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Friday, 24 October 2014

Housing Benefit Tenants-A good thing?

Very often, ex Local Authority properties are quite sought after by investors due to higher returns and more reasonable purchase prices They are often in areas that attract Housing Benefit tenants.

We get asked by potential tenants if we have properties that will accept housing benefits on a daily basis.   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.

What are the Advantages?
1.            The main point is that statistically housing benefit tenancies cause no more problems than private tenancies. They just work differently and need a relaxed landlord. 
2.            Housing Benefit tenancies 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.
3.            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.
4.            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.            Local Authority administration is pretty slow .  They do backpay though, so you'll get your money eventually. 
4.            Some tenants sometimes 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.

The secret to success here is 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! Is this any different to renting privately?

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. 

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