Hiring a Property Manager for Your Professional HMO?
When you purchase or refurbish a HMO property, you have two management options: property management or self-management. Unfortunately from our real world experience it is rather difficult at best to find a property manager who will not disappoint. We have been promised the world and ended up having more problems than if we managed the Professional HMO ourselves. If a Professional HMO is not managed correctly it will quickly spiral into a loss making enterprise. We had an investor who purchased a good number of our Social HMOs and then decided to buy the dream of a 20% return of a Professional HMO in Liverpool. Long story ( sad story) his property agent/sourcer who promised him the world could not manage the property and became vacant. His 20% turned into a loss in which he sold the professional hmo or what was left of it at auction.
Seeing this story first hand gave us more impetus to self manage our professional HMOs. Self-managing a Professional HMO is a great way to stay connected to your portfolio and your tenants. And if you have long-term tenants and low maintenance (new & refurbished) properties, the job can be fairly easy. Since all our Professional HMOs are newly refurbished maintenance is at an extreme minimum. However there is some turnover but very little as we do a high standard.
However even with background checks you can have nightmare renters, a couple middle-of-the-night maintenance calls can suddenly be worth paying 10 percent of the rental income to a property manager to handle. You would hope that the property manager would be there to take the call….however this trust is only built over time. If you live out of the area of lets say Manchester, from our personal experience you want to see someone who has skin in the game. The rational is that you will have all kinds of issues at times.
There will be evictions….and if legal eviction process or you could be subject to fines or worse—owning your rule breaking tenant money! If the eviction goes to court, you will have to take the time to show up to the hearing and then follow through with the ruling. Evictions are a long legal process. Our JV colleague recently had an eviction that dragged on 4 months and they destroyed the house out of vengeance.
You will always have turnover in your professional HMO. When your tenant moves out, you need to put a new one in place with as little down time as possible. We just had a runner. 2 immediate viewings…both wanted the rooms. One changed his mind as he got back with his partner and second one credit did not stack up. Vacancies are one of the scariest prospects to your bottom line and can be one of the biggest cash-flow killers to your property investment. If you have a property manager they are not under pressure as you as you have a mortgage payment to make.
Another issue to consider is staying competitive for pricing of your professional Hmo. If you have great tenants, the idea of raising the rent can be problematic. It’s not uncommon to ignore the re-evaluation of fair market rent when you have a tenancy that is going smoothly after the AST. But neglecting a routine rent increase can mean that your property suddenly falls hundreds behind fair market rent on a yearly basis. I would suggest a small rent increase once a rolling AST commences is easier for most people’s budgets to accommodate, compared with a large rent increase once every X years.
I have seen all too many London investors or offshore investors not even take into account management. Managing evictions, vacancies, and raising rents are some of the most daunting tasks a property manager can take on to help alleviate your responsibilities or potentially fail at as well.