The cash flow is higher than for a Buy to Let property but is it really worth all the hassle of dealing with several tenants who don’t like each other?
When we hear the words Multi Let and HMO we conjure up for ourselves an image of when we were students, having to slum it in digs that we could only just afford. The idea of having to settle quarrels between tenants who haven’t kept the place tidy or taken someone else’s food from the fridge late at night doesn’t sound like much fun.
But it doesn’t have to be like that in the current climate. It is now possible to cater for a much more mature tenant with more sophisticated tastes and higher income. There are many more professionals who are either working away from home during the week, or who find themselves on their own suddenly who are prepared to pay for a better standard of living in the right property.
So it has to be our duty to supply the right properties for these new clients and the best way to do that is to move your property up the chain towards the standard of a hotel room.
This is how it works:
If you purchase a Buy to Let with a mortgage of around £80k at 6% then you will need to clear £400 each month just to break even. I’ve used 6% so that you know the numbers stack up even if the interest rates go back up again sooner than you planned on.
If you purchase a 6 bed HMO with a mortgage of around £150k at 6% then you will need to clear £750 per month to break even. If you divide that by the 6 tenants then it’s only £125 per month or about £31.25 per week.
Of course you wouldn’t dream of charging as little as £31.25 per week, so you can very quickly scale up your income from the property. Let’s just say that you charge £75 per week or £300 per month then your income would be £1800 which leaves you £1,050 clear.
The more likely scenario is that the rent, outside London would be £90 to £110 per week for an HMO with a shower and kitchen. So, taking the lower figure of £90 per week (monthly figure of £390) for 6 people then your income would be £2,340. This would leave you £1,590 per month (£19,080 per annum).
Rentals on HMO’s in London would be around £250 per week, but the purchase price of the property and therefore the mortgage will also be much higher.
You will also have to consider other costs against that income such as insurance, Gas, Electricity, Water and TV. With a Buy to Let then you would probably cover the insurance but not the other bills. However with an HMO then you would probably cover these other bills in the rental figure.
The more facilities you have the more the tenant is likely to pay. In order to move your rooms up the scale you can consider the following:
- Even for Buy to Lets with one or two people sharing you can offer a cleaner and gardener, which keeps your property up to scratch and allows you to charge more as well as stand out from the other rental properties on offer.
- You can add a shower room or en-suite to the room which gives the tenant independence and also adds value to your property. (Be aware that if they become classed as self contained then you may need to have planning permission.
- If there is room, or you are able to refurbish the property to house as many as possible then by changing some of the interior walls you may be able to turn the rooms into self-contained bedsits. Adding a mini kitchenette really gives the tenant a home from home and brings the rental value to its top performance potential.
- Stage the room as a hotel room, there is little communal area required in the property so that you can utilize all the space and the individuals can come and go as they please and be as sociable or unsociable with the other tenants as they want.
- If you really want to up the ante and stage them for a very high spec then you will probably want to add broadband access and plasma screen TV.
One drawback with Multi-Lets and HMO’s is that so far Agents don’t have a great reputation for managing them. This is beginning to change so if you can find a good agent to manage the property then snap them up quickly.
If you are managing the property yourself, then with Multi-Lets and HMO’s it is a good idea to be within sensible driving distance so that you can react quickly to any issues that arise.
If you’re looking for increased cash-flow with a small number of properties then this investment strategy works really well. Make sure your numbers stack up and there are lots of facilities nearby that will support the rental market, such as Hospitals, Universities (Phd students are funded) or Large corporations who ship people in from overseas to support specific projects.
So, is it really worth the hassle? You decide if this needs to be part of your strategy or not.