How to Make Money with Affordable Housing Investments

The housing market is a hot topic these days, with rising prices and a shortage of affordable homes. But did you know that investing in affordable housing can be a great opportunity to not only generate secure income, but to help house vulnerable tenants and contribute to addressing the critical shortage of homes across the UK. In this article, we'll explore the benefits of investing in affordable housing and provide tips on how to make money with this type of investment.

Understanding the UK Housing Market

Before we dive into affordable housing investments, it’s important to understand the current state of the UK housing market.

The Demand for Affordable Housing

The demand for affordable housing in the UK is high, with a shortage of available properties and rising prices. This is due to a combination of factors, including a growing population, limited land for development, and a lack of government funding for affordable housing.

According to a report by the National Housing Federation, there is a shortage of 3.6 million affordable homes in the UK, and this number is expected to rise to 4 million by 2033.

Read more about the impact of affordable housing in the UK here

The Impact of COVID-19

The COVID-19 pandemic has also had a significant impact on the UK housing market. While the market initially slowed down due to lockdowns and economic uncertainty, it has since rebounded and is now experiencing a surge in demand.

This surge is due to a combination of factors, including the government’s stamp duty holiday, low interest rates, and a desire for more space as people continue to work from home.

What Are Affordable Housing Investments?

Affordable housing investment involves purchasing properties that are suitable for or designated as affordable housing by the government. These properties are typically rented out to low-income families at a reduced rate, making them more accessible for those who cannot afford market-rate housing.

Types of Affordable Housing

There are several types of affordable housing in the UK, including:

• Social housing: This is housing that is owned and managed by local authorities or housing associations and is rented out to those in need at a reduced rate.
• Shared ownership: This is a scheme where a buyer purchases a share of a property (usually between 25-75%) and pays rent on the remaining share.
• Rent to buy: This is a scheme where a tenant rents a property for a set period of time, with the option to purchase the property at the end of the rental period.
• Discounted market sale: This is a scheme where a property is sold at a discounted rate to a buyer who meets certain criteria, such as being a first-time buyer or having a low income.

Benefits of Affordable Housing Investments

Investing in affordable housing has several benefits, including:

• Steady rental income: Affordable housing properties when let to major housing providers offer investors government-backed leases, no rental void periods and alleviate many of the traditional landlord headaches.
• Government support: The UK government offers various incentives and schemes to encourage affordable housing investments, such as tax breaks and grants.
• Positive impact: By investing in affordable housing, you are providing much-needed housing for those who cannot afford market-rate properties, making a positive impact on the community.

How to Make Money with Affordable Housing Investments

Now that you understand the basics of affordable housing investments, let’s explore how you can make money with this type of investment.

Purchase a Property

The first step to making money with affordable housing investments is to purchase a property. You can do this through a housing association or by purchasing a property on the open market and converting it into affordable housing.

When purchasing a property, it’s important to consider the location, condition, and potential rental income. You should also research the demand for affordable housing in the area and check with local housing providers to see if the property is eligible for the lease.

Housing provider preference is that properties are in a location which ensures our occupiers have access to local services, for example:

• Close to public transport links
• Close to schools and health services
• Close to shops and places of worship

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Renovate the property to standard

Housing providers typically have a set of strict requirements and criteria that must be met before they will consider renting your property. These criteria can include factors such as the overall condition of the property, any necessary repairs or renovations that need to be made, proof of ownership or rental authorization, and compliance with all relevant housing regulations and laws.

Failure to meet these criteria can result in the provider declining to rent your property. It is important to carefully review and understand the criteria set forth by housing providers to ensure that your property meets all necessary requirements.

For instance, housing providers (also known as landlords) that are involved in social housing management must provide maintenance services and reactive repairs. These services should meet the tenant's needs, offer alternatives, and strive to accomplish tasks correctly the first time.

Additionally, they must guarantee that a tenant's abode complies with the Decent Homes Standard -- further details are mentioned below.

Furthermore, they are responsible for fulfilling all legal obligations to secure the health and safety of occupants in their properties.

Standards for landlords in Wales

Social housing providers (SHPs), including housing associations, are required to maintain their properties in accordance with the guidelines laid out by the Government of Wales.

This encompasses the provision of a competent repair and maintenance service that caters to the requirements of a tenant.

The Decent Homes Standard in England

Accommodation owned by social housing landlords must meet the Decent Homes Standard. Landlords must continue to maintain homes to at least this standard.

A decent home must:

• meet the current minimum standard for housing - the property must be free of Category 1 hazards under the Housing Health and Safety Rating System
• be in a reasonable state of repair
• have reasonably modern facilities and services
• provide a reasonable degree of thermal comfort - this is about insulation and heating

Did you know

The UK government offers various incentives and schemes to encourage affordable housing investments. These include:

• The Affordable Homes Programme: This is a government scheme that provides funding to housing associations and local authorities to build affordable homes.
• The Community Housing Fund: This is a government fund that provides grants to community-led housing projects.
• The Help to Buy scheme: This is a government scheme that provides equity loans to first-time buyers to help them purchase a property.

Rent Out the Property

After completing the purchase and renovation of a property, the next step is to find a suitable tenant to rent it out to. This process typically involves working with a housing provider or the local council. It is important to thoroughly research and vet the financial health and legitimacy of the company or organisation you are planning to rent to, as this will impact the success and stability of your rental agreement in the long run. By taking the time to evaluate your potential tenant, you can ensure a positive and profitable rental experience and avoid potential damage or issues to your property.

What to expect from a good affordable living lease

Picking a reliable provider can offer you the following advantages:

• A lease period exceeding 5 years with an FSE 250 company, along with the possibility to extend at the lease's expiration
• No initial charges for the home owner
• Routine maintenance and repairs are handled free of charge to the home owner
• All refurbishment and maintenance tasks are performed by competent, certified, and approved contractors
• No fees for call outs
• Reimbursement is extracted from future rent fees, sparing the homeowner from financial stress
• No periods of vacancy
• Assured rent payment via BACS on a monthly basis throughout the entire lease, thus reducing the chance of rent arrears or debt accumulation
• A comprehensive property and tenancy management service provided by the housing provider, free of charge to the homeowner
• Regular property inspections every month
• Covered Council Tax and utility bills
• No fees for management, legal matters, registration, or set-up

Upon the end of the lease period, your property will be returned to you in a satisfactory condition (accounting for reasonable wear and tear) and unoccupied.

Exit strategies: Sell the Property

One viable method for generating income through affordable housing investments in the UK is to eventually sell the property for a profit. This strategy typically involves holding onto the property for a specified period of time, ranging from 5 to 10 years, or until its value appreciates significantly.

When deciding to sell an affordable housing property, investors can anticipate earning a return on their initial investment, in addition to any rental income garnered throughout the ownership duration. By selling the property at a higher price than what was paid for it, investors can realize a profit that reflects both the appreciation of the property's value and the income generated from renting it out.

Conclusion

Affordable housing investments offer a unique opportunity to make a profit while also making a positive impact on the community. By understanding the current state of the UK housing market, investing in the right types of affordable housing, and taking advantage of government incentives, you can turn a profit and help address the critical shortage of affordable housing in the UK.

Whether you are a seasoned property investor or new to the world of property, affordable housing investments in the UK are worth considering for their potential financial and social benefits.

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