How to invest in social housing?

MartaUK

Hello Forumites,

I have always wanted to invest in property, but can't afford to buy a whole second property myself. I've seen some adverts where you can invest in social housing by sending like £20k-80k to a company that would do it for you, and they promise to provide you with quite high ROI. It does look suspicious to me and I do not now how to vet such companies. Does anyone know how to invest in social housing or property in general in a safe way with decent returns?

I'd be very grateful for any advice.

wmb194

MartaUK said:

Hello Forumites,

I have always wanted to invest in property, but can't afford to buy a whole second property myself. I've seen some adverts where you can invest in social housing by sending like £20k-80k to a company that would do it for you, and they promise to provide you with quite high ROI. It does look suspicious to me and I do not now how to vet such companies. Does anyone know how to invest in social housing or property in general in a safe way with decent returns?

I'd be very grateful for any advice.

I wouldn't use those companies. There are some LSE listed REITs that invest in social housing. I'm not sure I'd invest in these either but at least they're a lot easier to research and understand.



https://www.theaic.co.uk/investment-company-screener#?filtersSelectedValue=%7B%22aICSectorId%22:%7B%22id%22:%22LC00002818%22%7D%7D&page=1&perPage=10&sortField=legalName&sortOrder=asc&universeId=CEWWE$$ALL_5549

masonic

Why would you think social housing would provide decent investment returns? It is often provided on a non-profit or low-profit basis by councils and housing associations. The builds tend to be cross-subsidised within more lucrative developments.

Bigwheels1111

I’ve seen the press ads, emails etc.
Guaranteed 10% rent returns etc.
What a pile of horse do do.
It investing in their property was so great why would they offer it to others.
The last lot I’ve seen were in Birmingham or Manchester.
1k a month returns etc.
But LHA rate was £500 ish.

MartaUK

wmb194, thank you, very helpful, I'll read more about those.

@masonic, I meant it is a decent option for landlords who own property - they can lease the property to council or housing association or some other body and in return they get payments guaranteed for some years, without having to worry about property repairs, voids, tenant not paying etc. The council/HA put their tenats in these properties. The yields are lower than the typical returns from letting properties, but at least it's hands-free and you help the less lucky members of the society in a way.

masonic

MartaUK said:

@masonic, I meant it is a decent option for landlords who own property - they can lease the property to council or housing association or some other body and in return they get payments guaranteed for some years, without having to worry about property repairs, voids, tenant not paying etc. The council/HA put their tenats in these properties. The yields are lower than the typical returns from letting properties, but at least it's hands-free and you help the less lucky members of the society in a way.

It seems the returns for a typical landlord on a fully managed service are not great, so can't really see this bringing in much, but it would be a charitable endeavour to put your capital towards providing cheaper housing to those less fortunate, so wouldn't want to put you off if that is your motivation.

jimjames

MartaUK said:

Hello Forumites,

I have always wanted to invest in property, but can't afford to buy a whole second property myself. I've seen some adverts where you can invest in social housing by sending like £20k-80k to a company that would do it for you, and they promise to provide you with quite high ROI. It does look suspicious to me and I do not now how to vet such companies. Does anyone know how to invest in social housing or property in general in a safe way with decent returns?

I'd be very grateful for any advice.

Normally you're not actually investing in social housing, you're lending money to a company that buys units (if you're lucky) and then pays you money back in return. If they go bust then you're out of luck. Some might actually sell you a unit but if that's the case how do they guarantee the return without pooling the money they receive?

mark_cycling00

A word of caution on the stated yields. 
If REIT A paid 5% dividend but the share price tanks because it's has run up lots of debts etc then the yield will be stated at maybe 8-9% 
But it doesn't mean you'll get that. They may well just pay 5% as usual and now you own part of a crappy company paying 5% dividend.

My knowledge is that PRS got £250m from the government and raised another £250m from investors. This put them in a more stable position than triple point etc. You could have lost 50-60% of your cash investing in social housing reits at the wrong time. 

It's not like your investment value follows house prices. The REIT keeps borrowing and buying new developments often taking on more and more risk and possibly signing unfavorable contracts with local authorities they could bankrupt them.

I can't remember which one it was but it totally tanked when an investor looked at the details of the contracts they were signing.

Obviously my memory is vague on all this so do your own research etc

Linton

mark_cycling00 said:

A word of caution on the stated yields. 
If REIT A paid 5% dividend but the share price tanks because it's has run up lots of debts etc then the yield will be stated at maybe 8-9% 
But it doesn't mean you'll get that. They may well just pay 5% as usual and now you own part of a crappy company paying 5% dividend.

My knowledge is that PRS got £250m from the government and raised another £250m from investors. This put them in a more stable position than triple point etc. You could have lost 50-60% of your cash investing in social housing reits at the wrong time. 

It's not like your investment value follows house prices. The REIT keeps borrowing and buying new developments often taking on more and more risk and possibly signing unfavorable contracts with local authorities they could bankrupt them.

I can't remember which one it was but it totally tanked when an investor looked at the details of the contracts they were signing.

Obviously my memory is vague on all this so do your own research etc

These sort of considerations  are not unique to REITs.  Dividend and interest is actually declared as a £/share, not as a yield %  based on the current price.  The returns tend to be stable in £ terms over time independent of the share price. Yield is a calculated value based on the previous years dividends/interest divided by the current price. Any day to day volatility is usually due to variations in price rather than variations in the amount of dividend/interest.

Yoeld is an important factor when deciding which dividend/interest paying stock to buy.  However once you have bought it the yield becomes for the most part irrelevent.

The price of interest paying and to a lesser extent dividend paying investments is largely dependent on the market interest rates at the time rather than the value of the underlying assets.

MartaUK

Thank you all for your input. Yes, I see REITs and things like this are quite complex investments with rather unpredictable profits (unless you're really good at understanding these things, which I'm not). That is why I was looking for something simpler, like I buy a share of a house and a company managing it pays me my share of the profits from rent/lease. Dividends from any stocks can probably change to 0 at any point, if the company does not make enough profits (as far as I can understand), while lease payments from a housing asociation are not likely to disappear within the lease period. Also, having a share of a physical house would probably keep its value better than a share in a REIT, that's why I am cautiously interested in what those companies offer. Just I do not know how to vet them, if they even do what they say on the website.

strawb_shortcake

As an ex council and HA tenant, don't be fooled by any expectation of high quality repairs. Both the council and HA bodge repairs and will never be to the same standards you'd do in your own home. 

As an example when we rented a house, a hole in the wall (for Christmas light cables) simply had two coffee lids placed over the hole internally and externally and painted over!