Introducing The LHA Expert for Landlords – @TheLHAexpert

by John Paul

10:00 AM, 6th March 2012
About 9 years ago

Introducing The LHA Expert for Landlords – @TheLHAexpert

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Introducing The LHA Expert for Landlords – @TheLHAexpert

-By Guest Columnist John Paul- Part 1 of an 8 part series


Welcome to the first in a series of eight articles giving you top tips for renting your property to tenants in receipt of Local Housing Allowance (LHA).

I have personally built a successful portfolio by letting to LHA Tenants and the profits and cash flow exceed those I could have achieved with working tenants. In some areas rents are as much as 30% higher than market rents in the private rented sector. I think you’ll agree that’s a premium that makes some additional administration worth the effort.

I am also Managing Director of Castledene Property Management and we specialise in managing properties with LHA Tenants and believe that, with the right information, the opportunity is there for shrewd investors to increase their rental yields often in areas where property is cheaper to purchase.

There are over 4.89 million people receiving housing benefit in the UK, with 2.57 million people unemployed. With many more people in jobs which are under threat, the chances are that even a working tenant might need to claim Local Housing Allowance at some point. These tips will help you understand the system and be prepared so that you are ready even if you become an LHA Landlord by accident.

As a reader of Property News you may already be experienced in managing all types of tenants in which case please share your knowledge in the comments which is a great way to add to the value of these articles for all readers. If you are new to property investment or have never considered LHA tenants then I hope this brief guide will give you food for thought.

Buying a property and then renting it for a profit is a simple concept. What can make things complicated is the relationship between landlord and tenant. Many landlords avoid tenants in receipt of Housing Benefits, also referred to as LHA Tenants, because they perceive that such tenants represent a greater workload and greater risks to property condition and rent arrears.

My aim in this set of articles is to give you guidance on how to get the best out of the investment opportunities offered by LHA Tenants. How to maximise rewards and reduce the risks.

Wishing you every success.


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Comments

3:43 AM, 7th March 2012
About 9 years ago

I think you will find that your cashflow will substantially reduce when UC in introduced.
Made even worse when council tax has to be managed by councils.
Who will say only 80% wil be funded leaving the LHA claimant to pay the remainder.
This will have a downward effect on the rents you will be able to achieve.
If your properties are only suitable for LHA you will have to accept reduced overall rents
If I was you I would get out of LHA property and invest in decent private let property.
Hope you have any hidden gas flues sorted before 1.1.2013 otherwise no hot water or central heating on New Year's Day for your tenants unless you want to risk a manslaughter charge and end up in prison.
I think you will find that your 30% differential rapidly disappears when the above circumstances are introduced which will be in 2013.
It is about £400 per property to have the inspection hatches fitted.
I find that I make a 30% differential on private rents rather than LHA who I have found are a complete pain to bother with.
So I don't.
I make far more out of private than LHA tenants any day.

Mark Alexander

7:27 AM, 7th March 2012
About 9 years ago

Paul, I have had the benefit of knowing John Paul for quite a while and I have read all 8 of his articles. Don't be too quick to judge, he's a good man and his articles will help dispel some of the pre-conceptions you hold about LHA tenants.

11:14 AM, 7th March 2012
About 9 years ago

I find it amazing that LHA rates are a LOT higher than the normal rent levels in lots of local areas.   I am starting to think that LHA rates should be calculated based on the MAX of the 30th percentile of rents in the local area as well and the 30th percentile of rents in the very large Broad Rental Market Areas.

For example in Manchester the LHA rate can be very high in some area, as the Broad Rental Market Areas are includes lots of “upper class” areas with the inner city areas.

(I think this is also why such good money can be made by LHA/HMO landlords in Haverhill as the rent area includes Cambridge)

Or maybe only rent paid by people with a below medium income should be included when working out the LHA rates.

It is a shame that there is not an effective way to reward LHA tenants that choose to live somewhere cheaper – way should a person get a lot less money from the government just because the choose to live in a HMO rather than a flat?  Likewise for someone that chooses to relocate to an area with better value housing.

The fact that the profits including costs of damage and unpaid rent are so much larger renting to LHA in some areas proves there is an issue with LHA rates being too high in these areas.

I look forward to a very interesting set of articles on how to exploit a poorly designed welfare system.

Jonathan Clarke

19:15 PM, 7th March 2012
About 9 years ago

I am an LHA landlord of 12 years experience. I find it a very lucrative market from a business perspective but also from a personal perspective I gain some satisfaction in giving some of our more vulnerable members of society a safe roof over their heads. John Paul is very experienced in this field and has great knowledge and expertise and is well worth listening too. I look forward to his articles. LHA is a niche market and I accept its not everyone`s cup of tea but when I advise other investors on the merits of the LHA market I hopefully dispel some of the pre- conceptions that some investors like Paul Barrett unfortunately hold. Many then see the financial advantages of the LHA market over the private one. This will hold true in many areas but by no means all.

 Frequently  I read or hear negative perceptions about LHA tenants themselves which are simply not borne out by my own experience. The system as Ian says is somewhat poorly designed and so is its day to day management by the councils. The management of LHA tenants can be intensive at times but by careful selection of the right tenants at the outset I will often in fact gain someone  who is a real asset and  quite willing to add value themselves to a property as they are so grateful to be given a chance in life to have their own accommodation. Their expectations are often not as high as private tenants so less money is needed to be spent on refurbs, maintenance and renewals. 

Where I invest in Milton Keynes it is possible to buy a property in a local authority estate with yields getting on for 10% whereas in a principally private estate not quarter of a mile away you would pay almost twice as much for a house with practically the same rental income. The figures stack up very well with an LHA model I find. Paul Barrett has consistently  held an  anti LHA stance because of his own unfortunate experiences which seemed to have coloured his judgement somewhat. I have about 20% private and 80% LHA in my portfolio so I feel I can see the pros and cons of both sectors. No one yet can give a factual view on how UC will affect LHA landlords. There is a distinct, albeit  painstakingly slow move at government and local council level to support more and work more in unison with the PRS sector and in particular the LHA landlord. Housing is as we know in very  short supply and the PRS sector increasingly picks up the overflow. It is in everybodies interests ( councils / landlords/tenants alike ) to  work together effectively to ensure the LHA market thrives and best use is made of the limited public purse

Mary Latham

20:55 PM, 7th March 2012
About 9 years ago

Great post Jonathan but then I have come to expect nothing less from you.

We are all one P45 or broken relationship away from an LHA tenant and like all tenants if you choose carefully they can be great long term tenants who do not expect a landlord to "send a little man around" as do some other tenants every time a light bulb needs to be changed.

John Paul is well known as an expert with this client group and has worked over many years to find solutions to any issues that concern landlords who let to tenants on LHA.  I too look forward to his articles.

There are many of us working hard all over the country to ensure that UC does not put landlords off and in fact some of the solutions will make the situation much better for many landlords.

23:07 PM, 7th March 2012
About 9 years ago

I have to say I don't have adowner on LHA.
It is just that we all have different circumstances.
I am not saying the LHA model is not as equally valid as a PRS tenant.
We all have relevant property circumstances which facilitate certain types of tenant.
I need to achieve the highest rents I can and for my circumstances the PRS delivers the highest rents.
I will not and am not decrying anyone who choses the LHA investment strategy.
For me it is presently more efficacious to have PRS tenants.
This of course could change in the future.
We all purchase at different times and in different areas and diferent property types.
There is no wrong or right way of choosing different tenant types.
It generally is all a matter of timing as to what you end up with.

9:10 AM, 8th March 2012
About 9 years ago

interesting article although he doesn't look old enough to have had such experiences what this article shows me or proves to me from my experiences is not that every one has their own road there are absolutely no guarantee that you or i can be in the same predicament as young john,we do not know for a start how he got to where he is you could say through hard work yes of coarse why not. For a start the fact that he runs the Castledean group ,which came first,the agency or the property portfolio or perhaps both along side each other make no mistake this is very clever but borders on the illegal one should not be allowed to do both one or the other the reasons are obvious .This tells you also why he receives more money from the councils he works with ,simply the council will pay an agent more for the properties put to them by him because they are paying a higher rate to such persons i know this because i have been on the receiving end from no less that three separate councils .Firstly if you try to place your home with them you will struggle for a no of reasons, secondly if you do happen to provide your property the contract will be useless to you that is, thirdly and the point we are making you will be offered much less that the open market ,an example of this a London borough invited to look at a property semi- detached currently open value between £1200 and £1400 the council makes an offer of £800 and a max of £850,i know for a fact the same type of property in the same borough an agent/housing provider is receiving £1400 , can you tell me whats wrong with this picture. Therefore the stories are nice but in reality its all dependent on the individual circumstances . PARA 3 with the right information, i am MD Castledean management/ GROUP OF LETTING AGENCY, PARA 4, 7.46 m people receiving housing benefit and unemployment that's around  10% ,i would rather see these persons working and paying their way rather than companies such as Castledean draining 30% higher than average 7%/10%  this is not the norm you cant all do the same  no harm in trying if you like you only learn from experience.       

9:16 AM, 8th March 2012
About 9 years ago

I am a great fan of this news letter but have never commented before. I must however take issue of the opening sentences of the article..."in some ares LHA rents are 30% higher than in the private sector".... I am sorry but If in a nutshell this phrase sums up your investment stategy all I can say is that is morally I find it disturbing. I am not a philanthropist and aim to make money from my small portfolio but to be able to exploit a market - which is an oxy moron as it is clearly not operating properly - is something I could never be comfortable with..

Mark Alexander

9:18 AM, 8th March 2012
About 9 years ago

Hi Josh

John Paul made his money as a world ranked UFC cage figher and wisely invested into property. You're right, he's not that old but for a bloke who was previously punched in the face and kicked in the head for a living he's a pretty sharp cookie. My understanding is that he built both businesses from scratch and went on to acquire other letting agencies and is still doing so in order to grow his empire. as for experience, I think managing over 1,000 LHA properties and having 17 NFOPPS qualified staff kind of speaks for itself don't you.

John, if you are reading this, please feel free to step in at any time.

10:24 AM, 8th March 2012
About 9 years ago

hi mark firstly thanks for your input it is your site after all but i do not appreciate the fact that in your wisdom you think that telling me that John Paul being a world ranked UFC cage fighter ,is it your opinion that now i shake in my boots through intimidation or i take it that this young man has genuinely had to earn his money through hard work , which is great as a fan of sport great to him . And yes he may be a sharp cookie ,i think you have answered your own question though a thousand properties and 17 NFOPPS working for him .but i would like to know what your point is with this story is it the fact that a young cage fighter has made his money from fighting and invested in property and agencies therefor every one can do it . if it were that easy would not all the other fighters do the same if it were about making money , the same goes for other sports persons i have heard quite a few footballers have large portfolios ,the common denominator is the amount of money they have CASH FLOW in the real world people do not have such capitol ,yes they can buy one or two/three and can borrow on them to buy more but realistically you will never envisage to pay for them but you can make money there is no question on that but i will stick with what i know as facts and my situation. And by the way great respect to a sportsman who has been able to diversify and make his earnings work for him respect to that because most end up broke .By the way Mark i am not here to question as to how the person made his money or what he does or even if he wrote the artical him self its mearly my opinion that not all will be able to do the same ,the question still arises as to the fact is it right that estate agents are able to buy property for them selves and build a property portfolio for rental purposes i think this is a grey area in fact is it not an area which many estate agents have abused in the past the question being in this now supposed open world is this ethical ? i don't know who am i to say .

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