10. A House of Multiple Occupation Case study – How NOT To Do It
The very first property I did as an HMO was a real learning curve.
It was only a four-bedroom property. For my first HMO, I wanted to start small and I felt like 4 was a good number of tenants to have.
This was my first mistake…
Since then I’ve learned that it is hard to make a decent profit from a 4 bed HMO.
This is because the rental income that you make is often not enough to cover the extra work and maintenance costs that are required.
Sometimes you find that 4 bedrooms HMOs even need MORE management than a 5 or 6b bed, NOT LESS.
This is because with a 4-bed property every penny counts. You need to keep voids and utility bills extremely low to keep up your margins.
However, the location was great. It was right in the centre of town. It has always rented well… which is why I went for it in the first place.
But, this wasn’t the problem.
What you find with HMOs is that tenants are always more transient. You tend to have a higher tenant turnover than with straightforward buy-to-lets.
My second mistake…
The property was located about 45 minutes drive away from where I lived at the time.
Now, with a traditional let, this wouldn’t cause a problem.
But, when you are self-managing an HMO, distances like that can be a real pain. The drive to the property to do regular viewings soon added up and proved to be a real drain on my time.
However, this wasn’t the most costly mistake I made. This came with how I was managing the costs of the property.
One thing I have always done with my HMOs and shared property is I have included utility bills in the rent.
There are arguments for and against doing this.
But, what I have found is that doing this helps to get rooms in my properties rented faster.
Tenants want things simple after all. They don’t want to split utility bills every month with other tenants whom they might not otherwise speak to.
The downside to doing this is that your tenants might not take ownership of the situation. That’s to say that when they are paying for utilities, as a set amount, in their rent, they might not be paying attention to their energy usage.
There are thankfully now smarter solutions for keeping utility costs low.
For instance, smart thermostats are getting quite sophisticated these days. Google’s Nest is one, Inspire is another.