HMO | What is a HMO Property Investment?
Articles,  Blog

HMO | What is a HMO Property Investment?

Samuel: Hey, Samuel Leeds here and I won’t
to show you something that just blows my mind in property. You see there’s two houses right
next to each other. This house, right here, with the black door gives a total rental income
of £12,000 a year. But the house next door to it which is actually a cheaper house because
it’s a mid-terrace, rather than an end-terrace. The house next door brings in £30,000 pounds
a year. More than double the rent. How on earth does the house next door bring in more
than double the rent? Well, how he does it is because it’s used as an HMO. An HMO is
simply when you rent out a house, rather than renting out the whole house to a family, you
rent it out on a room by room basis. If there’s five or more rooms rented out, we call that
a HMO. If there’s three or four rooms rented out, like a mini-HMO, we just call that a
multi-let property. Samuel: And the reasons HMOs are so popular
now in the UK is because you can literally turn a normal house into a cash cow that is
giving you serious money each month. A few things you need to consider when buying an
HMO. Firstly, you need to be like right now. We are right here in the city centre. We’re
in Lichfield, so we are like maybe a five minute walk from the city centre, which you’ve
got to be. Samuel: If you’re buying a property, the rooms
will not rent out if you’re in the middle of nowhere. If you’re in from Field and Wales,
it’s not going to work. It needs to be close to city centre. Number two, if you’re renting
rooms out, they can’t be little cot rooms because it’s just not legal. If it’s got five
bedrooms or more, you’re going to need a licence. So the house has to be fit. The bedrooms have
to be a minimum of 70 square feet or 6-and-a-half metres. You’re going to have a decent size
kitchen where they’re going to be sharing the kitchen. Half a metre of worktop space
per tenant. It’s got to be a decent size house. Don’t worry about the garden. Don’t worry
about driving. It doesn’t need any of that stuff. But actually inside, it’s got to be
thick, it’s got to be habitable, you’re going to need to have a licence for the property.
So anything that would have five or more people, you need to get a licence. And an HMO licence
will cost you a round about, anywhere between £500 and £1,200. But you’ll have to renew
every five years. Samuel: Number three, the house is going to
have to be in mint condition. Now, I personally like to either buy properties that are already
in mint condition. Or, add a lot of value and then refinance them. But if you try to
rent out an HMO, a room and the houses are shabby and the rooms are shabby. And the furniture
is shabby. What’s going to happen is you’re going to attract shabby tenants. A dog kennel
attracts dogs, so you’ve got to make sure your HMO is nice. It’s professional. So you
get the best kind of tenants. Samuel: Number four is, it’s got to be managed
by somebody because HMOs are quite difficult to manage. So you need a leasing agency in
the area that are close buy and happy to manage HMOs. Now, you can’t just find a run of the
mill high street letting agency. It needs to be someone that specialises in HMO and
that’s what’s going to bring you your true passive income. Samuel: So where would you find someone that
specialises in HMO management? Well, you can look on and you can see other
people’s HMOs and who they’re managed by and ring them in the area. Or you can Google it
or you can ask referrals. Or you can go in High Street, but just make sure if you do
finding a High Street letting agency, they really do have experience with HMOs. Ask them
how many current HMOs they’ve got in their box and get a real understanding if they know
what they’re doing or not. Samuel: I’ve just into a High Street and I’ve
just said to them, hey do you know any letting agents in this street that deal with HMOs
and specialised HMOs and they’ve said, to do so I’ll go in and ask. Just ask the question.
Put all your cards on the table. So let’s see. Samuel: I’ve just spoken. They do manage HMOs
but then why they saw we had a camera they got a little bit… even though the camera
wasn’t… what happened Nick? Nick: I don’t know. As soon as told them that
we were doing a documentary. Samuel: I said, have you got time to talk
about HMOs? And they said, yeah absolutely come and sit down. And then I said, do you
mind if we film? And then we literally got thrown out. They were just like, nope nope.
Please leave. I said, I’ll only film me. You know what, this is the stuff that sometimes
we have to go through as camera people, documenting the journey. But it’s all good. Samuel: Anyway, going to letting agents and
asking them. This is why it’s sometimes better finding HMO managers on Spare Room. Hunters,
they don’t do HMOs but they’re all friendly. In fact, the manager there. Said that he’d
read my book and he was a big fan. So that’s kind of cool. Did you get that on video, Nick? Nick: I didn’t unfortunately! Samuel: Dude! Let’s try Jayman. See this is
it, man. This is what you have to do sometimes. I’ve got properties in Birmingham, so I know
how they work. What’s the demand? Do they rent out quickly or do they take a while? Estate Agent: The demand is very strong. Samuel: Is it? So if you put five rooms on
that road, would you expect them to go out weeks or months? Estate Agent: Five rooms inside that property
at the moment. I know on this street down here we’ve got one with six rooms. And four
of them have gone between Christmas and mid-January. Samuel: Cool. Thanks, James. Take it easy,
man. Samuel: So just been to the estate agents.
James told me that the demand is really strong in Lichfield. You’re going to get between
£400 and £450 very easily per room, which is great. And he said that the rooms rent
out really, really fast here. So, I’ve actually gone to all these different agents in Litchfield.
I actually have my own Letting agency, so if I was doing it, I wouldn’t need to do that.
But I’m doing this to show you what you need to do. Samuel: So Step 5, to conclude things, is
how much are you actually going to put down in the first place? I have a rule that says
£30,000 pounds per lettable room is about as high as I’ll go. For a four-bed HMO, £120
is about as high as I’ll go. If it’s a 5-bed, I’ll go up to £150. In Lichfield, is that
possible? Maybe. If you know how to get below market value deal, which I do on some of our
other videos. You can check those out. So, that’s basically it. Make sure that the properties
are in good condition when you rent it out. There are at least four lettable rooms. There’s
an HMO management company in the area. You’re buying it at the right price, and lastly,
it’s very close to the city centre like these properties are. Samuel: I hope that’s been helpful. Don’t
forget to stay tuned for our next video. God bless. Peace out. Samuel: I hope you enjoyed that. The stuff
we put ourselves through. You know what, bringing this guy around with me in Lichfield with
this big thing? People freak out, man. Nick: They don’t like it. Samuel: When people see there’s a camera,
they think you’re there to like, trip them up and expose them to some secret documentary.
Most people that are successful in property, they keep their cards close to their chest.
They’re like, people say, how do you do property? I teach you guys everything. I put myself
through this. So you better friggin subscribe, man. You better friggin … going around with
this camera, it is not easy. But I want you to see how it’s done in the real world. So
subscribe right now. I’ll see you next time. Thank you so much.


Leave a Reply

Your email address will not be published. Required fields are marked *