HMO’s can provide the savvy investor greater cash flow returns than single let properties, however many investors are put off using HMOs to expand their portfolio because they view them as being a hassle and less consistently full.
The key to successful investing in HMO’s is all down to experience. It is worthwhile paying an experienced property management company the management fee, unless you are willing to put the effort in and be proactive all the way.
Young people are still finding it extremely difficult to find the deposit to purchase their own property; they are also struggling to pay the increasing rents which Landlords are demanding for self contained properties. This situation has strengthened the case for HMO’s making excellent investments. However choosing the correct property in the right area with an excellent management company is key to the success of your investment. So where does one start?
1. Firstly you have to decide who do you wish to rent to? What type of tenants? LHA (Housing Benefit), Professional (not necessarily all lawyers and brain surgeons); but young working people starting out in the chosen career in full time permanent employment. Or perhaps students?
I have been managing HMO’s for 13 years and I would strongly steer anyone away from letting to housing benefit tenants, unless you want to work 24/7 or you have a letting agent whom solely deals with this type of tenant. Both professional HMO’s and students HMO’s are preferable and once up and running can be very profitable.
Student HMO’s require the most work over the summer months and the first month or two of the autumn, but once everyone is settled in they run smoothly.
2. The second consideration when looking for a suitable property to convert into a HMO is the location. This is firmly based on the type of tenants you wish to let to. Professionals will want to be close to a village center and excellent public transport links. They want to be a short walk from a supermarket, local bars and restaurants. They want to be in a safe friendly area. Students on the other hand want to be on or just off the main artery road to the University. They want to live near other students, be close to shops and leisure facilities, and a large supermarket.
3. Employ a property management company with experience in project managing HMO type refurbishments. The right person will have the knowledge, expertise and a rapport with someone from the HMO department at the council.
This is a very important point; refurbishing HMO’s can be stress free. But unless you are willing to do all the research and be hands on liaising with the council and builders on site, then this should be left to a person who has a lot of prior experience. A license will not be granted unless the property adheres with the legislation.
Don’t be disillusioned in thinking that student properties need less refurbishment or a less superior finish. More than ever if you are to compete in the student lettings market, your HMO needs to be on a par with new build accommodation.
The legislation for HMO properties is comprehensive and covers everything from fire safety to the minimum space requirement and certain standards for kitchens and bathrooms. If the property has more than 3 floors and is let to more than 5 persons, the legislation becomes more complex, and it is an advantage if you have access to someone with this experience.
4. Choosing the right tenants. A good property management company will ensure that each tenant is fully referenced. They must provide proof of their employment, and a previous Landlord reference, if the tenant is in their first job a guarantor might be essential to ensure that there are no issues with the rent. Once a house has a couple of tenants living there, it is a good idea to let the existing tenants meet the potential tenants, and within reason help you choose the right person.
5. To ensure the investment is successful, you must have a rapport with the tenants as an agent. We ensure that all maintenance is carried out promptly and the condition of the property is kept in a good state. We provide a cleaner who comes weekly and keeps the communal areas clean, this ensure a professional standard of accommodation.
Over the many years I have been involved directly with the management of professional HMO’s there has only been the odd occasion when tenants have not got a long with each other and we have had to take action and give someone a ‘notice to quit’. However this is rare, we always give the tenants the opportunity to meet prospective tenants and they give us the go ahead to let to them. This ensures a happy house and happy tenants!
HMO’s will continue to provide an excellent alternative for young professionals who live away from home and want to start saving for their future. There will always be a high demand for refurbished spacious shared professional accommodation in the right area!