2024 feels quite different to 2023, to the serious observer. Trends are changing, and rates and inflation are under control (‘definitely’ according to many, but only ‘probably’ for the more cautious observers). This month’s topic has attracted more and more attention over the past few years, although sometimes for the wrong reasons - social housing investment.
The recent “opportunities” have often been unsecured rent-to-rent contracts promising double digit returns that are sometimes 20% or more. If it sounds too good to be true…you know the rest. Social Housing is a trojan horse here - if the underlying borrower is inherently dishonest, badly organised, a poor manager of risk, or anything else - this will all, of course, end in tears. The logic though is that a property can be sourced/rented, and a 5-year or similar contract be agreed, sitting in between the property owner and the lessee who may be a registered provider, and the difference between the two means that “the numbers work” and also allow some profit for the organiser, of course.
Sounds great, but if you can’t drive a truck through that, you should definitely consider brushing up on how to do due diligence! Social housing investment was much more commercially viable a while ago, but was then waning in its viability just as it became more popular - let me give you a quick whistle-stop of my own experiences.
I first let a property directly to a registered provider in 2014. I was seduced by the story of the social impact, and despite the fact that the monthly cashflow was going to be lower, I was very willing to give it a try.
There were, of course, the other considerations of a lease arrangement versus direct management, and the time/headspace/ease argument too. I was very happy to give it a go.
10 years later, I still do some work with that provider. They’ve changed, over the years, but who hasn’t? Promises that were made now summarily broken, “it’s different these days”, etc. - and bad publicity for - simply - making too much money from housing and also being somewhat tricky about the way in which they extract it from their Community Interest Company vehicle.
