Unless you’ve been living under a rock in outer Mongolia for the last 20 years, you may have heard that investing in property can make you financially secure and supply you with a pension.
What you’ve probably not heard that in the majority of cases, most property investors get it wrong.
A typical investor will buy a small apartment or house and rent it out either themselves or via a letting agent.
Did you know that the average profit that the investor makes on this type of property is close to zero and often they end up subsidising the property?
Commonly known as the secret “cashflow generator” for savvy landlords and property investors; HMO’s have been around for hundreds of years and are a proven successful property investment model.
Property investors make money from two components – rental income and capital appreciation.
Here’s how this works on a typical 2 bed property.
A landlord buys a property and rents it out to a single family.
This generally makes a rental yield of 5%-6% which after all costs will net down to around 3%-4%. As mortgage rates have historically circulated around the 5% level, this means that most investors lose money on a regular basis. This could be as much as £100 to £200 per month after all costs.
Why they do this is for one reason alone – capital appreciation.
With capital appreciation (if you can hang onto the property and pay the bills every month), you can cash out at the end of your term. However you gamble on whatever the prevailing capital appreciation has grown or reduced over the period of time you’ve owned the property.
A property investor buys a house – at least 4 bedrooms – and turns this into a 5 or 6 bedroom HMO.
Students, young professionals and migrant workers will rent a “room” in the property with shared use of the communal areas (kitchen, bathrooms and living areas). More often than not, the bills are included in the rent so the tenant pays one easy amount every month.
The general yield will be anything from 20% to 30% and after all bills this will net down to 10%-15%.
A landlord owning a HMO will see cashflow from £500 to £1,000 per month after all costs.
This is why we at Your HMO Expert recommend HMO’s as the SIMPLE way to make money from property investing and why we are here at your service to help you on your journey.
Having been in the HMO property market for over 11 years, trained over 2,000 investors, managed over 750 HMO’s and bought and sold over £25 million pounds worth of HMO stock; we are the leading trusted advisor in the HMO investment space.
To learn more about how to get started in HMO’s; we recommend downloading the “5 Ways To Source a £12K Per Annum HMO” which is a free cheat guide to getting started with HMO investing.