Investing in HMO – 3 Lessons You Should Know

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If you’re a longtime reader of my blog, by now you probably know that I am all about HMO investments. I find that this form of real estate investment has the most potential for multiplying ROI. By simply buying one unit and transforming it into an HMO, you are quite effectively opening up several revenue/rental income streams from that single investment. Any accountant will tell you that this makes good financial sense.

But just because it makes good sense on paper does not mean that it works for everyone. Every once in a while you find that unfortunate individual who went through all the trouble to invest in an HMO property only to end up in deeper debt and ruin. Do not let that unfortunate individual be you. Here are some effective HMO lessons that should take your books from the red into the black.

HMO Lesson 1: Always go for quality

There is a rush of landlords who are so eager to make money from their HMO properties that they do not even take the time to convert the rooms properly. Just because you bought a 3-bedroom house and put a lock on every door does not mean renters will automatically line up for your place. You not only need to make sure your units are attractive to your target market, you also must make them feel that they’ve got their needs covered. So quality service is also paramount (repair and maintenance are quick, queries and requests are answered quickly etc.). This is all part of quality. Some HMO landlords even hire a property manager to make sure tenants’ needs are always met as quickly as possible.

Going this extra mile is a great way to attract quality clients who will have no qualms in paying their rent on time. Although it might cost you a pretty penny to begin with, in the long run this investment will pay itself back over.

HMO Lesson 2: Choose your tenants wisely

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Selecting poor tenants (like one with a reprobate kid) can cause friction with other tenants.

Do not be afraid to handpick your tenants. You need to know which tenants need what kind of extra care and so on. For example, professional tenants will need to be managed differently in comparison to DSS tenants who might need close monitoring. You should also know the ramifications of letting to students (these units require a lot of managing and happen to be seasonal-based on term times). Not taking the time to choose your tenants wisely could lead to a high tenant turnover rate and thus more issues for you as the landlord as well as unpredictable cash flow.

If you want to get a feel for a location when screening tenants, attending property networking events can be a good source for information. There are two that I frequent, because they hold multiple meetings in a month at different places. These are the meetings from the Property Investors’ Network of Simon Zutshi and the We Buy Houses Community Meet Ups of Rick Otton. I select the event that is close to where I intend to invest in an HMO property.

HMO Lesson 3: Always pay attention to the local council

HMO licensing is controlled by the local council. They get to decide the requirements and who gets what kind of licensing as so on. Not being aware of the terms and conditions put forth by the local council could lead to your losing your license or failing to get one altogether. Take the time to learn the guidelines in and out as well as meet and great a few of the local council members. It never hurts to have a friend on the inside.

Even though investing in HMO property can make you a great deal of money, if you do not manage it properly or do your due diligence, you might actually end up in more trouble.

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