In today’s post we are going to look at some of the stress inducing mistakes that property developers can make in regards to setting up a HMO property correctly. Housing of Multiple Occupation (HMO) is a great way of earning an income from a property, but it doesn’t come without risks and pitfalls that many can fall victim to, that’s why it crucial to get the right advice.
We try to stay away from errors and negative comments, but your chances of making a financial future from property rests on you not falling victim to these mistakes.
Not understanding the risks of the property market
The worst errors are often the ones where there has simply not been enough foresight into the topic, market, or discussion. When it comes to HMO specifically, this can come in the form of not understanding the issues involved with a property, or not understanding the nature of the differences between HMO and standard renting. If you buy, for example, an older home at a reduced price for the purposes of HMO rental, you will need to think about the future of the house. The issue will come if the property needs substantial work doing to it and you don’t have the capital saved for the work, this is an error of foresight. However, the issues with the individual rooms could involve not understanding that your income will drop when someone moves out of a room (as the money they pay will stop), if multiple rooms become empty your income will substantially drop.
Not planning ahead.
Similar to the last point, and something I mention in many of my books, is that not having a good plan will drastically reduce your chance of a stable income. This mistake is easy to fall into, as HMO can produce a great income, so many have a desire to get earning as soon as possible. However, the correct set up of a good property, good rooms, a proper contract, and good tenants, can mean that you secure a more long term income with no chance of drop offs. You need a plan to make sure you are earning enough to cover your outgoings and that you can include expanding your HMO portfolio or making sure you have some money spare if anything goes wrong.
Not checking the regulations.
You don’t always need to be concerned about the planning permission, delivering a new washing machines or fitting a new lampshade is innocent enough. But you may find that if you’re planning work, checking the regulations are worth investing you time into. For example, removing or replacing some fencing with a next door neighbor may seem easy, but if that property is of listed status then you’ll find that it becomes a costly fence to put up (you’ll often need to pay a large fine in the example given)
Not monitoring your HMO portfolio.
It’s very important to make sure you are checking your HMO portfolio once you have set it up, and that you maintain checking up on the homes. This includes physical and financial checks. In financial terms, checking earnings of all the properties you own will highlight how much they are all earning, and that lets you know how much you can spend (as well as occasionally letting you know if any properties aren’t generating income and need to be dropped). Checking the finances also can suggest where is a good idea to invest in for the future. Checking on the state of the houses is also important, you can find any defective appliances, make sure the property remains in a good state of repair, and check to see how the tenants are getting along (and if any of them are more hassle then they are worth)
Not consulting the experts.
Not getting in touch with the right people and checking the right advice is one of the key errors of any project. If you are looking at any hobby or business venture you make sure you speak to the right people and read up the right books.
If you are interested in HMO as an investment, there are plenty of great books on the topic on our website. Have a look at the site to find a great way of getting a start in HMO and avoiding the mistakes listed above.
Nick Fox started his property investment career 10 years ago and his portfolio has grown to one of the largest in the UK. Nick now mainly focuses on HMOs (houses in multiple occupation) and works to help others achieve property success too. Visit here to find out how he can help you.
Trackback from your site.