Managing a mini HMO?
I recently exchanged and completed on a mini 3-bed HMO with 3 sitting tenants in situ on 3 different ASTs. There is a management company in place who have been managing the mini HMO under a selective licensing scheme. I am now required to apply for an additional HMO license in the next 30 days.
My intention is to apply for the new HMO additional licence as required. I also intend to self-manage the Mini HMO and let the management company continue with tenant finding, referencing, compliance with EPC electrical safety, Gas safety, fire safety and maintenance service.
I am in the process of buying a 2-bed terraced house which I intend to let out BTL or convert into SA. I have 1 SA unit which I am semi self-managing. I am still working full time, looking to transition from working full time to part time then retire once I reach my cash income freedom figure
My questions are:
What are the pros and cons of self-managing a Mini HMO?
Is it a wise idea?
Is it better to have a hands-free property investment strategy or get involved and know the practical side of managing a business?
My plan is to have a portfolio 5 BTLs and 2 SA units then retire from my full-time job once my freedom cash flow figure is achieved.
Many thanks for any assistance
Sailus
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Member Since July 2013 - Comments: 2002 - Articles: 21
11:09 AM, 18th July 2022, About 4 years ago
Sailus
It all depends but a 3 bed HMO is unlikely to be significantly more profitable than renting out the house to a family, unless the tenants are paying bills on top of the rent. You have much greater regulatory requirements with an HMO and with three tenants on 3 ASTs, any one leaving means 1/3 income is lost for the void period.
If you are paying the bills I reckon you will need aggregate rents of at least twice the rent from a single let to make it worth your while.
Member Since October 2020 - Comments: 1174
1:28 PM, 18th July 2022, About 4 years ago
Check the licensing conditions. You might find them quite onerous. HMOs usually need a lot more management than a family let. You will also be liable for the Council Tax and possibly the utility bills, so it may not be very lucrative either.
Member Since July 2022 - Comments: 10 - Articles: 7
10:03 AM, 19th July 2022, About 4 years ago
Great questions Sailus! Managing any size of HMO requires being really on top of all the latest legislation (landlord and tenant and property related). Where as some landlords may feel a property investment is a good little extra earner on the side, when it comes to HMOs we’d always recommend making sure you get the right training or support and guidance on going or commit to it and really get to know the ropes.
Ian raises some good points for you to consider, make sure you run your numbers and really sense check whether the plan works (especially if you are to allow for management and occupancy fluctuations!).
We’d always recommend thinking about how much you need to live on then work backwards from there. It may make more sense to acquire fewer properties generating a higher return than spreading your capital across lower yielding assets.
I hope this helps!
Best of luck!
Member Since March 2018 - Comments: 182
7:06 PM, 23rd July 2022, About 4 years ago
If you are paying Council Tax for the HMO house check whether the Valuation Office and Council have any plans to reclassify each Bedroom as Band A. Other HMOs have been shocked at the extra cost when their HMO was reclassified, and if they do this your profits will evaporate unless you can charge much higher rents. Many more Councils are pouncing on “reclassifications” as a way of boosting the taxes they can charge Landlords; this can happen with little or no warning and the decision on re-banding can seem arbitrary because Councils and Valuation Officers are not consistent on their reasons.