Article > Are HMO's Right For You?

For those of you who like to get involved and want to add a high-yielding cashflow property to your portfolio, then NOW is the time to get up and do it!

So, the first question should be - how quickly do you want to reach your financial goals? The reason I ask is because most people I speak to are still buying single-let properties which even with a great yields are never going to give you more than £150 pcm NET cashflow. If you know somebody that can prove me wrong, tell them to give me a bell so we can talk! Don’t get me wrong, there are some great single-let deals out there but you need to understand and factor in all of the various costings to get to your NET cashflow – because that’s all that matters when you are running a business. So, when you’re looking at your portfolio, you need to factor in:

• Management charges
• Insurance
• Gas & electrical certificates
• Deposit scheme charges
• Maintenance & service charges
• Ground rent & service agreements
• Accountancy fees
• Office space
• Motor & Travelling Expenses
• Telephone & Internet
• Postage & Stationary
• Entertaining
• Subscriptions & Training
• Legal & Professional Fees
• Your Salary?!

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Start adding these into a portfolio and average them out across your properties – and then you’ll see the true extent of your profit or your loss.

Your 2-bed terrace house with £500 rent and £215.50 mortgage is NOT making you £284.50 profit – that’s just GROSS cashflow. Take out all of the above and you’ll be lucky to break-even on cashflow that low.

So, what can you do – how can you break the elusive cashflow barrier and start making real money? There is really only one way – and that’s through HMO’s.

Let’s take a real-life example from my portfolio with the EXACT figures (not some made-up rubbish you’ll read elsewhere) – I want you to know the truth about property investing and ensure you are a winner.

6-bed multi-let rents out at £2440 pcm with on-costs of £1,279.29 pcm; add portfolio running costs of £393 pcm and it nets out at £767.71 pcm.

That’s £767.71 NET cashflow from one house!

I rest my case. Buy HMO’s – don’t mess about with single lets unless you already have a great cashflow-generating business behind you.

Follow the easy 7-Step Plan

If you want to leave your job, improve your cashflow or just be comfortable knowing that every month you’ll be making a ton more money than ANY other property strategy out there, then follow my simple plan and start making money the smart way.

1) Determine how much money you need to cover all of your living expenses and any other luxuries you must have!

2) Divide this number by £500 as this is the gross cashflow amount you will make per month per house. Rather than worrying about how many £50 cashflow properties you can get – focus on the big numbers. Add another £500 to this figure for voids/maintenance and you have your target number of properties.

3) Search www.spareroom.com for people looking for rooms in your area (I’d suggest 30-40 people minimum) and the rent they are willing to pay. Post your own test advert with doubles at £400 pcm (trust me you will get this rent nationwide outside London). If you get more than 3 responses in a week, go to Step 4. Otherwise, try again in a few weeks, reduce the price or try another area.

4) Source 3-5 bed properties that will allow you to rent 4 to 6 rooms. Avoid 3-stories for your first HMO as there is more work involved. Get at least 35% discount if you wish to put NO money in as maximum LTV is likely to be around 70%. Aim to have more doubles than singles or the figures won’t work.

5) Start advertising the property 2 weeks before you complete. Furnish with high-quality wooden furniture, top-quality appliances and faux-leather sofas and LCD TV’s for the lounge.

6) Start moving tenants in. Your aim is to have the first two cover your mortgage, the next two cover your bills and the remainder is gross cashflow. This means that even if you have 80% occupancy, you won’t lose money (unlike other property strategies where voids are a direct hit to your bottom line). Your aim is to maintain 90%+ occupancy in order to generate £500+ pcm.

7) Once your first HMO is full; move onto your second HMO. Timelines should be one HMO every 60-90 days or possibly less if you are already a full-time property investor.

Once you are up and running; you can then move onto the next level which is setting up your own systematized business. This is where it gets exciting and you can then start taking advantage of mega deals such as the £2 million pound option deal I recently did on 10 HMO’s in the Midlands.

 

Matthew Moody
01933460270
www.yourhmoexpert.com