medwaypropertynews

HMOs Provide Medway landlords with an excellent yield whilst saving tenants over £11k per year!

Hello Readers,

As we draw to the end of the year (I can’t believe it’s nearly December already), it’s undoubtedly time that you will be starting to think about what 2024 will bring.

Whether 2024 will bring better interest rates, a better landscape for investors and more is something to consider, however one vital point is strategy. In particular, what your property strategy is and whether you will be changing things for the coming year.

The past couple of years have been a challenge that’s for sure and whilst property investors should always buy for the long term, the days of high leveraged properties generating a high return is over (or at least, they should be).

Hopefully what you have learnt over the past few years is that having as little equity in a property with a high loan to value can be an excellent way to reinvest when the sun is shining, however when the clouds draw in and we hit a bumpy period it can be the cause of significant challenge at the best and financial ruin at the worst.

Here’s something for you to think about and whilst it’s something I’ve known for a while, there have been some helpful reminders of late and that’s how HMOs offer excellent returns; much better than single let properties.

This is something that has caught my eye whilst reading up on the market as there have been several fresh articles from different sources outlining the benefits. Ok, so whilst HMOs may not be right for everyone and have higher start-up costs they are really worth considering and you will see how, as you read on, NOW is an excellent time to get yourself in the market!

Before reading over this article, here’s a couple of my previous blogs you might want to pause brush up on:

Headline: HMOs offer TWICE the returns of traditional rental properties

Against a backdrop of increased mortgage rates, getting the best yield that leads to the strongest profit is the holy grail for landlords and investors.

Whilst my numbers are accurate according to my experience, it’s encouraging to see an external body reflecting similar and a recent report by Octane Capital has highlighted that HMOs generate an average yield of 8.1% compared to 4.4% from a single let.

According to the report, the bill for converting a single room into an HMO hovers at around £10,267 with a four bedroom conversion costing around £41,067. The report sets an average four-bedroom property at £309,616, so with a 25% deposit, stamp duty of £12,269 and legals of £2k you’re looking at a total investment of just over £132k (I’d recommend a 10% contingency).

The report goes on to explain how the average HMO commands a monthly rent of £593 per room, or £2,372 per month where converted into a four bed. This gives a healthy yield of 8.1%.

Things get exciting however, where you can add in an extra room as this knocks the yield up to something like 11.5%.

Ok, so I know it’s not as simple as purchasing and letting a property overnight, but the numbers really do stack up. All you need to do is source the right property (in the right location), navigate the legislative requirements, complete the refurb and let (then manage) the rooms.

If you’re not currently operating an HMO model, I’d strongly advise you to consider it!

An HMO Has Excellent Cost Benefits For Tenants

I’ll keep this one short, however my previous article on whether HMOs could help provide an answer to the student accommodation shortage is somewhere to start.

HMOs really are a positive and here’s some headlines from the Medway area that help illustrate:

  • Opting for a room rental as opposed to a one-bedroom flat can lead to annual savings of at around £11,400 for tenants
  • The current Medway monthly rental cost for a one-bedroom flat averages £1,200
  • Additionally, the average monthly bills for a property of this size, based on minimum usage, add up to an extra £350
  • In contrast, HMO tenants typically spend an average of £600 per month on room rent

With these figures in mind, it’s no wonder that Gillingham, Chatham and Rochester have become excellent options for investors looking to expand their HMO portfolio or make their first investment.

Where mortgage rates are high, bills increasing and economic uncertainty looming over our heads, it’s no wonder we are experiencing a sharp increase in interest from new tenants. The challenge for landlords is simply picking the right tenants and making sure their properties continue to stand out to achieve the best rental rates.

Whether you’re a seasoned investor or looking to make your first step into the HMO market, I’d be more than happy to help. The best way to get in touch is via LinkedIn.

Hasan

Leave a Reply