Maximising Rental Income from Buy-to-Lets with Raj Beri
Last updated: 27 Aug 2024
Meet Raj Beri
Raj Beri, an experienced property investor with over 15 years in the property business. With a unique background in genetics and a former career at AstraZeneca, Raj has transitioned into full-time property investing. He is a co-editor at YPN Magazine and a mentor who has helped over 120 people navigate the property market. Raj is particularly known for his expertise in maximising rental income through buy-to-let (BTL) properties and HMOs, utilising a strategy that has largely been forgotten by many in the industry.
This article delves into the details of Raj Beri's approach to maximising rental income from BTLs, specifically through the Local Housing Allowance (LHA) strategy. Often overshadowed by the more popular HMO and SA models, this strategy offers a viable path to financial freedom with fewer properties in the portfolio. Raj shares his insights on cash flow versus ROI, the nuances of the LHA strategy, and how this method can be implemented effectively.
Cash flow vs ROI
Raj begins by addressing the critical balance between cash flow and return on investment (ROI). While many investors focus on ROI, Raj emphasises the importance of cash flow as the key to financial freedom. As he puts it, "Capital Growth won't do it. You shouldn’t be spending Capital Growth; you should be reinvesting it. You should be spending rental income." This highlights the need to focus on what truly sustains a property portfolio over time.
The LHA Strategy
The heart of Raj's strategy lies in the LHA approach. LHA, or Local Housing Allowance, is a housing benefit provided to tenants. Raj clarifies that this strategy is not social housing, and it involves renting to private tenants who claim LHA. He outlines two models within this strategy:
Model 1: Renting to two individual LHA claimants
Model 2: Renting to a family where two members claim LHA
"This LHA strategy is not social housing. The properties are not being handed over to charities, housing associations, councils, or other organisations. I and my letting agent manage the whole process."
This distinction is crucial for understanding the strategy's application in the private rental sector.
Case studies
Nottingham case study
Raj presented a case study from Nottingham, where a two-bedroom, unfurnished BTL property typically rents for £750 per month. By applying the LHA strategy, Raj is able to generate £1,100 per month from the same property, demonstrating a significant uplift in rental income.
Leeds case study
In Leeds, a similar BTL property following Raj's strategy brings in £1,350 per month compared to the market rate of £800. This uplift is due to the structured LHA claims, which Raj meticulously manages.
Raj illustrates the impact of his strategy, saying, "If you want to earn more than the average buy-to-let, you’re going to have to work a bit harder than the average buy-to-let investor." This reinforces the idea that while the LHA strategy may require more effort, the rewards are well worth it.
Actionable tips
Understand LHA rates
Visit gov.uk to access published LHA rates for different areas. This will help you assess the potential uplift in rental income.
Vet tenants thoroughly
While LHA tenants can provide long-term stability, thorough vetting is essential to mitigate risks.
Structure tenancies correctly
Ensuring the tenancy agreements align with LHA regulations is crucial for maximising income.
Conclusion
Raj Beri's LHA strategy offers a powerful alternative to HMOs and SAs for property investors looking to maximise rental income. With the potential for significant cash flow and long-term tenant stability, this approach is worth considering for those willing to navigate its complexities.
Interested in learning more about this strategy? Watch the full episode with Raj Beri on Deal Finder’s Corner and explore how Property Filter can help you find and manage profitable deals. Don’t forget to subscribe to our newsletter for more expert insights.
