Should I take a tenant in receipt of benefits?

UPDATED DECEMBER 2012

Most landlords who have been renting property for a while will have been asked this question, and my staff  get asked on a daily basis whether a given property will accept people who are receiving benefits.

Quite simply that’s because there’s huge demand for properties that will accept benefit claimants – Local Authorities in Northampton and Rugby have ‘waiting lists’ running into the thousands which continue to grow. It is a specialised area of the market, and one that you must not enter casually. However for some of our landlords it is a very lucrative market, and they are now buying to meet the tenant demand.

These tenancies can work well, but it’s really important that the landlord understands in advance how these tenancies work, and what the pro’s and con’s are. I’ll go through these below.

Should I, Shouldn’t I?

The main question Landlords should ask is ‘do I need to accept Housing Benefit Tenants to rent my property’?, For the vast majority of Landlords, the answer to this question will be no – there will be a large enough supply of good quality private tenants happy to pay the rent you want. As such you’ll stick to the private market as it is, statistically, less hassle. Landlords generally need to consider a tenant on benefits :

1. if their property is in an area where there’s low demand from private tenants, or
2. if the local market is such that there’s a shortage of private tenants generally.

What are the advantages?

If your property isn't in the best area, there are many!

1. You can get a premium rent for your property – Local Authorities have a set ‘scale’ they pay against, based on the size of the property, and not based on the area. As such if you’ve got a property in one of the poorer areas of town, you’ll get more for it with a Housing Benefit tenancy than with a private one.
2. In many cases the Council will provide a guarantee bond instead of a deposit. This is usually capped at 1 months rent, but in certain instances can go as high as £6,000. The bond scheme with Northampton BC works well, and pays out.
3. Housing Benefit tenancies statistically last longer – if you’re claiming benefit and you want somewhere nice to live, the world is by no means your oyster! As such when tenants get somewhere nice, they tend to stay longer.
4. In certain areas of town, a housing benefit tenant may be a safer bet than a private tenant – a single parent with children is always going to be entitled to funds, whereas a private tenant on low income and in / out of work, may struggle more to pay.
5. More often than not, we can arrange to receive direct payment from the Local Authority, which mitigates the likelyhood of the tenant not paying.

What are the disadvantages?

There are a few here also. It's important you understand these in advance.

1. Rent is paid in arrears, not in advance.
2. Local Authorities make 13 rental payments a year instead of 12. You still get the same amount of rent annually, only in smaller chunks.
3. Without wishing to over generalise, tenant often struggle to deal with issues that arise (such as their benefit entitlement being changed) and deal with this by ignoring it, or burying their head, rather than coming and telling you.
4. If the Local Authority overpays housing benefit, they will take it back from whoever they paid it to. As such if we’re getting direct payment for your tenant, and the LA subsequently decides the tenant wasn’t entitled to that money, they will deal with it by simply taking the money back – that's democracy for you!
5. Local Authorities aren’t geared up to communicate with landlords, and very much see the tenant as their ‘customer’. If the tenant's entitlement to benefit changes, you can bet the local authority won’t tell you – the first you’ll know is when the money stops coming in. As such Housing Benefit tenancies can take a lot more management.
6. If you want to / need to get rid of your tenant, you can bet the Local Authority won’t help you – you’ll very much have to rely on the court process unless your tenant is happy to play ball!
7. As an agent we lose a little bit of flexibility on which tenant we let to – the Council doesn’t like to see us making arbitrary decisions, and rejects any form of 'discrimination'.
8. The secret to success is hence understanding the above and managing it. If you get a reliable tenant, and a relaxed landlord, it can work really well and deliver a great yield for the landlord. If you get an unreliable tenant and an inflexible landlord, problems can ensue!

As such there can be problems with accepting tenants in receipt of housing benefit. It’s not a market that suits everyone and if you’re the sort of landlords that treats their rental properties as extensions of their own home, it’s not the market for you. That said, you can pick up a cheap property in one of the less upmarket areas of town and rent it for good money. We have a number of landlords who operate successfully in this market and I have a couple of places myself that I let out to tenants in receipt of benefit. Nearly all of us get our fingers stung occasionally. However all of us come out ahead overall. 

NORTHAMPTON, Best Cheap Buys 01 December

Strangely, the best deals around in Northampton currently are leasehold flats – finding anything freehold that represents good value is currently difficult. There’s a range of options and price ranges – here’s a summary of what’s around currently. Some, I know are already under offer. We’ve done yields based on the asking price, so assume that the yield will go up slightly as you’ll presumably buy for slightly less.

We've scanned the market up to £100k. This is the best of what's currently available assuming yield is a factor and also that purchase price is sensible.

The weeks leading up to Christmas are often good times to steal a deal – people’s minds are on other things, so there’s less competition!

Everything here is very lettable. Assuming property condition is good (and I haven’t been in all properties) you should expect a good tenant within 4 weeks max.

Get in touch with me richard.baker@belvoirlettings.com for more info on any of these.

Asking Price	Rental	Yield	Notes	Link
£55,000 SOLD	£425	9.2%	Close to town centre. Accept a LHA tenant to achieve the yield.	http://bit.ly/Vm4b9w
£55,000 SOLD	£450	9.8%	Repossession. Plum town centre. Will let privately.	http://bit.ly/QVLkAL
£70,000	£525	9.0%	Same building as above, plum town centre.  Will let privately.	http://bit.ly/TtjaZD
£70,000 SOLD	£450	7.7%	Plum town centre. High quality building. Private Tenant.	http://bit.ly/TtjqYv
£90,000 SOLD	£550	7.3%	Repossession. Popular upmarket location – Wootton.	http://bit.ly/11ws4Le
£95,000 SOLD	£675	8.5%	Plum town centre. High quality building. Buy with tenant is situ.	http://bit.ly/Yjeugo

LIMITED CASH? Here's a good yield cheapy!

I saw this today, Central Northampton, which at an asking price of £55k is a cheapy!
It's a small studio, but self contained and well located - the type of 'first rung on the rental ladder' which is always popular with tenants.
It's currently rented at £350PCM. There's an option to buy it with the tenant in it - he's been there 4 years already - which is an automatic 7.5% rental yield, before we've even negotiated on the purchase price.
Alternatively, you could do the place up a bit - mostly cosmetic, probably less than £1000, and charge a higher rent - certainly £395PCM. That would take the yield to 8.5%.
It's not a massively high risk one this, and I believe there are already offers on the table, so please be quick if interested.

REFURB IN RUGBY - save some money.

A refurbishment opportunity in Rugby, and an opportunity to buy a 2 bed bungalow at a reduced price. Internally, it needs full everything updating - some people will be put off, but assuming you can buy it for less than £90k and then spend £20k on it, you're left with a £125k bungalow in tip top order that you paid £110k for - a very sensible deal for someone.

We can, of course, assist with refurbishment if required. 

This is available to purchase at £85k and the agent already has offers around that price. We suspect the car in the foreground comes with the deal. I'd budget £100 to get someone to come and take it away!

It will rent for £575 once done. Maybe a bit more?

BUY WITH A TENANT IN - 6% yield - NORTHAMPTON

This is owned by one of our landlords, who is looking to sell with a tenant in situ. As such he gets rent until the day he completes, and the purchaser gets rental income from day 1. 

• 3 bed Victorian Terrace with upstairs bathroom.
• Victoria Road, Northampton - 5 minutes walk to the town centre, and adjacent to the Hospital. 
• An area with constant rental demand. 
• Tenanted @ £675PCM.
• Offered for sale at £135,000

Contact richard.baker@belvoirlettings.com if interested.

FLAT-TASTIC! Modern Units - very rentable - decent yields

A couple of decent details have appeared on the radar if cheap modern flats are your thing! These are both well presented and very rentable all round.

The Bloomsbury, Central Northampton

• High quality development. A couple of years old. 
• 1 bed apartment with all appliances.
• £69,000 asking price - cheap!
• Well presented and ready to tenant at £475PCM minimum.
• 8.2% yield, maybe more if you can buy for less. 
• very safe renter - one of the best rental buildings in town.

Alpha House, Central Northampton, 

• High quality development. A couple of years old. 
• 2 bed apartment, buy it FURNISHED, and TENANTED.
• £95,000 asking price (fixed)
• Tenanted at £675PCM,
• 8.5% yield.

For more information please email richard.baker@belvoirlettings.com.

HMOs (non licensable). High Yields up to 15%. Northampton.

A couple of HMOs have appeared in recent days - both on the St James / Duston borders which is a good location for a professional let. These are both larger properties and are offered with vacant possession. The owner would need to furnish.

Peverels Way, Duston
Available for £140k. Is operated currently as a HMO and brings in £18,000.
That's a yield of over 12%. Currently used as 4 lettable rooms. Would be 5 if you forgo the lounge.

Glasgow Street, St James
Available for £125k. Is not operated currently as a HMO, but is prime, and should bring in over £19000 per annum. That's a yield of over 15%. 4 lettable rooms.

Contact richard.baker@belvoirlettings.com for more details on these properties.

NOW SOLD - Duston - £80k(ish!)

PLC Housebuilder has 1 x 1 bed apartment left on this upmarket development, and has just dropped the price to £84,995. This is cheap for a new build, and I understand they are keen to offload, so assuming you can complete quickly I'm guessing £80k on this would be realistic.

It will rent for £450PCM (it's small) and will be a nice professional tenant as this is an upmarket suburban area. You could add a (nice) sofa, table and chairs, and bed, and go for £500PCM if you were feeling flush!

Clearly as it's new, everything is guaranteed, and it's ready to rent apart from curtain rails or blinds which you'd need to install. As a low hassle option, you won't get better than this.

NOW SOLD Cheap 2 Bed Flat, GRANGE PARK

The asking price on this has dropped from £110k to £90k. Whilst I'm usually cautious about modern leasehold flats, at that price and in this premium postcode, you can't really go wrong - 2 bed properties do not really happen in Grange Park for less than £100k, so unless there's something fundamentally wrong with this one, it's a steal.

Do your figures on a rental of £550PCM - we'll likely exceed this, but we won't go lower. That's 7.3% without even trying. People keep telling me "I don't want to spend much, but I want to buy in a nice area!" - voila!

NOW SOLD 8.4% yield, leasehold, newly refurbished

This just in from our main maintenence contractor - they have refurbished this apartment throughout and are offering it with a tenant in situ at £525PCM.

• £75,000
• 2 beds
• Merthyr Road, NN5
• guaranteed maintenence free for 12 months.
• immaculate internal order.
• yield at 8.4%

NOW SOLD CHEAP TOWN CENTRE FREEHOLD

This is a wildcard option. A newly built freehold property in the town centre. Small, but beautifully presented and an ideal rental. I think it's actually an infill between 2 other houses?

I'm told it will cost in the region of £86k to buy. Rental options are:

• rent it unfurnished for £475, maybe £495, giving a yield of 6.5%.
• spend less than £1000 furnishing it (easy!) and it will rent for £525, maybe £550, giving a yield of 7.2%.

I get lots of landlords wanting higher yield, but not housing benefit, and not leasehold flats, and not multi occupancy, and a limited purchase price, and low maintenence. This one ticks every box!

NORTHAMPTON : A RANGE OF BUY2LET OPTIONS

This blog has been quiet for a while - I've been away! However there are a range of interesting deals around currently for potential investors. There's also a HUGE amount of rubbish around currently - some very overpriced property, AND it's selling! As such be careful. As I'm short of time, you're going to get a summary of what I've seen. Please contact me for more info on individual properties:

NOW SOLD - TOTAL REFURB OPPORTUNITY, NORTHAMPTON

2 bed Victorian terrace house in St James. Needs ripping out! Buy for £90k. Spend £15k. Worth £115k once done. Or rent for £575PCM at a 6.6% yield, and an undervalue house. Must be a cash purchase.

NOW SOLD - WELL PRESENTED HOUSE, NORTHAMPTON

2 bed in Southfields. Very well presented and ready to go. Buy for around the £80k mark. Rent for £525PCM at a 7.7% yield. Ready to go this one - no hassle.

BARGAIN BASEMENT FLAT, NORTHAMPTON

1 bed in the Centro Development, Town Centre - built 2 years ago and eternally popular with tenants. Buy for around £70k, rent for £475PCM at a 8.1% yield.

NOW SOLD - NEWLY REFURBISHED FLAT, TENANTED, NORTHAMPTON

No hassle - this has just undergone complete refurbishment and everything is guaranteed for 12 months. St James, 2 beds. Buy for £75k, tenant already in situ at £525PCM - a yield of 8.4%.

NOW SOLD - WELL PRESENTED HOUSE, RUGBY

Easy rental modern 2 bed house in the nice Bilton area. Buy at £105k in a condition where it's already ready to rent at £550PCM - a yield of 6%.

NOW SOLD RUGBY, £70k investment opportunity

This has dropped in price and now looks like a good buy.

A 1 bed HOUSE very close to town. Advertised at £75k - lets assume it can be bought for a little less than that. I believe it is a FREEHOLD property and on that basis am recommending it - if you have a limited budget and don't want a leasehold flat, this is about as cheap as you'll get in Rugby. And it will rent too. Easy £450PCM, maybe more.

Cheap Deals on Flats - Good Yields of over 8%.

Flats aren't everyone's cup of tea, but they rent very well, generally offer good yields, and if your budget is around the £70k mark, they are your only option - it's more or less impossible to buy a decent house for this money. There's also a very strong argument that there's nothing wrong with buying a flat these days, as they are sensibly priced! The error was buying them in the early mid 2000s for more than the price of a house.
Unusually, there are a few genuinely cheap options around at the moment which would be ideal for a landlord on a limited budget. As such if your limit is around £70k, you won't find much better than one of these:

1. 1 bed apartment, Lifebuilding, St James, Northampton. Nice upmarket development which will attract a good quality private tenant. Conservative estimate on rent is £475PCM, with a purchase price of £70k giving rise to a 8.1% yield.
2. 1 bed apartment, Town Centre, Northampton. Located right next to the railway station and will rent privately. Conservative estimate on rent is £450PCM, with a purchase price of £65k giving rise to a 8.3% yield.
3. 1 bed apartment, Town Centre, Northampton. Upmarket development in the centre of town - very high demand for properties from working tenants.  Rent is £500PCM, with a purchase price of £73k giving rise to a 8.2% yield.

Contact me directly for details. richard.baker@belvoirlettings.com.

CHEAP PROPERTY WITH A TENANT IN SITU - 7.2% yield.

• I have a landlord who wishes to dispose of his property quickly for personal reasons. 
• 2 bed flat in Gladstone Road, St James
• Tenant in there since 2008 @ 450PCM - you'd buy it with the tenant in it, so rental income from day one and minimal hassle.
• Owner looking for £75k, giving rise to a decent 7.2% yield.
• Any queries, please email me richard.baker@belvoirlettings.com.

NOW SOLD BUY TO LET SAFE BET, £120k

Whilst I usually advise otherwise, many investors seek properties that are in tip top condition and which will rent easily. Here is one such!

Situated in Kingsthorpe, it will get £550PCM every day, maybe £575PCM. 

It's advertised at £120k and needs next to nothing doing to it - pretty immaculate throughout. The sort of thing you'd live in yourself?

BUY2LET - 3 to choose from.

After a few weeks with little reward, we've spotted a couple of things that should interest serious purchasers. These seem to be the pick of what's around at the moment.

This is a 1 bed town centre apartment, advertised at £77k. Lets assume you can pick it up for a couple of thousand less, but that you may need to spend a couple of thousand tidying it up. It's THE MOST POPULAR RENTAL LOCATION in town (seriously) and £500PCM is a safe price. Yield of 7.7% doesn't hurt.

 This is a 1 bed HOUSE with garden in New Duston - nice upmarket area. It has offers of £76k on it, so will probably sell for a couple of thousand more. It needs a spend of £5000 to take it back to a tip top standard, and will rent for £475. A yield of 6.8% in one of the better areas of town.

SOLD

A 2 bed Victorian Terrace very near the station and seemingly in EXCELLENT ORDER - ready to tenant at £575PCM. On the market for £112k, let's assume you can pick it up for £110k - that's a yield of 6.2%.
Some people are adamant they want something that needs no work, and will let straight away - what are you waiting for?

SOLD

Can't sell it. Should you let it?

One of the main sources of new properties to the rental market over recent months has been from people who can’t sell their property for a price they are happy with, so rent it instead. These properties are usually popular with tenants as by their nature, they tend to be family properties in nice areas. As such finding a tenant isn’t usually an issue. However if you are an ‘accidental landlord’ the overall success of letting your property depends to a large extent on your understanding and acceptance of what being a landlord involves.

What do I need to do before I can rent my property?

The vast majority of this will be covered by a competent lettings agent when they visit to appraise your property. Getting a couple of ARLA agents round will identify key points that come up again and again – these are the ones that really need your attention.

• Switch your buildings and contents insurance to a Landlord specific policy. Your insurer won’t pay out if you haven’t told them the property is rented.
• Get the relevant safety certification sorted out for your property. Again a competent agent will assist you with this.
• Sort out any little imperfections that you know exist in the property, and that you put up with yourself – once someone is paying you money to live there, they won’t put up with it like you did. Cupboard doors that don’t quite close properly are a classic example!
• Think health & safety! A small pond in the garden may have been fine whilst you lived in the house alone, but is not fine if your tenant has 2 small children. You must protect your own interests by dealing with issues such as this.
• Clean it! This isn’t always the easiest thing to get across to someone who’s lived in a property, but look at it this way – if you pay for a professional clean before the tenant moves in, you can expect the property back with a professional clean done too.

Will I be satisfied with the rental experience?

We find that ‘accidental landlords’ are often less satisfied with the whole rental experience than people who have bought property specifically as an investment. To an extent this is inevitable as renting the house is not ideally what they wanted to do. To make it work, your expectations need to be realistic:

• Detach yourself! Although you may have lived in the house for 10 years, at the point you rent it you need to make a bit of a mental adjustment – the property is no longer your home and is now a commercial investment! If anything it’s someone else’s home. The key thing for you is making the investment pay.
• Be flexible. Although you may love your flowery green carpet, this isn’t something that will necessarily appeal to a tenant. Don’t be offended if your agent politely suggests changing things like this – they only make suggestions like this because they know if will enable them to find YOU a tenant more quickly.
• Accept that a tenant rarely cares for a property quite as well as an owner. You should not expect damage, but you should expect wear and tear. If you rent to a family with young children, spills, scuffs and scrapes are inevitable – this is part and parcel of renting a property. In particular tenants rarely maintain a garden like an owner does – if you’ve spent the last 20 years developing prize winning flower beds, don’t be surprised when the tenant doesn’t share your enthusiasm!
• Don’t drive by every day and worry! If they don’t cut the front garden or clean the front windows quite as often as you did, you can’t insist on them doing this, unless they are fundamentally neglecting things. What matters is that the property is returned to you at the end of the tenancy in the same condition it was given, minus reasonable wear and tear.

What does an agent do?

Most ‘accidental landlords’ choose an agent to manage their property, rather than doing so themselves, as they don’t have experience of letting, and don’t know much about tenancy law. It’s always a good idea to get a couple of different ARLA agents round and listen to what each has to say – in that way you’ll get a flavour of what each can offer. Remember that finding a tenant is the easy bit – the skill is in looking after the property on an ongoing basis. You’ll find ARLA agents are better geared to do this than estate agents who have opened a lettings department.

Don’t make the classic mistake of choosing the cheapest unregulated agent in town (like I did before I became a lettings agent myself!!!). Your rental property is one of the biggest financial commitments you’ll make in your life, and you want some assurance firstly it’s being properly looked after, and secondly that you have some redress if it isn’t. 

Richard.

Northampton : Buying an Oddity

In recent blogs, I’ve looked at what you can buy, at a general level, in the Northampton Housing market.  These have covered standard properties that will appear for purchase on a regular basis, and are easy to categorise. If you're the type that likes to research before you buy, reading these blogs will make it possible to generalise about 90% of the market. 

There are however other non-standard investments that pop up on an ad hoc basis. Weird though they are, they often make really good investments, and require a confident landlord to quickly 'take a punt'. In the last 12 months, we've seen the following; 

A 1 bed coach house on Grange Park. These are freehold and very few of them are actually built, so it's not like you can wait for one to come along. However one did, and a landlord picked it up for in the region of £95k, making it a good investment. It will bring in at least £495PCM - a 6.2% yield. This isn't earth shattering, but is about as good as you'll get in a premium postcode.

A weird town centre building cut into 2 flats, but not separated legally so could only be sold as 1 unit. A canny landlord picked this up for about £100k, and brings in about £1000PCM in rent for the 2 flats. He's getting a 12% yield, and owns the freehold. Whilst the building won't win any awards for architectural beauty, as a high yield, low risk investment this is about as good as I've seen since I started trading.

And finally, a caravan! Some of you may not be aware that Northampton is home to one of the largest caravan parks in the UK - Billing Aquadrome. It's actually quite upmarket and is almost a small town in itself - acting as a retirement village, holiday destination, and commuter estate all in one. Whilst there are various rules about tenure and tenancy, some of the fixed homes there (I'm not allowed to call them caravans) sell for over £100k. However the owner of this one paid about £20k, and gets around £350PCM in rent, which by my reckoning is in the region of a 20% yield. Argue with that!

Northampton : What can you buy for £140k?

When most people look for a buy-to-let investment, they have a budget. With that in mind, over the next few weeks, I’m going to look at what a given sum should buy you in Northampton. In doing this, I’m talking about properties in good lettable order, so if a property needs works doing, this is what you should budget INCLUDING works.

Have a read, and if you want a chat about properties you've seen, EMAIL ME! richard.baker@belvoirlettings.com.

What will £140k buy in Northampton?

Now we're at the top end of what an investor usually spends - above this we're into 4 bed properties which aren't usually what investors go for.  There's an strong argument that you don't need to spend £140k in Northampton to successfully invest in property, but some people still do. The only reason for doing this is if you want one of the PREMIUM areas of town, or you're going for the family market in one of the 'good' areas like East Hunsbury. Hard nosed commercial investors wouldn't usually do either - this is for investors who aren't fussed about yield, and whose primary consideration is area.

For £140k you can buy pretty much any 2 bed property in Northampton. The most expensive are in places like Grange Park or St Crispin - you'll pay at least £140k for something like the one pictured, and you're looking at £600PCM on a bad day in rent. That's a 5.1% yield - good when you consider what banks pay in interest, not so good when you see what sort of yields are achievable elsewhere. However, tenant quality should be pretty good (even though nothing in life is guaranteed).

A 3 bed house in East Hunsbury or Duston will cost from about £135k upwards, and long term tenant demand is constant. You need to shop carefully at this price, as you're still bargain hunting - many properties will sell for nearer £150k, but with an achievable rent of at least £650PCM, you're chasing a yield of 6.5%. If you can buy something with a garage, even better. Expect to compete with private purchasers for these properties. This one is in Weggs Farm, and would probably rent for nearer £700PCM.

What can you buy for £60k? http://bit.ly/Ihmpxt 
What can you buy for £80k? http://bit.ly/Kq3VhL  
What can you buy for £100k? http://bit.ly/LcfYNa 
What can you buy for £120k? http://bit.ly/LKSNtF