Social Property Investment with Amy Varle 2.4 Undertaking Due Diligence for Homeless Housing Schemes

Social Property Investment with Amy Varle 2.4 Undertaking Due Diligence for Homeless Housing Schemes

2.4 Undertaking Due Diligence for Homeless Housing Schemes

We want to talk about the essential things we learned in the pilot scheme. I split this up into two parts, because I want to talk about the support aspect and the more holistic aspect of things afterwards. For now, I want to talk about this part about what we learned in terms of making things work in terms of the building, the property, the area, and making sure that we'd protected risk and making sure that we were mitigating the risk as much as possible. And how we can look to replicating these types of projects, maybe again and again.

One of the most important things we learned on the pilot scheme was that you have to, when you're in your planning stage, take a huge, huge, huge amount of care to make sure that there is a need. So, you may have a great idea for a social property investment project, and I've seen this done with landlords before who have gone into it like a bull in a china shop, almost, and they've not done their due diligence in the first place and looked at whether that solution is actually required for an area.

So, we've had, I know from numerous councils in the past, that they're just not interested in working in this way. We've got numerous housing projects and different pots of money that we've put into things, and we think we're pretty confident that we have got solutions to homelessness. And where we can't stop you doing these types of projects and setting them up, we don't have the need and we're not really needing to engage with them. So, I have seen that happen before.

One of the first things you need to do is really make sure that the need is actually there. And you can do this by marketplace testing, where you can go and go along to the local council, you can send them in an introductory email, and you can kind of scope out the marketplace. Start having a look at the charitable sector, have a look at it on social media, see where the need is.

I talked about this at a later stage, but a good rule of thumb in terms of location for social property investment projects, to start your investigations off, have a look at the maps of the job centers and see where the job centers are situated, because they're there to serve the local community.

And so, there's generally a higher population of welfare claimants in those types of areas. So, when we're looking at an area, we're not going to look at anything hugely different to when we're looking at a normal buy-to-let project. We're going to use the same due diligence processes we would do normally. However, we're looking at things on a cash flow basis with social property investments.

We're looking to maximize the cash flow as much as possible, and that's really going to be primarily where we look to make any returns on this project. It's by the rental income that's coming in month-to-month. We may see some capital appreciation there, but obviously, when we're looking at cash flow predominantly, a cash flow strategy, we need to make sure that the cash flow is going to be there.

You need to look at looking into properties and looking at the correlation between rental prices and also local housing allowance rates. So, you may find a project which you think is perfect for social property investment, and it ticks all of the boxes, but it's going to be that their local housing allowance is going to be a little bit low, and your tenants are going to need to pay a £20 a week top-up to make the figures work. It's not going to work. You need to be confident that your returns are stacking up, and your figures are stacking up, and you need to be totally fanatical about this before you purchase that property. So, and that needs to be, as I say, it needs to be looking at the cash flow predominantly. You can't be looking, I'm sorry, I at least, we're looking at the rental returns predominantly, and you need to be very careful in terms of your costs are coming off. So, if you've got a say a four or five-bedroom HMO, you may find that the costs, typical just as a rule of thumb, may you may incur costs which are typical to one of those rooms' rent.

It may seem high if you're used to working on vanilla buy-to-let, which has a lot lower costs. But when you're working in multi-let strategies and when you're working with multiple tenants and multiple occupants, and social property investment is all about the social aspect of the strategy and creating community living environments, so when you're doing that, there are obviously lots of different costs that you may incur, such as licensing for a HMO, planning and building control, and you may need to do a refurbishment.

You need to make sure that your figures totally stack up, and you're really confident that the rent that you are setting on that property is going to be achieved via the local housing allowance rates, but also it's going to be a solution which is needed by the marketplace. So if there are no tenants to come live in the property, it's not going to work long-term, and you're going to make a loss. And even if you make a loss, even if the property sits empty for 3-4 months, that could be catastrophic to your cash flow if you're paying a mortgage.

Or, well, social property investment, you're likely paying a mortgage, but you may have some kind of bridging finance, or you may have taken a JV partner, and you may be due to pay them back. So it's imperative that you get your figures right, but also you understand the marketplace that you're going into, you understand the types of areas which are going to work for social property investment.

Now, I'm going to give you an example. I work in Manchester. Manchester is a great place for HMO properties and for social property investment. On the surface of it, it could be a no-go, because if you're an HMO landlord already, you'll be familiar with the fact that there's an article 4 area in Manchester, and that means we can't have any new HMOs constructed in Manchester. There has been a cap put on that because we have enough already. We have a lot of student accommodation there, and so there is no more allowance for new HMOs to be built.

That doesn't mean however that you can't work in Manchester at all, and Greater Manchester is a big place, and it's a fantastic place to invest in social property investment projects. The figures stack up fantastically.

Well, and there's lots of market demand there. Manchester is experiencing the worst homelessness it's seen in recent years. Figures have gone through the roof, and we're really struggling on solutions. So there is a huge potential marketplace out there that needs this solution, and they need it brought to them as soon as possible. So if you're close to Manchester, or if you have connections, or if you want me to connect you with anybody in Manchester so that you're able to work with in this marketplace, I would really, really, really recommend Greater Manchester as a place to invest in these types of projects.

So we've got lots of different towns, and one of the great things about Manchester is we've got the Metrolink, which is the tram line, and over the last few years it's been extended out all over Greater Manchester, and now the transport links into the city are fantastic. So Manchester really is a hot spot for investment at the moment. And as I say, the figures stack up very, very well in Manchester. And you've seen some examples going over the slides here as I've been talking, and you can see in whichever way you get involved in social property investment, whether that be:

  • You invest yourself as a cash investor
  • You do a JV
  • You get into a partnership with another agency

And however you look at utilizing the strengths, talents, and resources of the sectors, these projects make sense. They make sense financially, they make sense socially, they make sense across the board. They have lots and lots of beneficiaries. And so it really is, for me, a really, really viable solution to ending homelessness, and at the very least, making a great reduction on homelessness in the UK today.

A pilot scheme really totals about being a little bit fanatical about things, and preparation and prevention and due diligence, and making sure everything's stacked up in terms of the investment opportunity. And as I say, social property investment is an enhanced version of a typical buy-to-let strategy.

Look at how you would normally operate in the buy-to-let marketplace, and then add on with these other enhancements of:

Looking at how many units are in a building as a whole, and saying, "How can we create the best and most profitable solution here, a most cost-effective solution here, but also how can we make it amazing inside, and how can we create lots of value for the occupants too?

Next, we're going to move on and talk about more pilots and learnings, where we're going to look more about strategies, systems, and support, and how working with partner agencies, and implementing some guidance for your tenants, and getting them in some specialist to assist them with their social issues, and how that can really help you to move forward in a really, really effective manner, and make sure that the investment that you have put everything into is going to be a real asset for your portfolio, and it's not going to be a liability.

So stay with us for the next part, which is more of our pilots and findings.

PreviousSocial Property Investment Online Learning E-Course with Amy Varle 2:3 Pilot Scheme Participants - Tenant Results

Next: Social Property Investment with Amy Varle 2:5 We Housed 100 Homeless People - What Did We Learn? to be published July 2023

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