April 28, 2023
Can I Buy A Retirement Property to Rent Out?
If you’re considering your buy to let investment options, you might be wondering “Can I buy a retirement property to rent it out?”. Or perhaps you already own a retirement property and are now exploring possible rental opportunities? Join us as we take a look at the guidelines surrounding purchasing this type of property, and whether there are any restrictions about renting retirement properties.
What is a retirement property?
A retirement property is usually a flat, bungalow or small house that is specifically aimed at allowing older people to live independently and be near others of a similar age.
Retirement properties are designed for mature living, so they may be equipped with certain features such as wet rooms, ramps and hand rails.
Can I buy a retirement property to rent out?
The short answer to this question is yes, you can buy a retirement property to rent out. However, there are three main points that you will need to consider first:
1. Are you eligible to buy?
Retirement properties can only be bought by those of a certain age. This is usually 60 but, in some cases, it could be 55 or even 50. If you’re a landlord looking at the potential of renting retirement properties, you will need to fit any age related criteria.
Many mortgage lenders will not lend or may have stringent rules on a mortgage for a retirement property due to the age of the owner, and the repayment period.
If you already own a mortgaged retirement property and are considering renting it out, you will need to check the terms of the mortgage before you go ahead, as you may find yourself in breach and open to penalties.
2. Is the retirement property leasehold?
When considering “Can I buy a retirement property to rent it out”, there will be different considerations if the property is leasehold.
If it is, then you will need to check the terms of your lease and gain permission from the freeholder if you wish to rent.
Leaseholders will usually be required to pay service charges to cover the cost of the upkeep of communal areas and gardens, as well as ground rent. If you are renting out the property, these charges will still need to be paid, so you will need to factor them in when calculating your rental yield.
3. Is renting retirement properties too niche a market?
The final point is that as we’ve discussed, retirement properties are aimed specifically at the over 60s. Renting out a retirement property would mean that you are specifically aiming at that age group, and so narrowing your rental options to a niche market, which may affect your rental yield.
If you struggle with renting your retirement property because you are only aiming at this specific retirement market, you may end up with lengthy void periods and this again has a negative impact on your rental yield.
What to consider when buying a retirement property to rent out?
When buying a retirement property to rent out, there are various factors to consider. These include:
As with any property investment, location is an important consideration. Seek out areas where there is high demand for retirement properties, for example those with good public transport links, as well as excellent leisure facilities and amenities, and healthcare facilities.
Retirement properties are often subject to specific lease restrictions. These could include age limits, and restrictions on renting out the property. It is important to be fully aware of any such restrictions before you make your purchase, so be sure to take specialist legal advice.
Maintenance and management
Retirement properties may attract additional maintenance and management costs, such as service charges and ground rent. If you are passing these on to your tenant, will that make the property unaffordable or less appealing? Make sure you are clear on any such costs and how they might impact upon your ability to rent out the property, as well as how they might affect your rental yield.
Whilst buying a retirement property to rent out can prove a lucrative investment, it is vital to do your research and due diligence and understand the specific requirements and restrictions that come with these properties and that may impact upon how your ability to rent it out, and to earn a good return on investment from it.
What do I need to know about retirement housing scheme management?
A lot of retirement housing schemes are managed by the landlord, or alternatively they may be managed by a third-party manager (a ‘managing agent’) which can be appointed by the landlord. In some cases, the schemes are managed by the residents themselves.
Whoever is appointed to manage the scheme will be responsible for making sure the services set out in the lease agreement are provided, and also for maintaining the building in line with the lease, appropriate governing law, and relevant codes of practice.
The management organisation will be responsible for providing or organising a range of services, which may include:
- Cleaning and maintenance of communal areas, for example communal lounge, corridors, lifts and any outdoor areas
- Maintenance and repairs to the communal areas, structure and exterior of the property
- Buildings insurance
If you are considering buying a retirement property to rent out, it is important to familiarise yourself with the management organisation. Check their experience in managing retirement housing, and find out how often they hold meetings with residents.
You’ll also need to make sure they belong to a government-approved redress scheme. In England, it is a legal requirement for most retirement scheme managers to belong either to the Property Redress Scheme, or The Property Ombudsman. These schemes provide a platform for resolving disputes between landlords and tenants, so they are very important.
Also check whether the management organisation belongs to a recognised trade body. This could be, for example, the Association of Retirement Housing Managers (ARHM). This body exists to support and maintain high standards of retirement housing management, and all its registered members are bound by its Code of Practice.
Finally, look into whether the retirement housing development has a residents’ association in place that works alongside the management scheme. Such associations exist to make sure the views and needs of residents are addressed.
What is the difference between a management organisation and a retirement scheme, warden or estate manager?
The majority of retirement schemes have a scheme manager. This may be known as an estate manager, warden or house manager.
They are different from the management organisation in that they are not responsible for providing the services set out in the lease agreement, although they may assist in providing them.
The warden’s duties will vary from one retirement scheme to another. Traditionally, they would live onsite and provide support for residents, for example help in emergencies, and guidance on applying for benefits. These days, however, the warden’s role tends to involve more administrative and housing management responsibilities.
Rather than a single warden, there may be a team of support staff in place, and they will usually be based offsite. Some schemes will provide residents with an emergency alarm system that they can use to summon help in urgent situations.
The details of the retirement scheme manager’s duties and hours of service should be included in an information pack, which is often provided prior to the sale of the property. It is important to factor in the costs of the scheme manager, which can constitute a considerable proportion of the service charge.
When buying a retirement property to rent out, be sure to look carefully at the management schemes, and consider whether your tenants will be prepared to pay for this service. Not all schemes have a scheme manager. This could reduce the service charge, but is not always the ideal situation for tenants who may require a higher level of care and support.
How to rent out a retirement property?
If you decide to go ahead with renting retirement property, there are various things you will need to do to get it ready for rental ahead of sourcing tenants. You’ll also need to be ready to deal with day to day tenant queries, handle maintenance and repairs and arrange regular interim inspections to ensure the property is being looked after in line with the tenancy agreement.
A guaranteed rental scheme such as that provided by City Borough Housing has a double benefit. Not only will it provide a guaranteed monthly rental income regardless of whether the property is tenanted or not, it will also allow you to take a back seat as a landlord by covering everything from maintenance and repairs and everyday tenant queries to mid-term inspections. It will also return your property to you at the end of the agreement in its pre-let condition.
Can I buy a retirement property to rent out?
Yes, you can buy a retirement property to rent out, but there are several factors to think about before you do so, not least considering the niche target market you’ll be targeting.
A guaranteed rent scheme from City Borough Housing will remove the hassle of trying to find a tenant in such a niche market, and you’ll have the breathing space of knowing that you’ll still receive an income even if you experience void periods.
To find out more about renting retirement properties and the benefits of a guaranteed rent scheme, get in touch with our friendly team. They’ll be happy to provide you with a free rental valuation too.