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Saturday, January 23, 2016

HMO property on 12% yield

Property Hawk is a great believer in landlords doing it for themselves so when we were contacted by a Property Hawk user Ali with details of her HMO property for sale we'd give her rental property a quick plug.  The key aspects of the HMO for sale are:

  •  LICENSED HMO FOR 5 TENANTS - Melton Mowbray - Leicestershire
  • £249,000
  • 3 storey house built 2010 with 5 live in Professional single tenants in situ
  • Annual rental £28,572
  • £1800.00 total deposit protected
  • Gross rental yield 12.2% 
  • Highest quality furnished double bedrooms and communal lounge ,shared kitchen, superb garden
  • All rooms have large flat screen TVs
  • 4 luxury bathroom/shower rooms
  • Parking on road and on drive unlimited wi-fi internet
  • DASH accredited landlord
  • Nest intelligence thermostat fitted can be programmed from anywhere in the world by smart phone app or laptop, tablet
  • All certificates for gas , electric up to date . mains wired smoke/ heat detectors,carbon monoxide testers
  • HIGHLY sought after area . viewings highly recommend
For more details

Mortgage Search - Finance my investment


Unknown said...

As a HMO has huge running costs, and higher turnover of residents, the "gross" yield is not really very useful when calculating the net profit from a property. For example, I have some properties that produce more than a 100% gross yield (i.e. the rental income from the rooms is more than double the rent/mortgage paid out each month), but to establish the actual net profit you need to factor in the costs, e.g. utilities, council tax, furnishings, repairs, damage, wear and tear, rent arrears, void periods, HMO licence, letting/advertising costs, legal costs, maintenance, time spent visiting the property and doing admin, etc, etc. When all this is taken into account, the 100%+ gross yield drops to perhaps 20-30% net yield.

Although I operate in a different sector of the market, so my costs may be considerably higher than the costs on this property, nevertheless, I don't think a 12% gross yield would generate a positive net yield. Therefore, any potential investor should be aware of these costs and should perhaps base their investment on the potential increase in capital value of the property rather than the gross yield. Gross yield does not = net profit.

The Editor said...

Hi Robert, absolutely right yields need to be higher for HMOs. Just a quick point though gross yields relate to the capital value of your property not the size of your mortgage. What you need is an up to date valuation of a property. The gross aspect just refers that you using a figure for the rent before any of the deductions you refer to as expenses incurred by the rental business.