In this blog, I want to share with you how you can maximise the profit from your property investing. In particular I want to talk about how you could profit with mega HMO’s. As a property investor, the whole point is, we buy a property that we could rent out to someone else. Following the golden rules in ‘Property Magic,’ we buy in an area of a Strong Rental Demand, and the property must make us profit every single month. Otherwise, it's not a good investment. If you're buying Single Let properties, typically a Single Let property might make 100 to 200, maybe up to 300 pounds. So you can have Single Lets that do make money. But one of my favourite strategies is HMO’s, Houses of Multiple Occupation.
Instead of renting out the whole house to maybe one person, where you might get £100-£300, you can rent out the individual rooms. Each individual has their own contract, they move in and you charge them a much higher rent. They benefit from paying one rental payment to you each month which includes all the bills. But because you’ve got up to 6 tenants, you could be achieving £2,500 rental income.
So the income might be double what you get as a Single Let property. You’ve got to take into account the bills, normally it's about a 100 pounds per person per room for the bills. So the six bed it might be 600 pounds, but if you take those off and all the other costs, a good HMO should make you £1,000 profit per month. That's the figures I like to work off. If a HMO is not making you more than 500 pounds, personally, I wouldn't do it. It's not worth it. So 500 pounds minimum, and £1,000 is an average for this type of property.
Yet with some bigger HMO’s you could make a lot more profit than £1,000. I hope to inspire you in this blog. Maybe you're already investing in property. Maybe you've got some Single Let's and you're thinking about doing HMO’s. Or maybe you've already got HMO’s, but they're making you about £1,000 a month. I want to inspire you with a couple of case studies where some of my students have gone for bigger HMO’s and have made a huge amount of profit.
If you have bigger HMO’s, you might think, "Okay, I need a lot of money to be able to buy those." Yes, a bigger property might be a bigger deposit, but here's the thing. If you're getting a very high cash flow and a very high Return on Investment, it doesn't need to be your money.
Case Study 1: 15 Bedroom Mega HMO in Bristol
So first of all, let me tell you about Dr. Tim Percival. Tim was a GP, living and working in Bristol. He really didn't like being a GP. He was very stressed and decided he wants to replace his income. So he came and did some training with us, with no prior experience before this. Tim recognised that using a HMO Strategy is going to be the fastest way to replace his income, along with his wife’s income who was also a GP.
He started with some money by releasing equity from his own home. Yet after a few deals, he eventually ran out of his own money. This is something that will happen to every investor at some point.
But with Tim having a few deals under his belt, family and friends were already interested in working with him. He then started to borrow other people’s money, and for this one particular deal, he borrowed all of the deposit. This meant he didn’t have to put any of his own money into it to begin with, and he still gave them a good return and made plenty of money for himself.
Tim found a very large property in Bristol. It wasn't on the market for sale. One of the strategies we teach is, reaching out to existing landlords and seeing if they might be interested in selling their properties. Why would they do that? Well, at some point most landlords want to retire. They might hand their properties on to their kids, or they might just sell them. For this particular property, Tim went to enquire about at the local council. He identified the owner, went online, and realised it was actually a company who owned this particular property. It was by the Clifton Suspension Bridge, part of these lovely Edwardian, five story properties.
Tim thought, "I'm never going to be able to afford to have one of those." But he saw a To Let students sign outside the property and thought, "I'm going to to speak to the owner." So he sent them a letter. It turns out this particular owner happened to be a company based in the Midlands. They had this one random property in Bristol which they were planning to get rid of due to the distance for maintenance. They decided to sell and so the letter from Tim came just at the right time. He met up with the owner at the property and discovered it rented easily and quickly. The reason was, the owner was charging roughly £350 rental income. This was great for a student property in the Midlands, which is where the company was based, but very low for Bristol.
Tim knew with doing very little work to the property, he could increase the rent to £500, maybe even £550 for some of the rooms. There was a demand for Student HMO’s in the area, whilst also being a lovely building in okay condition. Tim decided to then buy the property for £720,000.
Stop Limiting Yourself
What I want you to do is stop thinking about what you can afford. If it's a good deal, there'll be plenty of profit there if you're able to use someone else's money. It required over £200,000 deposit, money that Tim didn't have. Borrowing that from a couple of different people meant that he could give them a good return and then he bought the property.
Now with this 15 bedroom HMO Tim rented out, by lifting the rents up and doing no more work to it at all, he gets £5,000 profit per month. After paying the mortgage, all the bills, he has £5,000 profit from just one property. That's what I call a mega HMO, a life changing deal. It wasn't his first deal, he had done several before this and built his confidence up. But it was just putting an extra zero on the end of the figures, £5,000 profit. What an amazing deal.
There was a couple of hundred thousand pounds needed, but the Return on Investment is 26%. A pretty good return. There's enough in it for him to give a great return and still have plenty of cash for himself. The value of the property has also gone up over time. He's actually going to completely refurb the property when the next students move out. He has been told he can increase the value by spending a couple of hundred thousand, to make it 1.6 million. He's going to be able to refinance, take all of his money out, pay back the investor and have all that equity. Hundreds of thousands of pounds equity is all entirely his, and he is still making £5,000 a month profit. That's the kind of big deal you want to do.
“When you know how to use these Creative Strategies to solve problems for a seller, you can make a huge amount of profit from these Mega HMO’s.”
Case Study 2: 17 Bedroom Hotel Annex in Kent
Let me tell you about Charmaine. Based in Kent, again, an expensive area. She was looking for properties in Kent and South East London. She was in the area looking for properties, and had visited a cafe with her partner where she overhead some students, stating how difficult it was for them to find accommodation. She had a quick conversation with them, established there was a good demand, and did some research. By driving around the area, she saw a For Sale sign on a property. This was a very large building and she had thought it was probably just a flat. But in fact the whole building was for sale, and was a former hotel annex.
Across the road was the hotel, this was an annex where if the hotel was full they'd put people here. Now the reason for the sale was because the owner was looking to retire. He had a daughter who had no interest in taking on the business. So reluctantly he was selling, and he was going to sell the annex first, then the hotel.
This was a large building and it didn't really have a kitchen or a living room. There were just individual rooms that were part of this hotel. So it wasn't really suitable for someone to take on as a home. Charmaine decided that she wanted to try and negotiate a discount for this. It was on the market for £900,000 and It did need some work doing to it. As it was such a strange property, no one was really interested in it.
With the owner being stubborn, he wouldn't take less than £900,000 pounds. This was because he wanted to sell the property, pay the tax that was due on it, take the profit and buy two properties for cash. These were then going to be for his daughter who could rent them out and achieve passive income. So he had a figure in his mind of what he wanted and would not take a discount.
Use of Creative Strategies for Mega HMO's
However when Charmaine began to build a rapport and ask questions in regard to what was really important for him - she arranged to do a Purchase Lease Option instead. That meant she agreed to buy at the full price of £900,000 pounds, but not at the time, in five years' time. In the meantime she would take on the property, renovate it and look after it. The guy wouldn't have to worry about it at all. She would pay him the same amount that he would make by renting out those two apartments, he wanted to give to his daughter. Now, why was that good for the owner? Well, first of all, this transaction could be done in a matter of weeks. Within a month he was getting money coming in. Also, if he had two properties to rent out, there might be the occasional void period where he has no tenants. This was a guaranteed monthly rental income from Charmaine.
Finally he was also getting the price he wanted, £900,000. He didn't have to budge on his price. So it worked out really well for the owner and for Charmaine. She spent £60,000 pounds renovating the ensuites in the rooms, because by the way, this is a 17 bedroom en suite property. She now rents it out to students in the local area and achieves £100 pounds per room, per week. That being £1,700 a week, with the £2,250 being paid to the owner alongside the bills, it means she is making over £4,000 profit every month.That is £4,000 profit from this one property she doesn’t even own. She doesn’t have a mortgage on it and she didn’t need to put a big deposit in.
When you know how to use these Creative Strategies to solve problems for a seller, you can make a huge amount of profit from these Mega HMO’s.
So I hope that's inspired you to think about doing bigger deals, and to stop limiting yourself to the size of deals you can do, based on the money you have. If there's a good deal, there'll be Creative ways of funding it.
If you want to learn more about Houses of Multiple Occupation and how you can really profit using them, I've got some extra online training that I'd like to give you access to. All you have to do is click in the link in the description below the video to register, which will give you far more detail and really help you save a lot of time in your HMO journey.
You can make some real shortcuts to make sure you're getting the next HMO property much, much quicker. So click on the link right now and come and register for that extra bonus training with me. Remember to invest with knowledge, invest with skill.
FREE HMO Training
If you would like to learn more about building a HMO portfolio with other people’s time, money and experience then join Simon Zutshi for some online training, all about how you can buy a house and rent it by the room to make £1,000+ monthly profit per property.
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