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I had an interesting debate with a fellow landlord, and I thought I would share it with the tribe to get your input.
I invest in single let freehold properties that yield around 8%, and I use interest only BTL mortgages, after all expenses, I can achieve £250-£300 per month net cash flow, and the interest rates are usually fixed for 5 years around the 2.5-3% mark.The fellow that I was having this debate with says I am not building a safe portfolio that would weather any storms, i.e. interest rate rises would quickly make my cash flow disappear.He invests in HMOs with a minimum of 6 bedrooms all ensuite and also has a commercial property that he is converting into 15 bed HMOs.His strategy is buying a property usually derelict and then convert to HMO and rent each room for a minimum of £400 per month; he converts the rooms to look like hotel rooms (but on the cheap by using suppliers that offer big discounts)He also only uses repayment mortgages over a 15-year term. His view is that investing in HMOs is better as you are hedging against swings in the economic cycles.My view is that if the council start to individually band rooms, then the cash flow position is very risky for HMOs and maybe investing in freehold flats would be better (terraced house split into 2 flats)
It would be great to hear others thoughts on this. Should I carry on focussing on building up my single let portfolio or should I be going down the HMO route and expect the added hassle of managing them and purchasing and converting properties into 6 bed all ensuite cash flow cows?Thanks
DISCLAIMER just my personal opinion - for legal advice consult a qualified professional grown-up.
Some archive threads on this topic:HMO's vs. 2 bed terracesSingle occupancy vs. shared housesHMO vs. single letsProperty is not a case of "one size fits all". Whether HMOs are a suitable strategy for you will depend on a number of factors including whether you can access HMO finance (forgive me if you are a cash buyer), whether you have sufficient experience to manage HMOs, whether you have time to manage them etc.This thread should assist:When to say "no" to an HMO?
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
Slowly working towards financial freedom
I remember rates being 5-6% just before the crash 2007-08 and the rents on some of mine where around £500-£525 and I was doing okay due to capital appreciation. However, if the rates were to go back to 5% and if the rents were not increasing then the cash flow would soon disappear.
I have hmos and single lets and the difference in effort required to run is massive. I self manage and take great pride in what I offer so always go above and beyond hence have waiting list for rooms and houses. I didn't get into hmos until I had been a landlord for 15 years and do believe you should have experience before getting into this market. What takes the time is tenant management as potentially you are putting 5 people into rooms who do not know each other. If you can get this right it is great - when interviewing I tend to look at what job person is in/interests/how they are presented to assess whether they will fit in to house. I would say to run a 5 bed hmo takes me no more than one hour a day whereas my single lets could be one hour a month which normally is just organising maintenance issues, this is why you need to get a very good return on hmos.
My rents are increased by about 3% per year but I always keep track of market rents in my area so I know what "going rate" is
Thanks for sharing. Always good to have a healthy debate with fellow landlords but as long as there is a mutual ground and its more of an educational debate. Mike if what is working for you works than I say carry on. Everyone in this industry does things differently and does what suits their needs and circumstances the best. Carry on your doing a great job and are a successful investor.
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