Supportive retired rentals

Landlord Discussion
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With the market being like it is I have started to consider buying supportive rental flats.

These appear to be going cheaper than normal flats. I am aware I would need to look closely at the lease agreements and there will be a high service charge.

So has anyone got any experience of doing this, or any advice ?

Mark

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I helped my brother-in-law let his father’s retirement flat after his dad passed away. Its a typical McCarthy and Stone one bedder in a block in London. In my experience, the main positive is the purchase price, provided you go for an older development, (as the value of units in new developments drops like a rock in freefall). This one cost about half as much as a regular local one bed flat.

On the negative side:

  1. The service charge is about twice as much as other blocks to cover the extra costs, such as warden fees
  2. They are normally restricted to over sixties, so the pool if people is much smaller, especially as most people of that age already own their home. Those that dont are likely to be on full benefits, so you’d be limited to LHA rates
  3. the age and often vulnerability of the tenants means that in most cases you are effectively making a commitment to house them for the rest of their life, so you have to accept your funds being tied up long term.
  4. They are often very difficult to sell and many families of deceased parents get stuck paying thousands of pounds in service charges and other costs for long, (sometimes very long) periods unable attract buyers even with big reductions.
  5. You have to pay fees to the company that owns the block to allow letting and make alterations and a fee, (usually 1% or 2% of the purchase price) when you sell.
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Hi David,

Many thanks for your information.

Im still thinking it might be worth a go. As you say the going in price is incredibly cheap

Mark

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The getting out price may be dear

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Im sure that’s true, but I will be looking at it as a long term investment.

6

This is the sting in the tail. Do your figures very carefully and make sure you write off capital value entirely to be completely honest with yourself going in. If you can make 5-6% per annum off this then you’re going to be equivalent to investing in the stock market. You therefore need to be projecting 7% plus over 20 years to make it worthwhile and that’s after all the ongoing fees and potential restrictions of LHA rates. Otherwise, you’re better off in stocks/shares.

But, as I say, you have to be brutally honest about the fact that it will be very difficult to find anyone to take this off your hands and that when you eventually sell, you’ll be hit with fees that will seriously eat into your capital return.

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Hi David, thank you for your advice. (Good Advice) At this stage it’s just considering. My sums look like 40-50k going in. say 4k service charge. Rental 1K. 500 profit.

where as buying a house 250K rent say 1.5k Though 3 times the income, its 54 times the investment?

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@Mark115

Erm 1.5k rent isnt 3 x 1k rent. No idea where the 54 is from. Just calculate rental yield (6-8% gross is normal) and also think what capital gain if any you might expect.

.. rental 1k pcm so after taking off 4k service charge 333pcm you have 666pcm. That’s before you have any other costs (repairs maintenance letting fees eicr annual gas cert - allow say 20% of gross ?) or allow for void periods. And before you take off tax. So 500 pcm profit sounds very unlikely doesnt it?

If it sounds too good to be true .. it probably is. I’d be asking whats wrong with the property (new roof needed? Asbestos? Very expensive to upgrade to epc c by 2030?). Or if there is such an over supply maybe no capital gains.

Sounds very like investing in a care home or a caravan park or a rent to rent deal- some will be excellent others will sound great on the brochure but will have terrible service exorbitant extra costs and once committed you are almost committed for life or have high exit costs. I would be insisting on getting 5y or 10y of accounts from the freeholder/mgt co and poring over the details beyond the superficially high yield, talking to neighbours who have lived there a while and any landlords already renting there. If it is a cheap as you claim i dont see why most tenants would pay that sort of rent when they could pay less for a mortgage (albeit they would need some sort of deposit maybe but by the age of 55 they may have some savings)

Good luck

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You will likely have other ongoing costs, such as local licensing, database registration, ombudsman, maintenance etc as well as upgrade costs, such as new storage heaters to meet EPC regs.

The main issue though may be that I believe the companies that run these blocks, such as The Home Group, dont allow buy to let. They will usually grant permission to let after a relative dies, but not otherwise. You would need to show that its being bought for someone specific over 60 to live in.

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Hi David,

That’s a good comparison Care Home, Caravan park. Neither of which I would invest in.

Sorted.

Mark

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