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Option Homes Ltd - News- Could Multiplying Your Tenants Multiply Your Rental Income?

Could Multiplying Your Tenants Multiply Your Rental Income?

Date Added 08/09/2015

One of the most significant directions of travel in the letting sector in recent years is the increasing popularity of Houses of Multiple Occupancy (or HMOs to give them their much-used acronym).

In simple terms, it`s a property that isn`t divided into separate apartments, but one where tenants each have a room but then share some common areas. These may be facilities such as a bathroom, kitchen and so on, but it may just be as little as a common entrance and passageway.

Their growing popularity is hardly surprising given that renting accommodation in an HMO tends to cost less than a conventional, separate apartment. And from the landlord`s perspective, more people paying less still delivers a higher return – sometimes a significantly higher one.

According to recent figures released by Platinum Property Partners, yields from HMOs outperformed standard buy-to-let (BTL) investments by 40% in the four years leading up to 2014.

So is it a no-brainer for landlords to go down this route? Well it`s very much horses for courses – and here are some guidelines to help you assess whether you could profitably take this option.

1 There are costs involved

To secure good quality tenants prepared to pay more and whom you can rely upon to pay their rent and respect your property, we would always advise landlords to speculate to accumulate. Remember that some of the ROI you are seeking to achieve will be capital growth, so investing in making it attractive and well maintained will pay dividends in the long term. Doing a proper job at the beginning will also enable you to sell it on at the appropriate time as an HMO at a better price.

2 Do it officially

Councils don`t appreciate landlords operating an HMO without their knowledge and consent. In fact every so often you will read a news story of one being fined heavily for doing so: it is, officially, a legal offence. If you have purchased a property already registered with the local council, all the necessary planning consents will be in place – but you personally will still need that licence.

The requirements for HMOs tend to be different for each council, so doing your homework will be essential.

Certainly don`t even consider converting a single occupancy residence into an HMO without going down the official routes. And yes, it can be time consuming and often expensive…

3 Financing isn`t always straightforward

Just as there are separate types of mortgage for buy-to-let and conventional home ownership, so HMOs represent a specialist asset class.

Lenders are less inclined to lend to landlords new to HMOs, although that doesn`t rule getting finance out. But you will need to have thoroughly researched your market and obtained the correct licences. They will also be keen to see a quality converted HMO which will attract reliable tenants – one where they can expect to see their money back… short as well as long term.

4 It`s harder work

The likelihood of more things needing to be repaired and maintained is higher with more people using the facilities – whether that`s the plumbing, the stove or even the carpets. Having an agent to handle the hassle will ease the burden, but if you go it alone make sure you have reliable contractors you can call upon in a hurry.

5) Selecting your tenants is crucial

The type of property you let – and its quality and location – will determine what sort of tenant you will attract – professional, student or DSS.

Yes, there is a ready market for each, and each can prove highly profitable, but pitching it right, and managing it properly will be essential… and remember that students in particular will need to be replaced on a regular basis.

From the landlord`s perspective, there are the crucial issues to consider of reliability of the rent being paid and the possibility of voids – which is why professionals are more sought after by many (but not all) landlords.

6 DIY or appoint an agency?

After reading the sections above you might feel you`re well up for becoming a landlord, or that it sounds a great way to generate an income… but the hard work involved is putting you off.

If it`s the latter, consider appointing an agent who is experienced in this field. Yes, they will charge you a management fee (typically 15%) but if they are as good as they claim, they should more than justify this – not least in setting the right rents and minimising voids.

They should, for instance, handle all tenant relationships – including sorting out evictions should that ever be required as well as replacing tenants. All inventory work, deposit arrangements, maintenance and repair work should also go through them – and without them marking up any sub contractors.

In short, you should be able to enjoy a regular income from your investment – but without the headaches!

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