RajBeri_YPN-Feb2016

27Your Property Network 92 • February 2016
Cashflow is king
dvanced LHA strategies overcome many
of the challenges of setting up HMOs
as one is essentially buying cheaper
properties in average parts of the town
and letting them unfurnished very
much like single lets. The difference
of course is that one needs to get the
right tenant make-up and structure
the paperwork correctly to generate
rental yields comparable to HMOs.
Having decided to embark on advanced
LHA, the question I then had was “how
should I go about learning it”? I could
appreciate that it was an involved strategy and
not one that could easily be outsourced to a regular
letting agent. For example, one has to learn about all
the variables of welfare benefits including aspects of housing
benefit (LHA), advertising for tenants, vetting tenants and setting
up paperwork in the right way to maximize housing benefit. Last,
but no means least, is the day-to-day management of what can
be a challenging tenant class.
One could start to implement this strategy after
reading a few articles or listening to a few
webinars or perhaps attending a one-day
workshop. I appreciated at the outset that
unlike HMOs for which there are a
multitude of resources, implementation of
advanced LHA would be more complex
and perhaps need more regular support.
I therefore made the decision to work 1:1
with a mentor who had a track record of
doing this strategy and training others to
do it. This was the most expensive option.
However, as an experienced property
investor I look at most things as a return
on investment (ROI). I knew from my local LHA
figures that if I could set up just one house
on advanced LHA then I would recover my mentoring
investment within about 12 months, which worked very well for
me. Then, I would have the knowledge to set up house number
two, three etc.
Under guidance from my own mentor, I also made the conscious
Can you really treble your cashflow from a
property without converting it to an HMO
n the previous article we considered the perfect “blueprint”
for HMO’s and identified what makes the “perfect recipe”
for multi-let properties.
But what if HMO’s are not your thing? Maybe you are in an area
where article 4 precludes the development of properties for use
as an HMO. Maybe the HMO deals don’t “stack” in your area or
perhaps you have an existing portfolio of single let properties
that aren’t suitable as HMO’s but you want to boost the rental
profits.
In previous editions of YPN we have written about advanced LHA
strategies but we have NEVER covered EXACTLY how this
works in practice in as much depth as in the following pages.
Back in 2014 YPN interviewed Raj Beri who had just begun his
journey into LHA advanced strategies. In the following article
Raj details his successes (and challenges) in this niche property
sector so you can learn this niche strategy and adopt in YOUR
property business.
So, with all the perceived advantages & benefits of HMOs, why
would anyone knowingly enter the LHA (Housing Benefit) market
to generate cash flow from property?
As Raj pointed out, he is well aware of all the benefits of HMOs
as he has a portfolio of student HMOs in Nottingham.
However, there are also some caveats and challenges with
HMOs:
1. There may be council planning restrictions on changing the
use of a family dwelling to an HMO i.e. Article 4 Direction
2. Lending on HMOs can be a challenge
3. They are expensive to set up i.e. in addition to the deposit
and refurbishment costs, there are fire safety costs and
furnishing costs and
4. Lets be fair in assuming that no landlord really likes paying
for someone else’s bills!!

decision to focus on “family units” (more than one 1 family
household; multiple generations). If I did implement 2 PLUS 2, I
would only house 2 people over 35 who were family members or
friends rather than two random benefit tenants. Using the above
tenant make-up, I would then create a joint tenancy and therefore
not be liable for council tax which would increase cash flow
(Note: for two benefit tenants set up on separate ASTs, the
landlord becomes liable for council tax)
In terms of maximizing rents via housing benefit, there is a half-way
house to do this, although one would not generate the incredible
cash flow achievable with Advanced LHA. Let me explain. I have a
spacious 1-bedroom flat, which is suitable for a single person over
35 and they would get £395/month local LHA rate.
Suppose I rent the flat to a single mum (one child) or a couple
with one child? Their entitlement is for the 2-bedroom rate, which
is £460/month local LHA rate. If I apply for this entitlement, the
council is duty-bound to give it regardless of the fact that it’s a
1-bedroom property. Its what they are entitled to. OK, it’s not a
fantastic uplift at £65/month but hopefully you get the general idea.
This principal can be extended to house a 3-bedroom rate entitled
family into a 2-bedroom house etc. Now there is a limit to this
approach and any ethical landlord should not be craming a family
entitled to a 4-bedroom LHA rate
into a 1-bedroom flat!!
As it turned out, when I embarked
on learning this strategy with a
mentor, I had just bought a
3-bedroom/2 reception room
property (see YPN January 2014).
To recap, this was a direct to
vendor purchase agreed at
£50,000. With the refurbishment
costing £8,000 plus £2000
purchasing costs, the property was ready to let for £60,000.
As far as advertising for potential LHA tenants, I set up a business
account with Gumtree. For a fixed monthly fee, this allows me to
run unlimited adverts but more importantly I can refresh
(bump-up) the adverts as often as I like and this is very important
in order to keep the advert on the first page. I also place the
adverts on Righmove, Zoopla etc using a third party provider. Final-
ly, I place 6-10 postcards in local shops.
I have to admit that after 2 months of advertising for tenants, I
was beginning to have doubts about this strategy. There was no
shortage of phone calls (up-to 10 per day) because the advertising
was very appealing to this sector e.g. No Deposit, No Fees, pets
considered etc ensured the phone was constantly ringing.
However, the people who rang would just get the standard LHA
rent applicable to the right family for a 3-bedroom property and
this was not what I was looking for.
Initially, I thought maybe the area was not ideal for the types of
families I was looking for but I had no other houses to test the
model with. Also, there is always the element of just not being
‘very good’ at various components of a new strategy when one
is learning it from scratch.
Finally, I came across a suitable “family unit” who were living in
poor accommodation in another part of the town. They had the
required 1st months advertised advance rent of £575, passed cred-
it checks and were able to offer a guarantor. After vetting,
I offered them a tenancy (Case Study 1).
28 Your Property Network 92 • February 2016
“I decided to serve a
section 21 but she refused
to leave so I ended up
having to get a court
order to gain possession”
• Single let Market Rent: £495/month
• Advanced LHA Rent achieved: £925/month
• Profit Uplift (over market rent): £430/month
• Overall Monthly Cash flow: £620
• Length of time tenants in property: 12 months
Tenancy History
The reason £925/month was granted by the council was
that I made two housing benefit claims and set up a joint
tenancy agreement. One tenant was the Mum plus 3 boys
all over 16 years of age so the council gave the requested
4-bedroom rate (£675/month). In addition, the mum also
had her 21-year old son claiming JSA living with her so I
claimed housing benefit separately for him (£295). It may
appear that the property I offered was cramped but they
were moving from a poor property that was smaller to a
completely refurbished property!!
Case Study 1

The claim was actually for £975 but the council clawed back
£10/week from the housing benefit entitlement. Unwittingly,
I had not realised that I should have checked with the council
if the tenant owed any overpaid housing benefit from her
previous tenancy. Had I done so via an Authority to Disclose
form submitted to the council, I would have been told that she
owed £670 and the council would be “clawing” it back from me
at £10/week. The tenant claimed she had settled the
overpayment with the council and they were all lying! I did set
up a payment plan for her to repay me £10/week and managed
to recover about £200 but lost the will to live as non-payment
was usually accompanied with the usual excuses of “I’ll do it
tomorrow”, “It was someone’s birthday”, “cat was sick” (hang
on, there were no pets agreed at the start of the tenancy).
I learnt a lot from my first foray into the Advanced LHA strategy
and I was pretty glad that I had regular help from my mentor,
as everything was so new to me. In the midst of all this
learning, I had the BMV property revalued and managed to
recycle most of my capital, so it currently has an ROI of 70%,
with a gross yield of 22% (based on the original purchase price),
which is pretty excellent. Sadly the original tenancy only lasted
for 10 months as the 21-year old son on JSA just upped and left
which reduced the LHA to just the mum + 3 boys rate of £630
which was still not bad.
I decided to serve a section 21 but she refused to leave so
I ended up having to get a court order to gain possession.
However, as I was getting the LHA paid direct to me,
there were no arrears. Overall, for this tenancy
my total rental uplift (profit) over a standard
single let rate was around £4,000
I re-advertised the property and was able
to secure tenants quite quickly. The current
make-up of the household is Mum plus 2 kids
(boy and girl, both over ten years old) and her
entitlement is £516. The children’s uncle also
lives with them and he gets £394, so a total of
£910/month. They have been in the property for
18 months so my total uplift (profit) to date is
around £7200. They moved from a crappy
terraced property on the other side of town
to one of my nice house. As it’s a fairly cheap
property, even after refinance, this property is
generating around £600 positive cash flow
(accounting for the mortgage, insurance and
£70/month maintenance allowance).
One advantage of renting to housing benefit tenants are
industry figures, which support the fact that this tenant class
tend to stay in properties much longer so avoiding the ‘churn’
one can experience in HMOs. I also don’t have to chase anyone
for rent as it comes direct to me from the council. An added
bonus for this property was that the tenants qualified for a
brand new Combi boiler as part of the affordable warmth
scheme and this cost me a mere £380 (supply and fit).
The Advanced LHA strategy is quite detailed and a number of
things have to be learnt especially taking control of the
paperwork submitted to the council. One simply cannot rely on
the tenants doing this, so I normally fill in the paperwork with
them. For the first property I set up, I actually went to the
housing benefit office, took a queuing ticket and waited 2
hours so I could hand in the paperwork. I then learnt that as
I was an accredited landlord with the council, I had a
“hotline” to members of the advice team so I could make
an appointment with them and then the process only took
10- 15 minutes (for them to photocopy the paperwork).
Recently, I have been told that I can now just scan and send…
online uploading is just around the corner with this council!
Having set up my first Advanced LHA property I could see that
this strategy could be a financially lucrative alternative to HMOs,
which have been heavily regulated since March 2012 due to
Article 4 Direction. I therefore began to consider how to set up
the second one. I already had other 3-bedroom properties in
Nottingham, but being an ethical landlord, I was not willing to
give notice to these long standing tenants, as some had
children in local schools. I therefore decided to wait until
these tenants gave notice or I was in a position to buy another
property.
Within 2 months, a family in a property close to the one I had
bought gave notice. They had been renting the house from me
for almost 5 years for £475/month. I immediately started
advertising the property using knowledge I had gained.
Within a few weeks of the property becoming empty, I managed
to secure my second Advanced LHA “family unit” (see Case
Study 2).
“Having set up my first Advanced
LHA property I could see that this
strategy could be a financially
lucrative alternative to HMOs”

In an ideal world, one should take 1st
months rent in advance, the equivalent
amount as deposit and have a
guarantor who is a homeowner and also
has a gross annual salary of around 35
times the monthly rent. However, if that’s
the criteria readers wish to apply with this
tenant class before offering a tenancy,
it’s a lot to ask for. Experience from other
investors has already highlighted that
ticking all these boxes is pretty impossible
so you have to decide what criteria you
are happy with as a landlord on a case-
by-case basis.
For me, a credit history with no CCJs is acceptable. I am happy
getting the 1st months rent in advance without a deposit because
of the way housing benefit is paid (in arrears). I also like to get a
guarantor on board even if they are only working part-time and are
not home-owners. It’s therefore possible to sow the seeds so that
someone else has a stake in the tenancy
and therefore ‘liable’.
Overall Results
First and foremost, the return on my
original investment (ROI) for 1:1 mentoring
has been great and I can obviously now
apply the knowledge plus experience I have
gained to future projects. To date, I have
made an “extra” £27,000 profit above what
I would have achieved if I had rented these
3-bedroom properties as single lets and the
extra profit has come from property stock I already owned.
Two other figures warrant highlighting for the four properties I have
set up using advanced LHA. Firstly, I am currently earning an “extra”
£1500/month net profit compared to income I would have received
from single lets. Secondly, I have purchased these properties in the
£50-£60K price bracket, recycled most/all of my capital and with
Tenancy History
The reason £854/month was granted by the council was that I set up a joint tenancy
agreement with one joint tenant being the Mum who was claiming Employment & Support
Allowance (ESA) and qualified for the 1-bedroom rate (£394). The second tenant was her
21-year old daughter claiming JSA. Being under 35 years old, she would routinely qualify
for the Shared Accommodation Rate (SAR) of £295. However, as she was expecting a child
within 10 weeks the council can grant a top-up via a Discretionary Housing Payment (DHP)
to match the 2-bedroom rate. This is what she would be entitled to with one child so she
was awarded the 2-bedroom rate of £460/month.
The readers have to understand that tenants on joint tenancies are getting exactly the
housing benefit they are legally entitled to “as if” they were living as two separate
households in two different properties. In Case Study 2, this would be for the Mum to be
living in a 1-bedroom flat and entitled to £394/month housing benefit and for the daughter
plus child to be living in a 2-bedroom house and be entitled to £460/month. They happen
to want to live together so two claims can be made. Its almost like having a HMO with LHA
tenants where each tenant would have a separate housing benefit claim with the council.
Apart from not being able to easily get hold of the tenants the only issue I have had with
this tenancy was that the housing benefit payment was suspended (stopped) due to tenants
not sending in some paperwork that the council had requested. I took my eye of the ball as
the tenants were telling me they had sent it and the council were lying/had lost it etc. By the
time it was resolved, the arrears had jumped to over £900, which the tenants became liable
for!! I set up a monthly plan for them to clear it within 12 months. I also set up an automated
text on-line so they would get a reminder a few days before the payment was due. Luckily
the arrears have been cleared and I learnt my lesson on keeping on top of things
Due to the increased monthly profit over the market rent, to date this property/tenancy has
generated almost £10,000 more profit than I would have achieved on a single let basis.
On a day-to-day basis we don’t really do anything differently than for other properties in
our portfolio e.g. regular 3-monthly inspections, checking monthly (4-weekly) housing
benefit is coming in as expected. Lets hope these tenants stay for many years to come
• Monthly Cash flow: £584
• Length of time tenants in property: 27 months (November 2013 to present)
Case Study 2
“I am happy getting
the 1st months rent
in advance without
a deposit because
of the way housing
benefit is paid”

advanced LHA rents currently averaging £870/month, the yields are in
the 16-18% range. The average net cash flow of £600 per property (rent
minus mortgage, insurance, maintenance) is phenomenal and matches
what many people get with HMOs but without some of the issues
associated with HMOs (tenant churn, all bills included, fully furnishing,
regulations).
As I mentioned at the start of the article, I cannot change use of any
of these properties to HMOs due to a blanket local ban due to Article
4 direction. None of the four properties I have described are HMOs,
as they are being let to only two households (related or otherwise).
Advanced LHA has had its challenges over just doing HMOs but it
also has had significant benefits for me and allowed me to invest
locally for excellent cash flow
Nothing comes without a challenge and I have had two on-going
challenges. Firstly, younger tenants (18-21 years old) being more
unreliable and just getting up and leaving so effectively terminating
the tenancy and destroying my hard-earned cash flow. Secondly,
focusing only on creating joint tenancies between family members or
close friends rather than two random LHA sharers means that it can
take more time to find the right tenants that fit my model. I am hoping
that this approach will lead to more stable, longer lasting tenants who
stay for many years
What next in 2016
Actually, the reality is that 2015 has been a tough year for me and my
family due to many, many sad things happening and we made a decision
to just focus on maintaining our portfolio whilst we supported each other.
Towards the end of the year my daughter got engaged and will be
married mid-2016 in one of those all-out Asian weddings so plenty to do!
(PS: I know I don’t look that old)
On the property front, I purchased a 3-bedroom property in October
2015 for £62,000. This was previously bought by the vendor in 2008 for
£90,000 . It needs a significant refurb but it’s my first targeted purchase
for advanced LHA. Hopefully it should re-value at around £85,000
allowing me to re-cycle most of my capital and then to achieve an
advanced LHA rent of between £800-£900 using my preferred model.
I plan to buy more 3-bedroom houses to apply the same model
I have been doing quite a lot of coaching and mentoring for Simon Zutshi
(Mastermind Program) and some private mentoring as well. I am in a
position to offer more 1:1 mentoring in areas where I have now developed
some expertise i.e. HMOs and Advanced LHA.
I stopped buying small terraced houses a few years ago due to limited
cash-flow from single lets. I am now back in the market as I can apply
the high cash-flow principles of Advanced LHA. I will therefore be in a
position to source, tenant and manage Advanced LHA houses for other
investors and they should get in touch if that is something of interest.
I will be on the speaking circuit a lot more so keep a look out for me at
your local meeting.
• Advanced LHA Rent achieved:
£790/month
• Profit Uplift (increased cashflow over
market rent): £270/month
• Length of time tenants in property:
23 months (March 2014 to present)
Case Study 3
Having seen the successes (and challenges)
of the first few Advanced LHA properties, I
decided to offer tenancy set up as a sideline
business. The first landlord who approached
me had just bought a 3-bedroom property in
Clifton, Nottingham and was expecting a
market rent of £520
Tenancy History
This was my first 2 plus 2 but with an
interesting twist. The lady who contacted me
was a pensioner and she had moved back in
with her ex-husband pensioner because
“she was lonely” and “he needed looking after”!!
They were renting a nearby 1-bedroom council
bungalow, with him using the bed and her
sleeping on the sofa.
The council granted the 2 x 1-bedroom rates
that I applied for (£395/month each), which
is the rate they are entitled to locally. This
was despite the fact that due to the layout of
the property, I could not provide 2 “exclusive”
rooms for each person as 1 person would have
to walk through the other person’s exclusive
room (living room) to get to the kitchen. They
granted this claim even after they went to view
the property to check it out. I have never been
able to figure out why this housing benefit
award was granted and just thought it must
be an “error”. However, this error has repeated
itself a few months ago (Case study 5).
In the period that the current tenants have
been in the property, the landlord has made
£6000 more profit than he would otherwise
have expected from a normal single let and he
is hoping that the pensioners live a long and
healthy life!!
I decided not to offer Advanced Tenancy
set-up after Case Study 3 (too much work for
too little reward) but will still do it for other
investors if they have asked me to also source
the property (see Contact Details footnote).
“Advanced LHA has had its
challenges over just doing HMOs
but it also has had significant
benefits for me and allowed me
to invest locally for excellent
cash flow”

The next property that became available for Advanced LHA
was under sad circumstances. I had bought a property BMV
in 2008. It was a SARB (sell and rent back) and the same
tenant had been in the house for over 5 years. Unfortunately,
the tenant who lived there passed away. The house was
bought in a poor condition so needed a significant
refurbishment. Once the property was ready, I began
advertising for suitable family. Again, although the phone
was ringing off the hook I could find no one suitable. In
hindsight, I probably lowered the hurdle too much on this
occasion and took a family with a checkered past who
could not offer a guarantor. Although the council granted
£820/month housing benefit, one of the joint tenants left
after 2 months. I let the other tenant who had two children
stay for the duration of the 6-month tenancy. The Advanced
LHA super-rent only lasted 2 months in this case!!
Advertising started again and I was able to secure a new
“family unit” quite quickly.
• Monthly Cash flow: £690
14 months (December 2014 to present)
Tenancy History
The reason £920/month was granted by the council was
that I set up a joint tenancy agreement with one joint tenant
being a single mum (one young child) who qualified for the
2-bedroom rate of £460 and she was going to share the
house with her half sister who is also a single mum (one
child) who also qualified for £460. Both single mums were
living with their mum and dad in a 3-bedroom property so
pretty cramped and I moved them into a newly refurbished
property. Their mum was able to give me the 1st months
advertised rent of £575 in advance but they were not able
to secure a working guarantor. I really liked the family and
the support network both single mums had around them so
they agreed to increase the advance rent to £750 to secure
the tenancy. We have done a number of inspections in the
last 12 months and the place is immaculate. The girl’s mum
insists on it being kept well as they have been given the
opportunity to live in a lovely house.
An added bonus for this property is that the tenants
qualified for a brand new Combi boiler as part of the
affordable warmth scheme and this cost me a mere
£380 (supply and fit).
To date, this property has generated £6000 more profit
than I would have achieved on a single let basis.
Case Study4
“An added bonus for this
property is that the tenants
qualified for a brand new
Combi boiler as part of the
affordable warmth scheme”

YPN Says
There you have it, advanced LHA strategies really do
work but they are not without some very real challenges.
As Raj points out he has realised an additional £27,000
to date from properties he already owns and to be
averaging £600 per month net profit from “single lets”
is frankly astonishing.
Is this strategy going to be right for everyone?
Probably not, those with limited time and a loathing
of paperwork will probably find it arduous to say the
least.
But Raj proves that this really does work
if you are prepared to put in the
time, effort and apply the
strategy correctly.
Tenancy History
This property is only a 2-bedroom house so not much scope
to apply Advanced LHA. Nevertheless, when the working
tenant gave notice, I decided to try for Advanced LHA using
the internet, a To-Let board and a few postcards in local
shops as a means of advertising. Again, the phone was
ringing off the hook but I couldn’t find anyone suitable for
a while. Two friends who wanted to share did get a viewing
but they looked really ‘high’ so not surprisingly, my gut feel
said no. Finally, two friends who were living separately
viewed the house, passed the checks and were offered a
tenancy.
One was over 35 and the other would turn 35 within 6
months. So, in anticipation of her turning 35, I put in 2
housing benefit claims for the 1-bedroom rate (2 plus 2).
As in case study 3 with the pensioner’s house, one tenant
would have to go through the other tenants “exclusive”
room to get to the kitchen. I submitted all the scanned
documents and was expecting the council to visit to check
over the property. The claim was awarded within 24 hours
of being submitted, which was incredible speed.
Surprisingly, they gave both tenants the over-35 rate (£395/
month each) even though one was only 34 and should be
getting the shared accommodation rate of £295. I have no
idea why the council has made this award as the date of
birth is clearly shown on the IDs and the housing benefit
form. I have not challenged this decision.
Key Points to remember if
embarking on this strategy:
• Learn the rules and regulations of the welfare benefit
system with detailed knowledge of LHA (Housing
Benefit)
• Learn aspects of advertising and vetting this
tenant sector
• Learn that the structure of the tenancies can vary
depending on the family unit
• Accept that you have to be willing to “lower the
hurdle” for granting a tenancy e.g. advertise No Fees/
No Deposits as most of these tenants don’t have
thousands of pounds
• Keep on top of tenancies and chase the tenants and
council if housing benefit payments are suspended
(stopped) to fix the issue and reinstigate the income
stream
• Appreciate that the properties could be managed by a
knowledgeable, proactive letting agent who know this
sector but my advice would be to self-manage
• Work with a mentor to help implement this strategy in
your own area and give you on-going support. Rather
than asking “How much can I save if I do this on my
own”, a more relevant question is “How much MORE
PROFIT could I make if I leveraged someone else’s
expertise”. At the end of the day, all investments
should be viewed in terms of ROI.
• Keep learning and adding to your knowledge;
the rules are always changing
Case Study5
• Monthly Cash flow: £490/month
3 months (October 2015 to present)
CONTACT DETAILS
Raj will be opening up 1:1 mentoring on high
cash-flowing BTL strategies (HMOs and Advanced
LHA) in 2016. He can also provide the complete
package of sourcing & management of properties
that fit these models. To find out more go to
www.rajberi.co.uk or email him raj@rajberi.co.uk
or call him directly on 07894 543931

RajBeri_YPN-Feb2016

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