Over recent, we’ve been in many conversations with experienced landlords and HMO operators. These are people successful in the property world, commercially savvy investors and those than understand the profit benefit of a HMO over a single let.
However, this isn’t about sharing success. It is about challenging where value and ROI is created in running a HMO.
The cost of a void
The first way to maximise returns is minimise voids. Logical and obvious as it sounds, but the cost to do so is often see as an additional cost – when the owner just wants more money in!
Take the scenario of having a vacant room. For ease of maths the room rate is £500 per calendar month. Every week of voids costs the owner £125.
I’ll tell you now, very few places in the UK have tenants queuing up for an average room at an average price. May be during a few peak season months more towns and cities do, but the majority do not.
If you could spend £200 to get a room filled twice as quickly – would you? Let’s say you’d had a void for 2 weeks… you’d have been better off spending the £200 to get it filled now.
Converting more impressions > viewings > tenants
The formula is easy:
Better pictures (and description) = more interest = more viewings
Better staging = more tenants take your rooms + at a higher price
So, now we’ve got the basic funnel down let’s get into how we actually do this.
The cost of dressing and staging a room
Now one of the main ways to get a room filled quicker (and at a higher rate) is through dressing and staging the room. It should go without saying, if your property has not had a good quality photoshoot – get one!
A dressed photoshoot is one of the highest ROI activities you can do.
You can furnish, dress and stage a HMO room for around £150-200.
The ROI on this is huge.
We’ve done a lot of testing and rooms dressed in photos get on average x3 viewings than ones that have not. This could be the difference between a few days and few weeks void. That is the payback right there.
A staged room also converts at 20-50% better rate from viewings. You may convert 1 in 5-7 viewings to a tenant without staging, with staging it is 1 from 3-5 viewings. That is a massive difference.
Net neutral cost due to quicker filling of rooms.
And this isn’t a one off return, you get it every time a tenant leaves.
Plus here is the real kicker – the tenant is happy to pay £25-50 EXTRA PER MONTH. So, on a 12 month tenancy, you conservatively make £300 more, probably more likely £500 PER ROOM.
The ROI on dressing and staging your room properly 1:3-4 (300% ROI) in the first year, be over 1:10 over 3 years! Yes, a 1000% return.
Another factor is keeping context. It isn’t unusual for landlords to have spent £20,000-£80,000 on modernising a property and making it suitable as a HMO. The hard work is done, it is beautiful and new… so why the extra cost?
Well, beautiful and new isn’t the only thing tenants want. They want it to feel homely, feel lived in, see themselves living there. And unfortunately, a nicely white painted shell of a room with a lonely single bed doesn’t do that. A soft duvet, inviting pillows, plants and pictures do. Yes there is some cost to this, but a lot less cost than the opportunity cost a room being empty.
Any good agent will know the market and exactly what rooms are in demand. Listen to them – especially if they personally in HMOs as they will think from a commercial point of view, not just to make their life easier.
Just like bedrooms, communal areas (kitchen, lounge, dining and bathrooms) should be dressed. Firstly, it is all about working the numbers. Nicer pictures = more viewings.
However, on viewings it is really important to have well maintained communal areas. Staging is less important (and less practical) as people live there. However, imagine you’re a tenant… you see: plates left out, bags of stuff left in the lounge and a few broken drawers in the kitchen.
What do you think? “ooooh, this is well maintained, i’d love to live here”
or “no one looks after this place”.
Worst of all, someone moves in and THINKS no one looks after the place – because then they certainly won’t. Avoiding this will certainly avoid costs down the road. This is less about maximising revenue, and more about making sure you get good tenants and avoid headaches down the road.
I get this, so what is the debate about?
Well, often in these situations the idea of spending an extra £200 to dress, stage and photograph your vacant room isn’t appealing. Or a few communal things need repairing or to be removed. You’re already ‘losing‘ money without a tenant in there and now you need to spend more just to get it filled.
You ask… “wouldn’t it just get filled without doing anything?”
Well yes, yes it may…
But as a smart investor, wouldn’t you rather half the void and get more money per month? Would you like to double your invest of £200 in the first year? Make £2,000 extra over 3 years?!
I hope by now the answer is yes.