Comparing Rents on a Buy to Let to a Professional HMO Salford

We recently completed another professional HMO in Salford. In general we sell the professional HMOs and keep the Social HMOs which are on guaranteed rents….no voids…no management. A typical house in Eccles now goes for close to 100,000 and rents for approx 600 a month gross. The key here is gross….This does not take into account voids…maintenance and various other expenses. So that 7 percent gross can easily drop down to the 5% range and even much lower. Parallel to this compare a professional HMO in the immediate area. Firstly we look to buy undervalue which we do. Buying under valued creates uplift. More so, we create professional high quality room en suites. We generate between 22,500 to 23,500 per property gross. This is a tremendous difference than a single let. More so, yes we will have vacancies however the HMO property is still cash flowing. We are not dependant on one tenant. Can you imagine a tenant who does not pay and you have to evict, this lowers the yield of a typical buy to let to potentially almost negative returns. Refurbishment for a professional HMO is intensive. We are not just upgrading kitchen cabinets or re carpeting. We do a full refurbishment bringing back to the brick. As one investor told us…you basically built a new house/ Professional HMO.

The reason I writing this post, we just had an investor from China interested in one of our HMOs a while back. He put in a ridiculous offer with the rationalization that he went to the land registry and saw we paid X. He did not take into account the cost of the refurb, management of the refub and all the time to tenant. This clever investor later thought he could simply find a sourcer and a builder and do it himself. Why buy a ready made cash flowing tenanted professional HMO? This clever investor now 6 months down the line has a half finished Professional HMO. The builder took monies for materials and has not finished the job. I heard that this clever investor now wants to sue the builder.

Actually this is rather typical and sad. There are untold issues with every HMO property. Not just in the refurbishment…but in the management as well. My point is that one can not compare rents on a buy to let to a professional HMO even on the same street in Salford. Yes there are alot of moving parts in a professional HMO and expenses….but the profit potential and growth of capital is another issue to consider.