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  • HMO & Multi-Lets

    Multilet/HMO's in Cities using rightmove

    I'm new to investing and have spent the last couple of weeks doing some intensive learning and research. From what I've seen on rightmove there don't seem to any properties in Cheltenham (I first looked here) that would fit the multilet/HMO profile.

    I know there is a lot of rental demand in Cheltenham because I have spent a lot of time renting there myself. It's an expensive area and the rule that the property should cost 5 times the gross annual rent + cost of preparing the property, just seems unrealistic since the only suitable houses go for 2.5 times this cost (similar in other cities I've looked at too) and mostly are already prepared HMO's (which makes me highly suspicious, why would they want to sell them if sufficiently profitable?) To achieve such low capital cost would require buying property outside the city but I'm sure this is very risky because of probably inconsistent rental demand.

    Is this rule a bit unrealistic, has the multi-let/HMO market been saturated or is rightmove the wrong tool for looking the market? I've heard some say properties generally only make it onto rightmove after they've been to estate agents so the good ones will have been snapped up very quickly. This would mean that the key is about convincing estate agents that you deserve first pick (I imagine extremely difficult to do for a first time investor) or by even beating the estate agents to it with marketing rather than any analysis of a database like rightmove?

    I would love to heard some people's experiences relating to this!
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    Could you be over analysing and over thinking in terms of what a property should cost? As a first time investor you want to make sure that you've covered every angle but sometimes you just have to jump in and learn to swim. Why do you want an HMO as yr first investment as opposed to a safe bet of a flat or house? Do you need to buy a ready made HMO or could you convert a property and set it up from scratch? I agree with your point about making sure the location is important depending on your target market. Landlords sell HMOs for all sorts of reasons such as divorce, inability to keep up with legislation, don't have the funds to implement the regulations or are at the end of their landlord careers and just don't want the hassle any more.
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    Hi hmolandlady, I do over analyse but only made the decision to invest a few weeks ago so am still on a steep learning curve! I have 3 reasons for choosing multilets. First I expect to live in the first property so I thought it made sense to have 3 or 4 bedrooms and rent out the others. I also have had a lot of experience looking for (to rent) and living in shared houses which I hope gives me a head start with understanding what works and doesn't. The areas I looked at have high demand for renting so multilets just make sense to me.

    I could convert a property and have been looking for somewhere suitable. However, the numbers are nearly three times what the suggested cost should be for any multilet/HMO property. The reason for this is what I was trying to understand.
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    In cities such as Brighton, it's a similar issue as house prices are double those of the next door town but the room prices are only a fraction higher. The good thing about you living there too means that you can use licences, be a hands on manager and have your lodgers paying the bills. I wish I had done what your doing when I was young!!
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    Thanks! It sounds like the generic rule of thumb is not all that applicable to many places. Perhaps I should lower expectations of large affordable properties in these areas with higher rental demand but also higher capital outlay? Might then find something!
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    Hi Edwin,

    Here are some things I learned as I stumbled into property:

    I started by buying a 6 bedroom house because that was all that I could afford. The maths was simple: I lived in one room, and could rent out 5 rooms to my mates. If I bought a 3 bed houses, but then I could only rent out 2 rooms = too little income. Now this calculation doesn't always work. In my neighbourhood 6-bed Victorian houses were easily more than twice the cost of 3-bed Victorian houses, but that didn't hold for the little ex-council estate that I bought on. It probably helped that as a non-Brit I wasn't as fussed about ex-local authority houses.

    More generally, price/rental yield depends on many factors. One is what a house could fetch if it were sold to an owner occupier. So in the neighbourhood where I first bought, the Victorian houses were a lot more expensive than mine, but had roughly the same rental yield per m^2 for sharers. Note that they had higher yield for renting to single families, but the difference still less than the difference in price.

    If you want to go down the sharer's/HMO route, then it is good to remember that there are many types of HMOs. There are those who rent to people lower on the socio-economic scale See for example https://hmolandlady.wordpress.com/ (hmolandlady above) for a very frank and entertaining account of what that can be like. On the other hand, there are those who develop HMOs for young professionals. see e.g. https://roomsincardiff.com/ (also on this blog).

    My own advice would be to take the route that you have the most personal experience with. I was already sharing with other young professionals, and when I bought my first house, we all moved together to the new one. That made the managing of tenants much easier, as they were my friends and I knew then. Nevertheless, I had a lot to learn about what makes a house flourish.

    Since I first bought about 10 years ago, lots has changed with the introduction of HMO legislation. Read https://www.comfortlettings.co.uk/blog/20...occupation (from Phil Ashford, also on the blog) to see if a property you are interested in falls under this legislation. Mine fell under mandatory licensing and it was tedious to get it all sorted out with the local council, but once I did it helped me with a series of further HMOs that I purchased.

    Another thing to remember about rental yields: Your mortgage costs will stay roughly the same over the period you own (depending on interest rates), but rents typically rise with inflation. So, for example, my first house initially had a 7% gross rental yield, probably closer to 5% when all costs (including income tax) were taken off. But now, 10 years later, it is yielding about 15% gross, perhaps 12% net. My costs have gone up because I no longer live there and use an agent.

    Finally, when I bought, mortgages were much easier to come by. Currently you may struggle to get a BTL mortgage for a big house share or for an HMO, especially if it is your first investment. I would recommend calling a few mortgage brokers (see e.g. Lisa Orme, also on this site) and seeing what your options are.

    good luck!



    p.s. one more piece of advice:

    To see what demand and prices are like for young professionals, I use spareroom.co.uk

    Keep an eye on it and it will tell you roughly what prices/yields are like. Some people even put up ads before they buy a house to test the market. Others go an view rooms to get a feel.

    For Cheltenham see
    https://www.spareroom.co.uk/flatshare/ind...s=as+a+map
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