Overlooking Issues When Analysing Property Deals & HMOs
When you analyse a buy and hold property, one of the biggest pitfalls is overlooking various expenses and areas of the property. Another simple question, would you live there yourself or with your family?
Look at the property through the eyes of the renter. How do they feel about what’s around your property? Is it close to cool coffee shops, jobs, transportation, cemetery, power lines? What would make the tenant want to stay in that area or not want to be there at all?
We always take this into consideration. Too often many new investors and those who seek the big profits of Professional HMOs go to into some very rough areas. Actually had a London Banker telling me that he was just starting in property…bought a great deal in Burnley for a Professional HMO. He looked at his supposed yields…however he had no idea of reality.
Some quick thoughts about HMO costs and property deals start with council tax. When you’re analysing a deal, this is one area that I see overlooked a lot. Remember that council taxes are always changing. This is even more true with the threat of banding changes in Professional HMOs. Yes you can pass along some of the expenses to the tenants but it could eat up your profits of your Professional HMO.
Don’t bank on your current expenses of your Professional HMO. You will have to update at some point. There will be maintenance…there will be voids…plus no pays…You will only know this while owning the HMO. Keep in mind that current expenses aren’t static, which means that depending on how you plan to mange the property, your expenses might be more or less ( Probably more).
Be realistic with your vacancy rate. Be careful when you’re putting the numbers together for this, especially if you have a buy to let home as well as a Professional HMO. Take into consideration how long it will be to get one tenant out and another one in. If you’re in the single-family game, you should stay on the conservative side and factor in 16%, which is about two months’ rent. We just had a tenant not pay for two weeks. We had to clean the room and it took another week to rent the room in the Professional HMO.
Yes Professional HMOs are profitable…however you must take into consideration many unexpected costs.
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