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  • HMO & Multi-Lets

    Realistic returns on good HMO properties

    I'm in the process of setting up some HMO properties in good locations buying at the lower end of the price spectrum where possible I can't realistically get much above a 10% net return which is based on a cash purchase and doesn't involve buying on finance. Does this match actual current HMO returns based on current property values?

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    When buying a HMO the return should be about 10%.  i.e the general consensus in the market is that you "the investor" should get their money back in 10 years.

    Take care, look at the last 2 years accounts for the property, the rent and cost figures the vendor put forward to the bank when they applied for their mortgage that determined the "investment value", in my experience differ from actuals.  Usually rents are over-estimated due to voids and tenants not paying,  costs are under-estimated due to unforeseen expenses.

    Use the last 2 years rent and cost figures ( exclude bank interest from the cost ) from the accounts for the property to find the net pre-tax profit

    i.e "rent" - "cost" = net profit, then "net profit" divide by 10% = "investment value"

    March 2016 I incorporated part of my portfolio due to S24 and the impending increase in SDLT.  The investment value from the mortgage valuations was £3,385,000, I had made a capital gain of over £1,070,852.  I had the portfolio re-valued using the last 2 years accounts and 3 different estate agent valuations, which showed the investment value as £2,110,734, I had made a capital loss of  -£203,413.  If I had not done the revaluation HMRC would expect me to pay them capital gains tax circa £300,000!

    The reason for the difference between the 2 figures is because one is anticipated and the other is actual.  When you put in for your mortgage you put down what you think you will get in rent and what you think the costs are going to be.  Its the accounts that show the real figure.

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    That's quite a story Arran, so does having a limited company or an slp prevent you from having to pay the increased second home SDLT (I'll try and find that out on google) and I'm guessing you had to have these valuations done to estimate the capital gains tax due when transferring ownership from yourself to the company, and had you not had them revalued you'd have had to pay £300,000. I wonder how easy it would have been for someone with less experience to have known to get those second opinions and inadvertently giving the taxman an unnecessary £300,000. 

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    ha ha yes exactly, I was fortunate enough, I speak with my accountant and valuers regularly, so I had an opportunity to explain my predicament to them, the re-valuation using the last 2 years accounts was my valuers recommendation.

    I believe ( I maybe wrong ) but the company starts paying increased SDLT on first property.  As an individual you start paying increased SDLT on the 2nd property.

    I started the ball rolling on incorporating my properties August 2015 as soon as I saw the Autumn statement, my aim was to have them incorporated before the SDLT increase came in April 2016.

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    You an will need every penny you get

    Regulation and Taxation will be top of the list for councils to fill there boots with fees and a New Council Tax System for HMO

    I can only imagine the letting fee ban would also impact HMO too due to the turn over of tenants

    Not a market I would go into with a barge pole in 2017

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    Learn Change and Adapt ?????


    I certainly hope the councils don't start taxing individual rooms council tax as from what little I've read on the topic it could potentially make many HMO's non-viable especially if they're highly leveraged and the interest rates change a bit. I've read that if you do as much as you can to emphasise the shared nature of the HMO meaning less en-suite facilities in each room that should prevent or at least lessen the likelihood of individual council tax on the rooms and I'm hoping that's going to be the case.

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    Councils are broke they well get money one way or another

    HMO are not liked and they will be easy meat for the council to make money from

    every HMO will need a licence too

    I know HMO that are sitting empty due to student blocks

    I would not touch HMO with a barge pole


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    Learn Change and Adapt ?????


    That's true what your saying dl but on the other hand as someone pointed out somewhere here on property tribes what would the council do if HMO's didn't exist or even if there numbers started to dwindle as there's less housing available than ever before and ultimately it would fall to the council to rehouse people wouldn't it, if some clever person worked out the number of HMO residents and calculated how many additional non HMO housing units would be required I think the numbers would prove that it's statistically impossible for the government to make HMO private ownership enviable don't you agree?

    Literally where would they put everybody? I think there are limits to what the government can realistically charge, you can't after all get blood from a stone and they must surely realise this

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    You are incredibly politically naive.

    Of course what you state is very sensible and logical.

    But then you are dealing with a venal Govt and illogical Councils.

    Don't try the intelligent argument.

    Councils and Govt aren't interested.

    They want small LL gone and will do everything in their power to get rid of them.

    They prefer not to to see the logic of what you very sensibly suggest.

    It matters not to Councils and Govt that there will be millions of homeless which will cost fortunes.

    Until the situation becomes politically unacceptable Govt and Councils will not stop their assault on LL of all types.

    It has taken 5 years for the Irish Govt to be persuaded of the political merits of reversing the assaults on LL.

    Who knows how long it may take for the UK Govt to reverse their current assault on LL!!?

    Based on your very logical assertions it surely cannot be longer than say five years after full S24 effects in 2020 before Govt realises what a F####p it has made of this.

    So perhaps Govt had about 9 years before it has to accept the foolishness of their anti- LL policies.

    Until that time occurs there will be a lot of misery for tenants and LL alike.

    Remember as well the Irish reversal was with a much more benign S24 regime.

    The UK version is far more extreme.

    So you never know reversal of these bonkers anti - LL policies might occur far quicker than the Irish experience.

    I guess we will be watching and waiting to see how it all plays out.

    But of course if Labour win the next GE you can forget any abolishment of S24.

    Labour will make things far worse for LL.

    The future for LL is very uncertain due to political issues.

    Like it or not LL are engaged in what is a very political business.

    As such LL are up against it.

    The way politics is going currently things don't look good for LL.

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    Reading what you wrote Paul reminded me how ruthless the government were with regards to the Poll Tax and despite how unpopular it was at the time they still pushed it through regardless

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    Yep and they were that stupid it cost Thatcher her job Some might say that was a result.

    I would say it was political incompetence.

    Taxation has always been based on the ability to pay.

    That was the fundamental flaw with the Community Charge.

    Had it been based on standard taxation it would have been accepted.

    Many would not have paid anything due to their tax position.

    Never underestimate the incompetence of politicians even when it is as plain as the nose on one's face that a certain policy construct is bonkers.

    Politicians don't like admitting they got things wrong until it reaches a chaotic state and they have a review!

    But if course in the meantime enormous damage has been done.

    But not to worry it won't affect them when they disappear with their Gold plated MP's pension!!

    Sometimes these politicians can see that a policy is disastrous, it just takes a long time for the ship of state to be turned round!

    In the meantime the little man suffers greatly.

    Don't make the mistake of giving politicians any credit for intelligence.

    They have Party ideology to follow irrespective of them knowing it is bonkers!

    Unfortunately S24 will only he affecting about 444000 LL.

    It might 2 million tenants.

    That could create the climate for S24 reversal.

    But I would not like to say that would occur.

    Govt is so wedded to the stupid idea of S24 taxation that I don't consider it will ever he overturned..

    Of course over the coming decade most LL will he incorporated so S24 effectiveness will reduce.

    What will Govt then do to have the same effectiveness?

    It must inevitably come for incorporated LL, the small ones!




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