Dangers of HMO properties

I've always shied away from HMO properties just because of the additional management time involved.  If landlords are prepared for a greater churn of tenants, added complications from a more intensive occupation of their property then the returns are there.  A friend of mine owns a terrace property in Nottingham with 5 letting rooms with a value of about £120,000 which he has financed through an interest only mortgage he is clearing a grand a month.  That's a fabulous 10% net return on the equity.  However, there are dangers.  A recent meeting with him highlighted one of these.

Disruptive tenant a danger to HMO property lets

One of the big problems of a HMO property is that if you end up with a disruptive tenant and a tenancy that goes wrong it could rapidly empty your entire HMO property.  This is exactly what has happened with my mate.  He has got the tenant from hell.  The tenant refuses to pay rent and also will not leave.  Despite my landlord friend issuing a section 21 notice the tenant looks as if they will resist eviction until the end.  The process of gaining possession as I know from personal experience could take the best part of 6 months.  Already, he has lost 2 of his best tenants as the antisocial non paying HMO tenant disrupts the whole of the house.  It's a nightmare and he is powerless to stop the tenant from causing mayhem and at the same time remove him.  Clearly, if things continue my friend could find that he has NO paying tenants and his net £1000 per month could rapidly become a cost as he is just left having to pay the bills plus the interest charge on his mortgage.

Risk vs Reward

When I spoke to my HMO landlord friend last year I can remember thinking rather enviously that he had a cracking business model and that perhaps my rather pedestrian approach to letting property was failing to draw in a high return.  My single let properties with a couple or single tenant will generate a gross yield of no more than 6%.  However, now reflecting on things; if I do get a bad tenant it effects only one property and tenancy.  My approach  does not generate the maximum return but equally I do not take the biggest risk.

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