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Why are HMOs so popular?

Renting rooms is an extremely cheap option in the UK and suits a variety of tenants from all walks of life. Raising a deposit for some can be difficult, the same for meeting the criteria required to purchase a property, renting a room gives the tenants more flexibility and the chance to save more money than renting a flat, apartment or house. There are so many options when it comes to HMOs, it is all dependent on your market and the area you are investing in.

What is an HMO?

What is a HMO (House in Multiple Occupation)? A HMO is a property that is shared by three or more tenants that are not members of the same family. Depending on the exact type of HMO, some landlords must have a licence from the Council or planning permission. This is why we strongly recommend setting up a meeting with your local Council, which we can do for you or advise you on. All HMOs, whether the landlord needs a licence or not, are subject to management regulations and inspections.

Multi-rooms

This is one of the most common and popular strategies amongst all investors at the moment, as it can provide the highest returns on investment in both cash flow and capital. However, with all property investment, it is important to get it right when pursuing this strategy. HMO’s can provide one of the fastest routes to financial freedom when built up correctly. 

Please see below, a case study of one of our most recent HMOs, which we sourced for one of our members.

HMO Case study in Curzon Street ReadingThis is one of our HMO case studies, which we turned from a 3 bedroom house into a 5 bedroom unlicensed HMO. The property required a stud wall to partition the downstairs reception room into 2 double bedrooms.  On top of this we added a shower cubicle to the downstairs toilet and we then made it HMO ready.

 

We offer all the guidance, support and knowledge you need and we recommend setting up a meeting with us to discuss your HMO strategy in greater detail, whether you are a new or experienced property investor. 

Some of the most commonly asked questions around HMOs are:

  • What return on investment does a room achieve?
  • How do you prepare each HMO property and dress each room?
  • What is Article 4?
  • When do you require planning permission? 
  • What do the local Councils really think about HMO’s?
  • What standards do you adhere to?
  • How do you make a property HMO ready?
  • What costs are involved?
  • What are the main differences between HMOs and multi-rooms?
  • What agreements are used?
  • Licences against ASTs and when either should be used?
  • How do you apply for and complete an HMO licence?
  • What is the criteria for a suitable HMO property?

If you want answers to any of the questions above, or you have more questions, then This email address is being protected from spambots. You need JavaScript enabled to view it. and arrange your free consultation! 

HMOs vs Single Let – We have created a simple example below showing the difference between a single and a HMO/multi-let.  The difference in cash flow is huge, with almost £1,000 per month extra that could be in your pocket.

Risks of a HMO Investment – Along with the obvious benefits and high cash flow, there are always potential risks with property investing and every strategy.

Some of the risks to consider when investing in HMO’s include:

  • Wear and tear – which is without a doubt higher than on a normal let and dependant on the tenants in the property, as well as how well they look after it. If the tenants cause excessive damage it can result in a property having to be refurbished on a regular basis.
  • Tenant turnover – investing in the wrong areas, having relationship with the wrong Estate Agent, or the property being marketed the wrong way, can result in high tenant turnover and void periods.  One or two rooms being regularly empty can wipe out all your profit.
  • Legalisation – if you property is not HMO ready, not properly maintained, the local Council can close the HMO down.

HMO Case study in Bedford Road ReadingThe property is only 0.5 miles from Readings central station, it had three stories which made it an ideal five bedroom HMO.  To do this we added two parting walls in the dining room to divide the open plan reception and create a corridor leading to the kitchen area. Upstairs we converted the third bedroom to a family bathroom resulting in enough bathrooms for five people. We then ensured the property was made HMO ready and laid astro turf to the rear to provide a low maintenance, outside communal space.

At Prospect Investors Club, we specialise in minimising all risks to ensure you run a professional and profitable HMO.

Top tips when investing in HMOs:

  • Choose you HMO Strategy carefully and plan accordingly
  • Have the right finance strategy 
  • Understand the legalities 
  • Have a plan A, B & C
  • Always speak to your local Council
  • Understand whether there is Article 4 or planning permission required
  • Always understand your target audience
  • Set up dummy adverts to test the area
  • Understand when to submit a planning application
  • The right re-furb and set up to maximise profit and desire
  • Understand when the gas and electrical checks have to be done
  • Have the right managing agent
  • Choose the right Goldmine area
  • Do your due diligence on the area
  • Know your competition

 


 

If you are looking for advice, or just a helping hand on anything to do with HMOs, then we have you covered. Email us at This email address is being protected from spambots. You need JavaScript enabled to view it. or call on 0118 955 9712 and a member of the team will be able to help you. 

"The meeting was really useful to get an idea of what I could do with the equity I plan on taking out of my flat. I'm confident that Prospect Investors Club will be able to find me some suitable property that I wouldn't normally find on the open market, with a HMO potential and at BMV." - Mr Ellis

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