Hello readers,
With excellent returns, choosing to invest in an HMO is a worthy option and it’s no wonder that so many landlords are opting to go down the route. There are numerous benefits, alongside challenges, with a potential to achieve much higher yields.
In the current economy, many people are looking to downsize and reduce costs. HMOs may help to alleviate the housing crisis until such a point as the country actually builds enough home for our ever-growing population. I first began being involved in property in 2008 when I began managing my parents two buy-to-let properties and the team working at Home-Share have a similar amount of experience and neither I nor the team at Home-Share have ever experienced this strength of tenant demand.
But as with anything worth doing, it’s not particularly easy and can be especially hard when starting out. There is a lot to consider when going down the HMO route and here are five of my key considerations to help investors on the right track.
Location
Location is always key when investing in property and for HMO investors, it’s even more important. HMOs need to be in an area where there is a strong population centre, perhaps with universities, hospitals and/or good transport connections.
Looking at the competition from other landlords advertising their rooms, and checking tenant demand by browsing Rooms wanted ads on spareroom.co.uk(Please hyperlink this as its good for SEO) is a good place to start, however for Medway I have put together recommended property investment maps that you can access by downloading my investors eBook.
Size
What I mean by size is both square footage as well as the number of rooms. Some HMOs can work, for example, with four rooms however this is rare. Normally five or six rooms tends to be a sweet spot. If you can get more rooms, great, but remember planning permission will be required. Make sure to consider how the room size will be affected by the addition of en-suites. National minimum room sizes as well as room sizes stipulated by the local council will not include bathroom space in room size calculations.
The more rooms you can fit in the larger your cashflow will be, however you will want to balance the desire for more rooms with ensuring that the communal and room spaces are adequate for the proposed used of property. Also remember that increasing the number of rooms will increase the amount of management required so that’s one to consider – particularly if you are self managing.
Quality of finish
This is an important one and I have seen the full range of HMOs over the years. From poor, falling apart bedsits to high end properties which could compare to a hotel. Compared to five years ago, the HMO market is extremely competitive and to achieve the best room rates you will want to ensure your property has a quality finish.
It’s not just about being competitive, however. A higher quality finish will attract better tenants who (hopefully) stay longer, have less rent payment issues and look after the property better.
Interior design and furnishing
This is closely connected to quality of finish. I recommend using an interior designer who can recommend the best layout and design for your HMO. This is something I do and you’d be surprised at the increases to rent you can achieve with some simple tricks.
For example, with a small investment such as adding a £100 desk to a room, it is possible that you may achieve a £10 per week higher room rate on average with a six bedroom property. That’s over £3k more revenue per year for an initial investment of £100. This is a hypothetical example but you get the idea.
The other point within this is furnishing choices. It may be tempting to save money and go cheap, however you will want to base your decision on durable, low maintenance items that are space saving (and have good storage).
Maintenance programme
Once you have completed your HMO refurb and let the rooms, you will need to turn your focus toward management. Having a maintenance programme is crucial as it will save you nasty surprises later on.
I divide maintenance into two areas; reactive and planned. Reactive maintenance is all about having an easy way for tenants to report issues and planned maintenance is picked up on monthly property inspections.
Having a good maintenance checklist that’s used for inspections is extremely helpful and a good way to track/record maintenance actions taken.
If you’d like to discuss more about investing in an HMO, I run in depth discovery sessions that are perfect for new and experienced investors alike. You can find more details and book yours here.
Alternatively, why not pop along to one of our monthly Property Success Network meetings at the Chatham Holiday Inn. We meet on the third Thursday of the month and you can find full details here.
Hasan
