HMOs are a great form of investment as they can give amazing returns that you can’t even compare to buy-to-lets. But they are not plain sailing; you must be extra careful to run them smoothly and effectively. In this post, we are going to look at 5 common mistakes you can make with HMOs and how you can improve your income from these properties. Lets jump in to the common mistakes made when managing a HMO.
5 critical financial mistakes you can make with HMOs
1. Expecting the HMO to get a commercial valuation. Don’t! Your HMO won’t be valued at 10 X rent. Only a few times you can get a commercial valuation and when you do it will be valued as a ‘house’ if it’s a house.
2. Expecting to get all your money from the HMO. Yep, it is a a common mistake in managing a HMO. It’s disastrous to rely on the property to give all your money especially if you are stuck or you have someone’s money tied up. Even with the commercial valuation, you are not guaranteed to get your money out.
3. Thinking that a license gives you the exact value of the property. It does not! The license does not bear the commercial valuation of the property. On the other hand, Planning can greatly affect the value of the property you should focus on that.
4. Thinking there is only one HMO definition. There are many definitions depending on what you are looking for: government definition, licensing planning, safety, health, fire, and lenders definition. You must consider this to ensure you are on the right path as long as HMOs are concerned. It’s a good idea to consult your local authority, mortgage advisors to understand how lenders view your property. This can be a costly mistake in managing a HMO if you get the definition wrong and face a fine.
5. Use the wrong products. Use of wrong products can be disastrous mistake when managing your HMOs. In fact, this mistake can get you banned from lenders, have your loan recalled or worse.
Tips and tricks make more money on your HMO
Add extra bedrooms– Even with a small rental property, you can always increase the rental income just by adding a few more bedrooms. You should be keen though not congest the rooms too much: this might reduce the value of the property.
Renovate the property: Make a regular improvement to the property to increase its value. When you do this, you attract better customers who are willing to pay more to be in the property.
Get the right timing: the rental demand in the UK increases by 64% in September. When you have a well-timed break clause, you can resynchronise your tenant dates to take advantage of the higher prices.
Know your market: From the start, model your property with the target market in mind. Do thorough research and find local expertise to advise you on this.
Use reputable agents: It’s more hurting to have the wrong campaigners than not. Agents will be the ones associating themselves with the tenants and when they are not right, your property will be hurting. By having the right people on your side you will save more, spend less and get more income. This is especially true for HMO letting agents and many high street letting agents do not have the knowledge or experience in managing shared houses. Start by asking them these HMO letting questions to see if they know what they should!