A HMO on Benefits- The Highs and Lows

This month, I have been asked by the YPN team to provide an article on the day to day running on having HMOs which are filled with tenants on benefits.   

As some of you may know by a cameo role on the Channel 4 programme, Britain’s Benefit Tenants, I am a very straight talking landlord and investor. I have developed extremely thick Rhino style skin and I certainly do not take any prisoners.   

There is a stigma attached the Benefit Tenant’ market which identifies them as being the worse client group you could ever have.  Although there is some truth in this, I would also like to bring to light a lot of the ‘Benefits’ of housing a tenant on benefits.  

Lets go through some Pros and Cons.  

The Payment Process 

Prior to the introduction of Local Housing Allowance and Universal Credit, housing tenants who were claiming state benefits was actually quite a lucrative business. Prior to 2008, the councils would pay the rent directly to the landlord and as a result, the rent was actually a secure form of income where you would receive direct payment every 4 weeks.  In a lot of my properties, the rent for a room in a HMO with shared facilities would be circa £70 per week and the local authority would pay £60 towards this amount. This would mean that approximately 85% of the rent would be secure, and that the tenant would only be liable for £10 per week which would come from the tenant’s personal benefits ie Jobseekers Allowance. At the time, the market rent for rooms were circa £60 per week, and we were achieving 15% more as a result. It really was a simple and effective system. 

• Benefit Tenants had a place to live  
• Landlords were being paid  
• Councils housing list was much shorter 

WIN – WIN – WIN   

Then they went and screwed it up. In 2008, they introduced a scheme known as Local Housing Allowance. The government decided that they wanted to give unemployed people some financial independence and what better way to start than by giving them the rent directly to set how many people could handle paying the rent to their landlord.  Everything I had loved about the previous benefit system had now gone straight out of the window. 

In order to claim Local Housing Allowance, tenants would have to submit their personal bank details onto the form and for the tenants; it felt like Christmas every month. They would receive in excess of £400 into their account and the local bookies and pubs were thriving. Recent statistics show that since the introduction of LHA and now Universal Credit, rent arrears have increased by 63%.  

I currently use a service called Tasker Payment Services, which is a nationwide credit union style service, where the tenant has to open an account online and all the housing benefit element is paid to us within seconds of reaching the account.  

Feel free to check them out : www.taskerpaymentservices.co.uk    

Longevity Of Tenancy  

One of the massive benefits of housing tenants on benefits is the fact that if you choose them right and treat them as you would any other person, they will become a tenant for life. Now just to clarify, I believe there are 3 kinds of benefits tenants :  

• Cant work  
• Will occasionally work (temping) 
• Won’t work  

I have had tenants who have been with me for more than 20 years in the same property and then I have also have had tenants who have been with me for 1 month and absconded.  

The key to any successful HMO is tenant selection. Asking simple questions such as:  
 

• Who are they?  
• Where are they living now? 
• Why they are moving? 

It seems simple but understanding a little about the person and their background will give you an indication of the life they live and how your property will also be treated.  

Tenants on benefits are slightly trickier. A lot of the people I meet may be homeless and are of no fixed abode. Unlike working professional tenants, they may not have: 

• Deposits 
• Rent in advance 
• Guarantors  
• References   

I have to work on a gut feeling. I try to understand why they are moving and why they have ended up in the position they are currently in. For example, a homeless tenant may have become homeless for 1 of 2 reasons. This could include: 

• Not conducting their tenancy at their previous property in the correct manner. This could mean, rent arrears, anti social behaviour, drug use, or even the association of unwanted guests. 
• Sometimes, the tenant may require housing due to the landlord not fulfilling their obligations ie providing hot water and heating. I have met many tenants who have lived in sub standard accommodation as the landlord refuses to invest in the property, which naturally deteriorates in condition. 

The benefit tenant market is one of 2 extremes. The one tenant who is grateful for their property and keeps it clean and maintains a good tenancy. The other is one who believes the world owes them a favour and the property is simply a place where they sleep. It is left unkept and untidy and many other guests / tenants friends and associates using it as a mini hostel. It would also be common to be called out by the police in the early hours of the morning to let them in the property before offering to break the door down.   

I have experienced both types over the last 20 years and have fine-tuned it so we only attract the first type of benefit tenant. I have a number of tenants who have been with me for over 20 years and have become friends.  

I have also found that a lot of my benefit tenants keep the property in much better condition than some of my working professional tenants.  

 The Property Itself  

I am a firm believer that a property which houses benefit tenant cannot be set up the same way as if it housed working professionals. I have created a HMO model, which I believe, works harmoniously. The property I have created is one where: 

The property does not have any communal lounge and limits the amount of contact between parties.  

I have a HMO in West Bromwich which houses 23 tenants on benefits. Can you imagine 23 benefit tenants in a communal lounge? I can imagine being called out to an issue almost daily or definitely weekly. Therefore we remove any communal lounge, but in order to do that the rooms have to be larger to circa 15sqm to accommodate the fact that the room will be used for living and sleeping. 

Over the last few years, I have adopted the same model for the working professional HMOs. If you look at the HMO market in general, all the HMOs have communal lounges and communal facilities. I have found that tenants actually like having their own facilities and not dealing with issues such as tenants leaving areas untidy and also issues in the kitchen of split milk etc.  

Finally in all my HMOs I have adopted a model different to the HMO norm. In all my HMOs I have created a model where the tenants ae responsible for their own energy use.  

Previously, I had HMOs where the rent was all-inclusive. I found that as benefit tenants were in their properties for longer periods of the day, the energy bills were soaring. As a result, I decided to streamline the system and now all my HMOs are fully electric, where each tenant has their own electric meter.  

It is now extremely rare to find a TV on standby, as they understand that they would be paying for this. Previously, the heating would have been on full blast, TVs left on and the only person who would have paid for this would have been me.  

The Key To Running A Successful Benefit HMO 

Running HMOs can be financially rewarding but also very taxing. Having benefit tenants can seriously shorten your life with worry, if not managed correctly. Here are a few top tips to run a successful HMO: 

1. Master key system – One key fits all. It allows me to access all parts of the building without ever needing to look for keys. When tenants lose their keys, or maintenance needs to be done, I simply open any door with the master key and saves a load of time. I also have gave a copy of the key to the local Police Station in case of an emergency. They can no longer force a door as they have the key and also my permission to access any of my properties. 
2.  Head Tenant / Caretaker – The best thing I have ever done! In my 23 bed HMO, I have always had a head tenants who lives in the building and acts as my eyes and ears in the building. This role has evolved over the years, where they now actually do all the viewings for me. Previously, I would only accommodate a viewing between 9am – 5pm but with the head tenant in place, as they live in the property, they have shown people at 9pm.  I find this works extremely well, as I have asked Martin to comment on the people and also have said ‘How would you feel if he lived here’. I generally go with Martins decision as it is in my best interest to ensure Martin stays!!! 

For this property in particular I have also brought this person a laptop and printer so that I can email him documents, if I need him to find a specific tenant, should their housing benefit claim have been suspended. The head tenant can simply print off, get it signed as soon as he has tracked down the person and emails it back. 

The head tenant will also be trusted with collecting rents and some of them even deposit it into the bank for me. This comes over time as you build trust.  

 I have adopted this process in all my HMOs. I find it works extremely well and all the tenants report any issues to the head tenant who in turn reports them to me. It saves me having to communicate with lots of people and only deal with the head tenant.   

 In order to get a good head tenant, you have to offer some incentive. I generally give them a reduction in rent along with other incentives such as £10 per viewing and £25 for every property they let.  

Paperwork – Keep on top of it. Every now and again, you will receive confirmation to say that you will not be paid housing benefit due to the tenants circumstances. This could be that they missed a job interview, or have not made enough effort to find a job etc. Some landlords will leave this to the tenant to sort and I believe this is a fatal mistake; and will lead to a mass of arrears in rent.  

I get my office to do all the paperwork for the tenants and we actually email it in and post it in for the tenant so we know that it has actually been actioned. We get all tenants to sign a 3rd Party Authority form, which allows us to speak to the council about any party of their claim.  

We finds that this helps all parties. Generally, tenants are not great with appointments and paperwork, so the more we can assist / babysit, the better it is for them and the more likely we will get paid.  Stay on top of it and keep communicating with the tenant.  

So there you have it guys, I hope you will have found this article of some use. I may sound like it is a lot of hassle dealing with benefit tenants, but believe me, if you choose the right ones, it can be rewarding as well have long standing tenants. As well as that, you actually feel good about the fact that you have probably helped someone who other people would have turned their nose up at.  

 If you still have a question which you would like answered in next months article, please feel free to email me : [email protected] and I’ll aim to answer as many as I can over the following months.  

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