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Saturday, March 28, 2015

HMO - cashbuilder

I've was chatting to an old friend this week. His main business is in website development but he has a useful sideline with a Housing In Multiple Occupation (HMO).

I thought I'd share his business model as he seems to be onto something. His property is in a traditional terraced area very near to Nottingham City Centre. Not high value or posh by any means but also not a ghetto. I would guess his 6 bedroom property with 2 bathrooms and lounge & kitchen diner would be valued at about £120,000, so not expensive.

Letting to the immigrant middle classes

His business model seems to be letting to the professional immigrant middle classes that increasingly populate our towns and cities.  Rumanians, Poles, Indians... They are mixture of IT, warehouse workers.  Note to UKIP supporters.  These are not the lazey benefit seeking immigrants.  They are skilled paid professionals who have come here to work.

He charges £65 per week for a double room including all bills.  As you would expect this type of tenant would demand cable TV and wifi internet access.  His footloose tenants like the fact that all bills are included and they just pay a one off weekly rent and that he lets using a licence giving them both a 2 week notice period.  I suspect that if challenged he may find that a Court would find that both parties have created an Assured Shorthold Tenancy but in the 11 years that he has been doing it this issue has not arisen.

HMO licence

The downside of renting out his HMO property is that under the Housing Act 2004 because he is letting his rental property to more than 5 occupants he requires a licence from Nottingham City Council as the relevant local authority.

Gross rental yield for this HMO

Clearly the churn of his tenants is much higher than a single let property but fully let the property generates just over £20,000 a year.  On the purchase price of £120,000 that's over 16% gross rental yield.  Even taking off all the expenses including mortgages costs this property investment is generating a grand profit each month.  There is money in HMO properties if you are prepared to put in more work.

Landlord insurance - Specialist brokers - HMO cover

1 comment:

Blah said...

This six-bedroom HMO in Nottingham is worth just £120,000? Even with the Article 4 direction pushing up prices of existing use HMOs?

I'd suspect that if your friend got it re-valued now it'd be a fair bit more than that....