cash, depending on location.

Depending on the house prices in the local area where the properties are needed, a starting budget of around £150,000 could be sufficient to purchase and convert a property for use as social housing. However, there are various factors that can influence this approach, and the actual cost may be significantly higher, particularly if the property requires extensive repairs or renovations.

Another way to own these properties is by purchasing a larger freehold property, which is usually converted to an HMO, has a lease in place with a housing association, and is already tenanted. The cost can vary depending on the location and condition of the property, but for a good starting point, a budget of around £170,000 should mean there are some opportunities available to you.

Sourcing, Converted and Securing the Lease

We've scored this one a 5 out of 5 difficulty if you're trying to source, convert and negotiate your own Social Housing.

Sourcing a property for Housing Associations can be difficult, especially if you're not local to the area in demand. You may face challenges in negotiating a property within your budget, organising and managing necessary contractors, all while ensuring that you meet the requirements set by the Housing Association to meet their standards. Even experienced property owners can find this process challenging.

Additionally, negotiating the lease particulars with the Housing Association to get the best returns can be a daunting task. However, if you manage to get through this hurdle, the ongoing management of the property should be relatively easy with the Housing Association managing the majority of it.

We've scored the other route to owning Social Housing as a 2 out of 5 difficulty.

Purchasing a property that is already being used for social housing or is being constructed exclusively for this purpose is a simpler way to begin with this buy-to-let strategy. Although this method is generally more expensive than doing it on your own, it eliminates a lot of the challenges involved.

The main issue with this option is the limited supply of these properties on the open market, which can make finding them time-consuming.

When the property is under contract with the housing association, the owner's management responsibilities are minimal, much like the DIY route.

Purchasing Existing

Level of Difficulty

How much work is involved with Social Housing?

Owner Involvement

When the purchasing element is removed from the equation and you focus on the ongoing ownership, Social Housing is one of the most hands-off strategies available in the Buy-To-Let market.

The Housing association lease the property from the owner and acts as the tenant, eliminating the need for the owner to interact with the occupants themselves. Additionally, the Housing Association is responsible for paying the rent to the owner, regardless of occupancy. They also handle any necessary repairs and maintenance of the property and must return it to the owner in its original condition.

Typical Returns & Timeframes

What should you expect from Social Housing Buy-To-Let properties?

Exit Strategy

What happens if you want to sell and how easy is it to liquidate your cash?

Social Housing properties which are leased to Housing Associations are usually held by investors for a long-term period to benefit from the lease. However, unexpected circumstances can arise, and in such cases, you may wonder whether it is possible to sell the property while the lease is still in effect.

The answer is yes, you can usually sell the property at any time, and the lease is typically transferred to the new owner on completion. The new owner will then start receiving rental payments.

However, selling this type of property may take longer than other strategies due to the cash required and limited financing options for the new buyer. Therefore, it is essential to find the right audience when marketing the property as simply listing it with a high-street estate agent may not result in a quick sale.

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