Once you have your HMO property up and running you’re pretty ready to sit back and wait for the rent to come in – especially if you’re managing the property through a lettings agent, specialist HMO agency or an individual you’re partnering with.
Many of you would probably agree that the most difficult part of setting up a property portfolio is finding the ideal opportunity. That means getting the right city, location, and price amongst other things. In this article, we note down what you need to be thinking about when looking for an HMO, and why.
Basically, the first main questions you should be asking yourself about any potential HMO property you’ve found, are:
- What kind of yield can I expect?
- What’s the Return on Capital Employed (ROCE)?
- Is there plenty of demand in this location?
- What’s the competition like, ie. is there a lot of people after the same property?
Yield
This is how much you can expect to earn in rental profit after you’ve taken off expenses, including mortgage interest payments. It helps you set your rental income and is usually given as a percentage. Yields for HMOs are often twice as much as a traditional buy to let. On average, you should expect a yield of 10% – 14% from your HMO property. Click on the link to see examples of yield.
ROCE
This is a calculation that looks at how much you’ve invested (including solicitor’s fees, deposit etc.), compared to how much you’ll receive when you’ve calculated your annual income. This, too, is often worked out as a percentage and lets you know whether or not the investment is worth getting involved in from the start. Click on the link to see examples of ROCE.
Demand
If you’re looking to rent out a student HMO and the property is near a university then demand should be high – provided there aren’t too many similar HMOs in the same locale. Some councils – especially those in university cities and towns, such as Cambridge, Manchester and Leeds, are limiting the number of HMOs available under Section 4 notices. This means no new HMO properties can be added to particular areas.
Competition
HMOs are a popular property investing strategy, thanks to the high yields they often command. As a result, you should expect to be up against a few other property investors when bidding for the property. If there’s too much competition, it might be best looking elsewhere as the property may command to increase in price.
Of course, there are other factors to consider, such as whether there are decent pubs and restaurants nearby (at least one of each), if there’s a shop nearby for essentials, what the public transport into town is like and whether the area is safe in terms of crime rates. Finally, you should think about the broadband signal and what are the neighbouring properties like.
At Sourced, we have access to excellent HMO property opportunities and our Partner receive all our HMO deals, 24-hours before they are on the market. But we don’t stop there; not only will we help you find your HMO, but we’ll also help you manage and grow a profitable portfolio by leveraging our HMO specialists’ guidance, advise and access to training resources. To find out more about how it works, download our Sourced Network prospectus or check out our Sourced Franchise training schedule today.
