Renting to DSS tenants anyone?

Renting to DSS tenants anyone?

Author
Discussion

ATV

Original Poster:

556 posts

194 months

Sunday 25th January 2015
quotequote all
For this post I'm still using the old term DSS as that's what most adverts ("no pets, no DSS") still refer them as, even though it's been replaced by Local Housing Authority (LHA) and now universal credit.

I've been reading as much as I can on this market and spoken to a few people who invest exclusively in this market and are doing very well. The major risk is when the Housing Benefit gets paid direct to the tenant rather than the landlord but I'm told there are ways around this (using credit unions, or if the tenant has a history of medical or financial problem)

From my calculations, this is a business that can be very lucrative because of the low prices involved and the return on investment. In my area, I saw a property for sale which the broad market rental areas (BMRA) rates show as follows:

  • 3 bedroom Property being sold for £49,995
  • £12,500 Deposit
  • £37,500 Loan (75% LTV)
  • Mortgage £171 pcm (@ 5.49%)
  • LHA rent for 3 bed from council £650 pcm
  • Gross Profit £478 pcm
  • Gross Yield on Investment 45.88% per annum
I'd welcome input from anyone else who is involved in this market as it seems very lucrative and for a £12,500 investment, can easily be scaled up once the rental income starts rolling in and you can save for more deposits.

Edited by ATV on Sunday 25th January 17:49


mod note: no need to be mentioning other PHers negatively in your post #

Edited by eybic on Monday 26th January 10:29


Edited by eybic on Monday 26th January 10:30

DocJock

8,341 posts

239 months

Sunday 25th January 2015
quotequote all
I doubt you'll get much in the way of a response given the way you have commented negatively on two members in your first post.

ATV

Original Poster:

556 posts

194 months

Sunday 25th January 2015
quotequote all
DocJock said:
I doubt you'll get much in the way of a response given the way you have commented negatively on two members in your first post.
Really? Telling the truth is now considered being negative is it? In the first instance, I queried a discrepancy in figures which can easily be checked online https://glasgow.gov.uk/index.aspx?articleid=4189 . Given that some PH'ers are prone to bullstting, I'm entitled to call someone out on financials, especially as I posted in the "Passive Income" thread are never got a response.

In the second instance, I sent a few PM's but never got a response. Fair enough, no one is obligated to reply or his inbox might be full. Turns out he was lending money to poor people at big rates of interest and has wisely kept off PH lest he get called out on it. Is that my fault that I didn't know about this and sent PM's off which never would have got a response?

jonah35

3,940 posts

156 months

Sunday 25th January 2015
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It's very obvious

It can be lucrative.

You may have problems getting rent

You may need to do repairs.

What else is there to know?!

Jasandjules

69,825 posts

228 months

Sunday 25th January 2015
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Can you interview them? If so, I suspect you could do very well, there are many on DSS who are good people who have fallen on hard times.

oldnbold

1,280 posts

145 months

Sunday 25th January 2015
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I spoke to groak via PM a year or so ago about this subject. At that time he was buying very cheap 1 and 2 bed flats in an area of Glasgow that was undergoing regeneration, when I say cheap he said less than £10k each and he even linked to some properties on rightmove. The object was to rent to DSS tenents.

I was looking to increase my small portfolio at the time and therefore PM'd him a couple of times for info. At that time in Scotland I think the change to pay benefit direct to the tenent had been made and he was starting to experience more problems and advised against it.

I also looked at renting one of my existing properties to DSS tenents a few months ago. My agent advised against it very strongly. His reasoning was that DSS claimants circumstances change very often. For example they start by having the benefit paid directly to you and then 3 months down the line they convince the council that they should get it, they then don't pay the rent. You have to wait until they have not paid for 2 months before you can start action, it then takes x number of months to get them out and when you get them out the place is wrecked. Or they suddenly no longer qualify for the benefit and as above don't pay etc etc.

The returns look fantastic but if you have 5 months with no rent and then a couple of grand refurb to pay for your annual yeild all of a sudden doesn't look very good.

As the saying goes "if it was that easy everyone would be doing it". It's like most things the bigger the reward the bigger the risk.

keith333

370 posts

141 months

Sunday 25th January 2015
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In East Lothian you can get a two bed flat and rent for £575 pcm. Assuming £25k deposit and 5.49% on balance of £75k then that works out at 11% return. We rented to a young couple both 17 year olds with a baby (why can't they use contraception!) and persuaded the council to pay the rent as they were so young.

Don't know if you can insist on being paid direct, I suspect the council may only do it on a case by case basis. We wouldn't rent to DSS unless rent was paid direct.

Timsta

2,779 posts

245 months

Sunday 25th January 2015
quotequote all
Jasandjules said:
Can you interview them? If so, I suspect you could do very well, there are many on DSS who are good people who have fallen on hard times.
This is very true. Not everyone on benefits is just lazy.

sugerbear

3,961 posts

157 months

Sunday 25th January 2015
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keith333 said:
In East Lothian you can get a two bed flat and rent for £575 pcm. Assuming £25k deposit and 5.49% on balance of £75k then that works out at 11% return. We rented to a young couple both 17 year olds with a baby (why can't they use contraception!) and persuaded the council to pay the rent as they were so young.

Don't know if you can insist on being paid direct, I suspect the council may only do it on a case by case basis. We wouldn't rent to DSS unless rent was paid direct.
oh I see what you did there, on the one hand rolling your eyes at them getting pregnant so young, on the other pocketing the rent. Brilliant!

sugerbear

3,961 posts

157 months

Sunday 25th January 2015
quotequote all
keith333 said:
In East Lothian you can get a two bed flat and rent for £575 pcm. Assuming £25k deposit and 5.49% on balance of £75k then that works out at 11% return. We rented to a young couple both 17 year olds with a baby (why can't they use contraception!) and persuaded the council to pay the rent as they were so young.

Don't know if you can insist on being paid direct, I suspect the council may only do it on a case by case basis. We wouldn't rent to DSS unless rent was paid direct.
oh I see what you did there, on the one hand rolling your eyes at them getting pregnant so young, on the other pocketing the rent. Brilliant!

developer

265 posts

156 months

Sunday 25th January 2015
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Being a private rented sector landlord is not for the faint hearted - the law is almost exclusively tenant geared, no matter how bad they are, so if/when it goes wrong you can expect a three to four month gap in rent, plus any ensuing damage.

Currently there's no clear definition of whether UC can be paid landlord direct, as the safeguard process of LHA doesn't appear to be transferring across (though I hope DWP see the light and introduce an equivalent).

The take up of tenants joining credit unions to ensure the landlord gets his rent has been virtually nil in my area (Midlands).

Edited by developer on Sunday 25th January 22:08


Edited by developer on Sunday 25th January 22:09


Edited by developer on Sunday 25th January 22:15

Willhire89

1,327 posts

204 months

Sunday 25th January 2015
quotequote all
keith333 said:
We wouldn't rent to DSS unless rent was paid direct.
Be aware that with direct payments that if their claim is subsequently found to have been obtained fraudulently then the LC will pursue the LL who received the overpayment

northwest monkey

6,370 posts

188 months

Sunday 25th January 2015
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I occasionally rent out to DSS but am now pretty selective. No single blokes under 40 (rent increases once you are over 35) and no teenage mums (they seem to attract teenage boys).

I've had bad tenants from both DSS and non-DSS so I wouldn't say one is worse than another if I stick by my rules above. The main thing to remember with DSS is it's paid in arrears so you don't get the months deposit and month upfront. One of the areas I have rentals in can take up to 14 weeks to process a housing claim, so if you have a tenant moving in on the 1st January, you aren't seeing any money until the end of February (fast) or the end of March (slow).

The last time I used an agent (about 5 years ago), they put in a "lovely lad" who moved in & promptly announced he was going to claim Housing Benefit. After 6 months, he moved out. I'd had in total 3 months rent (the council had fked up and paid him the 1st payment so he went on holiday with that). Because of him trashing the place, taking all the copper, the door handles, the cooker, the washing machine & letting a dog st all over the place I kept his deposit & I also got back of the agency their fee for putting him in there. Once I'd replaced all the copper (with plastic), the carpets, the cooker & redecorated I let it out again but I'm pretty sure that year wasn't getting me a good yield.

On the flip side, I've got a tenant in a 1-bed flat who is DSS. 51 years old, been in the flat 3 years & I've spoken to him 3 times.

DUMBO100

1,878 posts

183 months

Sunday 25th January 2015
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I rent a 3 bed flat to a DSS tenant in Glasgow for £650 per month. The payment is made to her and then to me and it is a worry but she has children at the local school and fortunately she puts their wellbeing first. I am a responsible landlord and any repairs etc. are carried out immediately and she pays on time. I think that's the key. Treat people the way you would like to be treated

nikaiyo2

4,672 posts

194 months

Monday 26th January 2015
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There is a reason why the returns on "DSS" properties are so high...
I think if you are going to run it as a full time business, and have 30 or 40, you can do very very well indeed.
I would not think about DSS renting again unless I had 5x times rent +£4000 in cash to "support" my 1st few.
If you are wanting to get into BTL as a sideline pension type investment there are much less stressful/ potentially costly options.

Wacky Racer

38,099 posts

246 months

Monday 26th January 2015
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If something seems too good to be true it usually is.

A lot depends on the "quality" of the tenant.

If you can afford to fund your property portfolio without going into any debt yourself, you stand a much better chance of making it work, (Especially when house prices are increasing).

All pretty obvious stuff really.

For example, taking out a large expensive btl loan, and having the property empty five months....not good.

zedstar

1,735 posts

175 months

Monday 26th January 2015
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DSS tenants are just the same as the private ones, if they want to cause you trouble then they will. A point to note is this, if you want a DSS tenant to leave then normally they will be re housed by the council, the council will not rehouse them until you've served a section 21, waited the 2 months, applied for a court date, got a possession order and then been told that bailiffs have been appointed. They will also tell the tenant that they don't have to go anywhere. So unless you've served a S21 at the point or in the middle of tenancy that process takes approx 4 months. Highly likely that during this period the tenant will not pay you anything.

Davel

8,982 posts

257 months

Monday 26th January 2015
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Some are good - some are awful.

Some will stay and pay the rent, look after the place and you won't want them to leave.

Others will come and, despite promises, not pay the rent (if it is paid to them), not look after the place and trash it on leaving. I've known some steal the boilers and hot water tanks etc.

But, of course, this can happen with some private tenants too.

Getting some out can be a nightmare as you can't simply evict people on to the streets.


Sheepshanks

32,539 posts

118 months

Monday 26th January 2015
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I know a girl who does this, but she has "family" that sound like the ones described in the OP. She told me it's a waste of time doing contracts as they just ignore them and there's nothing you can do to enforce. Some are great, others are a nightmare in terms of being very needy - for example they'll ring at all hours as a light bulb has gone.

Sounds like it's something were you'd need to be very much on the ground - trying to do it remotely would be impossible, unless you had enough of them to be able to exert some influence on everyone involved.

Snapper7

990 posts

258 months

Monday 26th January 2015
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I am not talking from personal experience.. But I once had a look into this when the council paid the landlord directly and you contract was with the council. But this changed and you contract and payments are with the tenant. The risks then became ten fold.