Houses of Multiple Occupancy have proven to be popular and profitable forms of property investment. An HMO is a single property, shared by multiple tenants or groups of tenants. The property incorporates separate sleeping and living areas for each tenant, but the different tenant groups also share communal areas like the bathroom and kitchen.
Whether you are looking to buy an existing HMO or are willing to convert existing properties to multiple lets, below are some tips to help maximise your investment.
1 – Location Really Is Everything
It’s an old adage that the most important element in property investment is that of location, location, location, but it is especially true when investing in an HMO.
Initially, you should look for the right town, but you should also ensure that you find the right location within that town, and the right road in that location. Consider the type of tenant you are targeting, where they will be working or studying, and find a location near these areas. Do your research, conduct due diligence, and try to study any existing HMOs and their occupancy and rental rates. This will help you find the most profitable locations for your investment.
2 – Different Councils Have Different Requirements
There are general rules that apply to all HMO properties regardless of their location, but you also need to check with the local council for any specific requirements they have. You may need permission, for example, to convert a 3-storey building into an HMO. Similarly, you may need special permission to convert a building into an HMO for 7 separate family units.
Different councils have different requirements and different rules, so ensure that you find out before you buy a property, or you could be left unable to make the conversion that you want and with a property that you are unable to let.
3 – 2 Floors Is Often Best
In most cases, it is easier to convert a 2-storey property, compared to properties with 3 or more floors. This is because councils demand that you have special permission to convert three-storey buildings. A 2-storey building should still allow you to create between 5 and 7 habitable units easily while having fewer regulatory and local council requirements. Costs will be kept lower and will require less effort and work to convert the property, too.
4 – Don’t Mix Tenant Types
HMOs usually attract students, working professionals, and possibly small families. Each of these types of tenant have different requirements, and attempting to satisfy all tenant types within a single HMO is almost impossible. It will inevitably lead to dispute, and disputes mean that you are more likely to suffer tenancy void during the life of the investment.
Concentrating on a single type of tenant also makes it easier to find a suitable location – students will want accommodation close to their place of study, families will want easy access to schools, and professionals will want to live near their work while having access to decent amenities.
5 – Get A Cleaner
A lot of tenants will avoid cleaning communal areas. This is another common cause for dispute between tenants, where one or a small number of tenants find themselves regularly responsible for cleaning the areas that are used by everybody. Pay for a professional cleaning service to manage these areas on a weekly or fortnightly basis; your tenants will appreciate it, and you will benefit from their appreciation with longer tenancies and fewer disputes.
6 – Get Lenders Involved As Early As Possible
Get an offer in principle from a mortgage lender as soon as possible. Discuss your exact requirements with them so that they can tailor financial products to your needs. If you need financial help to convert the property, as well as to buy the property, this is especially important.
Getting an offer in principle as early as possible means that you will be less likely to be floundering for finance at a later date, and you will be able to move more quickly when you do find a suitable investment.
7 – Don’t Get Carried Away With Improvements
Every HMO has a rental ceiling; the highest that potential tenants are willing to pay for the accommodation that you offer. Making too many or too large an improvement will cost a lot of money, and will never push the rental returns above that ceiling. Don’t invest thousands in improvements if a smaller investment will give you the same of slightly smaller returns.
8 – Consider Extending Or Converting
Extending property, or converting areas like the loft or an existing garage, costs money; sometimes a lot of money. However, it can also greatly increase the potential of your property. Converting one of these areas could give you one or possibly even two rooms for additional tenants.
If necessary, speak to an architect to discuss whether the converted area would be best as a bedroom or as a communal area such as a new bathroom – creating a new bathroom may mean that you can use the old bathroom as a new room so you could enjoy the same benefits while reducing workload and costs.
9 – Turn That Small Room Into An Additional Bathroom
Many properties have one bedroom that is smaller than the others. HMO regulations set out minimum room sizes. In some instances, it may be beneficial to take space from one room and add it to another by changing the structure of the property, but this can cost a lot of money and you are likely to still only add a small room.
Instead, consider adding a second bathroom or toilet. With five families sharing a single property, one bathroom is unlikely to be enough, so the addition of a second can greatly increase demand for your units.
10 – Have A 12% Yield Target
Rental yield is worked out by calculating gross rental and dividing by the cost of refurbishment plus the purchase price.
Landlords of single occupancy property aim for a yield of 8% and 10% is considered a good yield. HMOs aim for a yield of 12%, with 15% considered to be a very good yield level.
When calculating costs and trying to determine rental levels, aim for a yield of 12% to ensure that you are maximising your investment and making the most of your property.
How Can PDF Estates Help?
PDF Estates specialises in managing HMO properties for landlords in and around the London area. We can help source the best properties. We can also find the tenants that you need to bring in a regular rental yield, and we can arrange for services like contract cleaning and even the addition of furnishings in your property.
Call us on 020 3815 7952 or email firstname.lastname@example.org to discuss your investment and the property management services that we provide. Don’t forget that new landlords receive 3 free months of full property management.