HMO’s have been around for some time now, and they have become a popular part of the investor’s portfolio. They transform an ordinary property investment into something quite different – the chance to generate a stack of cash.
There are 6 Ways HMO Can Make You Rich and this article will look at each of them in turn. Think about all of these different situations and compare them against your standard properties in your portfolio. Once you look at these, then you will begin to understand why these are 6 Ways HMO Can Make You Rich.
Your void periods have a lower impact
This is the first of our 6 Ways HMO Can Make You Rich and helps the landlord ensure that their income flows are more consistent. One of the major killers in property investment are void periods.The novice landlord will look at some basic figures when deciding on whether to buy an investment property. Most will consider that if the rent covers the mortgage and costs, then it looks like a worthwhile investment. Of course, there are far more considerations to look at then this.
Void periods are overlooked. When you first get a property to market, or after a tenant moves out, then with the best will in the world, you can find a few days or weeks (sometimes even months if you don’t choose the right lettings agent) can pass. This is time where you have no income coming in, and probably still bills to pay on the property:
- Councils have removed tax relief on second homes
- The buildings insurance is an absolute must
- Maintaining the property is crucial to getting the right tenant
So, the void becomes a killer. But with an HMO, the void periods are lessened because you rarely see the hole property emptied at once. One of your tenants might leave, but you will still generate great income from the rest. This gives you time to find the right tenant for the empty room and move forwards.
Business across the UK and the wider world live and die from their cash flow.
Your property investment business is no different. An HMO means that you rarely, if ever, see a time where your property is empty. Quickly fill up the rooms and you ate back to maximum capacity once again. This is a killer start to our guide to the 6 Ways HMO Can Make You Rich and is a vital lesson for new property investors. Maximise the potential of your property with this great technique. The HMO saves the day again!
The demand is definitely there
People’s lives are changing radically. A few short decades ago, the population of the UK was made up largely of families. Due to changes in the divorce laws, rising property prices and people living longer, the demand for flexible living is increasing by the day. The second in our guide to the 6 Ways HMO Can Make You Rich is perfect for the HMO property investor. People don’t always want to rent a full property. This can be because:
- They work away from home for a few days a week
- They can’t afford the price of a single-occupancy property
- They want a base near to work, school, kids
This means that as the demands of the population change, the supply needs to change with it. One of the best on our list of the 6 Ways HMO Can Make You Rich is the fact that the HMO property meets a specific (and growing) demand perfectly. Cities and large towns have limited space. But people need to be in and around these cities for work. Commuting takes up a lot of time, so being close to a city centre, town centre or large employer at a lower cost really works for a lot of potential tenants out there. Are you meeting this demand?
There may be 6 Ways HMO Can Make You Rich but this is the one that runs as a constant throughout the rest. If the demand is there, then you can become incredibly wealthy by being the savvy investor and catering to these demands. With an increasing population and not enough homes being built, this demand is only set to increase over the next few years. Being the landlord that can provide quality HMO provision for these potential tenants puts you at the front of the queue when they start to look for accommodation.
It can seriously increase your resale value
This might not be the first thing you expect to see on a list of the 6 Ways HMO Can Make You Rich but changing your property to an HMO and increasing the rental yield makes it a far more attractive proposition for property investors when it comes to selling the property.
You may not want to do this straight away, or it might be part of your investment strategy, but a higher rental yield makes a massive difference to a fellow investor who is looking to buy up property.
Let’s take a look at this in terms of an example:
- You buy a property at £500,000
- You spend £50,000 converting into a 6-bedroom HMO
- Each room rents out at £600 per month
- Your annual income becomes in and around £43,200
An investor looking for a 10% Return On Investment (ROI) will value your property at around £700,000 – £900,000. So, you can see how quickly your investment becomes worth twice as much as that in the eyes of another investor. You suddenly start looking at the money you spend on property in a different light.
There may be 6 Ways HMO Can Make You Rich but on paper, this looks like gold. If you decide to sell, then you will be quid’s in. If you decide to keep it, then you end up making a massive annual income from a relatively small initial investment.
Property investment is about making smart decisions and recycling your cash as often as you can. A traditional buy to let may take many years before you are able to release your deposit and buy the 2nd property.
Investing in an HMO gives you access to cash from sales or income that are not really possible with a single property let to a single occupant. Think about how increasing your resale value could work well for your property investment business.
You can target your key tenants to maximise profits
People often think that HMO rented properties are like DSS homes for multiple tenants. The image in the mind of some investors is that they scrape the bottom of the barrel when it comes to tenants and the property undergoes a lot of wear and tear in the process. But we are here to tell you differently. This is the most surprising on our list of the 6 Ways HMO Can Make You Rich because people who don’t fully understand HMO investment dismiss the strategy out of hand without fully exploring the potential.
If we are putting together a list of the 6 Ways HMO Can Make You Rich then we wouldn’t be doing you the right service if we didn’t mention this. You don’t have to look for Housing benefit tenants with an HMO property. We have seen there is a demand for tenants for this type of housing. The next step is to look at the profile of potential tenants in your area, to get the most from your HMO properties. This might be:
- Students
- People working for a particular large employer
- Professionals in a growth industry
- People who might have short contracts with a local employer
Some of the best HMO opportunities come from tenants that have a high wage but maybe don’t need to be in your neck of the woods permanently. We have come across people that only work near the city for 2 or 3 days a week and a room in an HMO is more cost-effective than a hotel. This means you get less wear and tear, because the tenant spends a few hours a night there a couple of days a week.
You also get a reliable tenant who needs access to what you have. The HMO can work differently for you depending on the demand in your area. Target the higher end of the market and this become a lucrative way of renting out property and is one of the most exciting entries on our list of the 6 Ways HMO Can Make You Rich today.
You get the most for your money
We are almost at the end of our list of the 6 Ways HMO Can Make You Rich and with rising house prices, especially across London, this is a really important message. If you think about what you ar4e buying with a property to invest then you can break it down into one simple calculation: You are buying a certain number of bedrooms in a certain location.
That is the bottom layer of a property transaction. Look on Rightmove or any other property portal and you will find that all the properties are arranged into location and number of bedrooms. So if you can buy more bedrooms at a lower cost, then as an investor you have got a better deal.
Now look at the next level of investment. Take that 3-bedroom property (now converted into 4 bedrooms) and build a two-story extension on the back. You now have a 6-bedroom property that can bring in £3,600 per month! Property investors are always looking for new ways to maximise their cash. It is a precious resource and must work as hard as possible. The HMO allows you to do this.
It could be far more tax efficient for you
We are finally here. This is the final part of our 6 Ways HMO Can Make You Rich and this one can make a big difference to your investment strategy. With any business proposition, the net results of your work are far more important than the gross incomes. Making £20,000 per year out of a property look all well and good from the outside, but the net profit is all that counts.
This one on the list of the 6 Ways HMO Can Make You Rich looks at how you may incur far more costs as a HMO landlord than with single-let properties. There are many other cost to consider, including:
- HMO registration and regulation
- The costs of conversion
- Potentially increased maintenance
- More processing of information with multiple tenants
Some of this can be seen as a greater burden for the HMO property investor, but this also comes with substantial tax benefits. Pretty much every aspect of expenditure on an HMO is tax-deductible.
This means that you end up paying less tax. You will need to speak to your accountant or tax planner to make sure that you are following the regulations, but you can see the benefits to your income tax and capital gains tax by noting down all the items you have had to pay out on relating to the HMO.
HMO conversions are superb long term investments. They give rental yields that can’t be achieved with standard buy-to-lets. For cost-effective, planning compliant HMO conversions with outstanding ROI results, take the first step and find a local architect near you now.