14:10 PM, 14th January 2011, About 12 years ago 5
This is a story of how I will quadruple my gross annual rent in 2011 on a £120,000 property.
I am taking advantage of the Governments change in planning which came in to place on 1st October 2010 and removed the earlier requirement to obtain planning permission to convert a dwelling house into a small HMO. Many councils are putting procedures into place to try and close this door.
One particular property in my portfolio is a large 5 bedroom terraced house in a residential area of Lowestoft. It has three floors but has no cellar. I requested a visit from the private sector housing officer and we discussed the criteria of the HMO licence.
We will be licensing for 6 persons, using the separated dining room as the 6th bedroom. The house has a large communal lounge, a dining kitchen with adequate work surface and cupboards for 6. We have added a second cooker. The utility is large and contains a second sink and drainer with two further fridge freezers. The property has three bath/shower rooms in which two have toilets and a third toilet is separate, which for an HMO required a small hand wash. There was an existing fire escape and over time we had replaced windows to fully open to fire standards. All of our properties are certified every 5 years for electricity and yearly for Gas. A full fire alarm and emergency light system has been fitted and commissioned. Fire extinguishers and fire blankets have been placed and commissioned. We had previously replaced doors with fire doors, fire hinges, intravescent strips and fire closures. A fire assessment has been commissioned and I am deemed to be a person of suitable character to be a licence holder.
Why go to all that trouble?
The figures add up.
The rent on the property as a house was £750 pcm. As an HMO for 6 people their payment will be £125 per week. This does however include all bills (not phone). We do a clean through once a week, which also is vital to maintain a high standard and receive feedback. Also meter readings can be taken weekly and concerns actioned.
Our objective was to maximise our returns. We could have done nothing and achieved £9,000 a year in gross rent from on a property with a value of £120,000 . However, with a bit of extra effort in converting to and managing an HMO we will be able to increase the rental income to £36,000 less expenses (£9,000) = £27,000 per annum net.
To put it another way:-
Gross yield as a house = 6.92%
Gross yield as an HMO = 30%
Net yield as an HMO = 22.5%
Well worth the effort!
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