As leading HMO property agents we are often asked what makes the best financial sense when starting on the journey investing in property. The problem with this question is that we can only really reply with our one stock answer – ‘it depends on your goals’. What perhaps is more surprising is that we hear the same question asked by both novice and more experienced landlords. And so we find ourselves starting to delve a little deeper to find out more so that we can offer up our experiences from investor clients to date.
You see it really is about goals. As with any business, ideally a property investor should start with the end in mind. Asking searching questions such as ‘why do I want to invest in property?’ ‘what can I hope to achieve?’ ‘how fast can I go?’ are just the starting point. It’s only by sitting down and thinking long and hard about these questions you can really begin to build a strategy for investing. You may decide to call this your investment ‘blueprint’ or ‘model’, it really doesn’t matter. What really matters is that as an investor you have both sound and logical reasons for starting out as a landlord and importantly go about it the right way and in a manner that suits your personality. Some investors prefer to play it safe opting to build a property portfolio just big enough to provide a great retirement. Others yearn for a large portfolio specifically incorporating HMO property that will not only provide for their retirement but also as their main income as soon as possible.
Most landlords invest in single let properties to begin with. These are typically let to families or young couples. Why? Because it’s a common held belief that it’s much easier to buy a straightforward two or three bed property with the aim of letting it to one group of tenants. From a day to day management point of view many landlords believe this to be less risky and work intensive. An important point if you are thinking of building your portfolio whilst still holding down a full time job. And so these points are true to some extent. However, the problem with the single let model is that it is typically very restrictive in terms of profitability. From experience, single let properties typically achieve net yields of approximately 3-4% on a good day. This compares poorly when compared with typical net yields of approximately 6-8% for an HMO property – an incredible 100% uplift! With this type of property there will be more effort required in the form of HMO management but the pros far outweigh the cons in our opinion.
Landlords looking to generate a very strong rental profit and perhaps then roll these profits up using an accelerated strategy to buy further properties we feel would be better advised to look at properties that can readily be let on a shared house basis i.e HMO’s. In simple terms letting the right properties to sharers is the ‘holy grail’ of property investment.
If you want to find out more about how HMO property has worked for our landlord clients please feel free to contact our resident HMO expert, Garry Slater (Managing Director) who will be only too happy to help.